EXECUTION COPY

     
 
     

EQUITY JOINT VENTURE CONTRACT

between

SINOPEC YIZHENG CHEMICAL FIBRE COMPANY LIMITED

and

UNIFI ASIA HOLDING, SRL

for

the establishment of

YIHUA UNIFI FIBRE INDUSTRY COMPANY LIMITED

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Dated as of June 10, 2005

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Table of Contents

             
1.
  DEFINITIONS     1  
 
           
2.
  PARTIES TO JOINT VENTURE COMPANY     7  
 
           
3.
  ESTABLISHMENT OF JOINT VENTURE COMPANY     10  
 
           
4.
  GOALS AND SCOPE OF BUSINESS OPERATIONS     11  
 
           
5.
  TOTAL INVESTMENT, REGISTERED CAPITAL AND METHOD OF CONTRIBUTION     13  
 
           
6.
  RELEVANT CONTRACTS     20  
 
           
7.
  RESPONSIBILITIES OF THE PARTIES     21  
 
           
8.
  BOARD OF DIRECTORS     23  
 
           
9.
  BUSINESS MANAGEMENT     29  
 
           
10.
  FINANCIAL MANAGEMENT     33  
 
           
11.
  FOREIGN EXCHANGE     37  
 
           
12.
  LABOR MANAGEMENT     37  
 
           
13.
  TECHNOLOGY TRANSFER     39  
 
           
14.
  SALES AND MARKETING OF PRODUCTS, RESTRICTIONS ON COMPETITION     39  
 
           
15.
  THE JOINT VENTURE TERM     41  
 
           
16.
  TERMINATION AND LIQUIDATION     41  
 
           
17.
  VALUATION     46  
 
           
18.
  LIABILITY FOR BREACH OF CONTRACT     49  
 
           
19.
  FORCE MAJEURE     50  
 
           
20.
  CONFIDENTIAL INFORMATION     51  
 
           
21.
  GOVERNING LAW     53  
 
           
22.
  DISPUTE RESOLUTION     53  
 
           
23.
  MISCELLANEOUS     55  

 

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APPENDICES
   
 
   
APPENDIX I
  ARTICLES OF ASSOCIATION OF THE COMPANY
 
   
APPENDIX II
  FEASIBILITY STUDY REPORT
 
   
APPENDIX III
  LIST OF TRANSFERRED ASSETS
 
   
APPENDIX IV
  LIST OF EXCLUDED ASSETS
 
   
APPENDIX V
  LAND MAP
 
   
SCHEDULES
   
 
   
SCHEDULE 1
  LIST OF PARTY A’S SUBSIDIARIES PRODUCING POY, FDY OR DTY PRODUCTS AND RELEVANT
CAPACITY LEVELS
 
   
SCHEDULE 2
  LIST OF PARTY B’S HOME MARKETS

 

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EXECUTION COPY

THIS EQUITY JOINT VENTURE CONTRACT (this “Contract”) is entered into on June 10,
2005 by and between:

SINOPEC YIZHENG CHEMICAL FIBRE COMPANY LIMITED, a company limited by shares duly
incorporated and existing under the laws of the People’s Republic of China
(“China” or the “PRC”), with its legal address at Yizheng, Jiangsu Province,
PRC, 211900 (“Party A”); and

UNIFI ASIA HOLDING, SRL, a limited liability company duly incorporated and
existing under the laws of Barbados, with its registered address at Alphonzo
House, Cr. 2nd Avenue & George Street, Belleville, St. Michael, Barbados (“Party
B”).

Each of Party A and Party B is referred to hereinafter as a “Party” and
collectively as the “Parties.”

The Parties hereby agree as follows:

1.   Definitions   1.1.   Specific Definitions       In this Contract, unless
the context otherwise specifies, the following terms shall have the meanings set
forth below:

  (a)   “Affiliate” of a Person (the “Relevant Person”) means any other Person
directly or indirectly Controlling, Controlled by or under common Control with
the Relevant Person.     (b)   “Approval Date” means the date of issuance of a
document by the Examination and Approval Authority approving this Contract, the
Articles of Association and the Feasibility Study Report, and without making any
substantive amendments thereto.     (c)   “Arbitration Centre” means the
Singapore International Arbitration Centre.     (d)   “Articles of Association”
means the Articles of Association of the Company in the agreed form and attached
as Appendix I hereto.     (e)   “Board” means the board of directors of the
Company.     (f)   “Business Day” means any day other than a Saturday, Sunday or
other day on which commercial banks in the city of Yizheng, the PRC or
Greensboro, North Carolina, USA are required or authorized by Law or executive
order to be closed.     (g)   “Business License” means the business license of
the Company issued by SAIC following the approval of this Contract, the Articles
of Association and the Feasibility Study Report.     (h)   “Business Scope”
means the business scope of the Company set forth in Section 4.2 hereunder.

 

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  (i)   “Company” means the Chinese-foreign equity joint venture established by
the Parties in accordance with the provisions of this Contract and the Articles
of Association.     (j)   “Company Approvals” means all rights, licenses,
permits, approvals, waivers, consents and authorizations that are necessary for
the Company to engage in the activities specified in the Business Scope and the
other business activities contemplated in this Contract.     (k)   “Confidential
Information” means any technology, know-how, trade secrets, marketing plans,
commercial or financial information, demonstrations, drawings, prototypes,
models, samples, devices, specifications, data, methods, recipes, or business
policies or practices of the Company or any Party, whether conveyed verbally, in
writing or in any tangible or intangible form whatsoever (including
electronically).     (l)   “Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise and includes:

  (i)   ownership, directly or indirectly, of 50% or more of the shares in issue
or other equity interests of such Person;     (ii)   possession, directly or
indirectly, of 50% or more of the voting power of such Person; or     (iii)  
the power directly or indirectly to appoint a majority of the members of the
board of directors or similar governing body of such Person,

      and the terms “Controlling” and “Controlled” shall have meanings
correlative to the foregoing.     (m)   “Deputy General Manager” means the
deputy general manager of the Company, appointed pursuant to Section 9.1(c).    
(n)   “DTY” means Polyester Drawn Textured Yarn.     (o)   “Encumbrance” means
(i) any mortgage, charge, pledge, lien, hypothecation, assignment, deed of
trust, title retention, security interest or other encumbrance of any kind
securing, or conferring any priority of payment in respect of, any obligation of
any Person, including any right granted by a transaction that, in legal terms,
is not the grant of security but that has an economic or financial effect
similar to the creation of a security that is legally enforceable under
applicable Law, any proxy, power of attorney, voting trust agreement, interest,
option, right of first offer, negotiation or refusal or transfer restriction in
favor of any Person and (ii) any adverse claim as to title, possession or use.  
  (p)   “Equity Interest” means the equity interest held by each Party in the
Registered Capital.

 

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  (q)   “Examination and Approval Authority” means the Ministry of Commerce of
the PRC or its relevant local counterpart that is legally authorized to approve
this Contract and the Articles of Association pursuant to Law.     (r)   “FDY”
means Polyester Fully Drawn Yarn.     (s)   “Feasibility Study Report” means the
“Feasibility Study Report on Joint Venture Project of 150,000 T/Y PET yarn
between Unifi Asia Holding, SRL and Yizheng Chemical Fibre Co., Ltd.” jointly
prepared by the Parties in connection with the establishment and operation of
the Company, a copy of which is attached hereto as Appendix II.     (t)  
“Foreign Exchange Regulations” means the applicable Laws of the PRC on foreign
exchange.     (u)   “General Manager” means the general manager of the Company
appointed pursuant to Section 9.1(c).     (v)   “JV Products” means the Products
that will be produced and sold by the Company.     (w)   “Land” means the land
with a total area of 216,197.36 square meters, parcel number 13-2-11 located at
Road Number 4, Yihua Factory Area, at Yizheng, Jiangsu Province, PRC, a map of
which is attached as Appendix V hereto.     (x)   “Law” means all officially
published and publicly available and applicable laws, regulations, rules and
orders of any governmental authority, securities exchange or other
self-regulatory body, including any ordinance, statute or other legislative
measure and any officially published and publicly available regulation, rule,
treaty, order, decree or judgment.     (y)   “Party A Affiliate” means any
company, joint venture, limited liability company, enterprise or other entity
with legal person status directly Controlled by Party A.     (z)   “Person”
means an individual, corporation, joint venture, enterprise, partnership, trust,
unincorporated association, limited liability company, government or any
department thereof, or any other entity.     (aa)   “Plant Number 5” means the
production facility and associated structures owned and operated by Party A
under the designation of South Area of Filament Business Department and located
in the area specified in the Land Map attached hereto as Appendix V.     (bb)  
“POY” means polyester partially oriented yarn, but specifically excluding
partially oriented yarns used to produce industrial yarns which have a tenacity
of 6.0 grams per denier or higher.     (cc)   “Products” means (i) the various
types of differentiated polyester textile filament, including different types of
POY and FDY and different types of further processed differentiated polyester
textile filament in the form of DTY, whether or not they have undergone
additional value added process such as

 

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      covering, warping, beaming, dyeing and/or air jet texturing; and
(ii) woven fabrics.     (dd)   “RMB” means Renminbi, the lawful currency of the
PRC.     (ee)   “SAIC” means the State Administration of Industry and Commerce
of the PRC or its local branches as appropriate to the context.     (ff)  
“Subsidiary” of a Person means any other Person that the Relevant Person
Controls.     (gg)   “US Dollars” or “US$” means United States Dollars, the
lawful currency of the USA.

1.2.   Other Defined Terms       The following terms shall have the meanings
defined in the Section indicated:

      Defined Term   Section Reference
“Annual Plan”
  Section 9.2(a)
“Application”
  Section 3.3
“Appointment Notice”
  Section 17.1(a)
“Appraiser”
  Section 17.1(b)(i)
“Asset Contribution and Purchase Contract”
  Section 5.2(a)
“Assignment and Assumption Contract”
  Section 6.1(j)
“Buyout Notice”
  Section 16.3(b)
“Buyout Price”
  Section 16.3(b)
“Capacity Level”
  Section 14.2(a)(i)
“CEA”
  Section 17.1(a)
“Certificate of Approval”
  Section 3.4(b)
“Chairman”
  Section 8.2(b)
“Change”
  Section 23.13
“China” or the “PRC”
  Preamble
“Commencement Date”
  Section 22.1
“Contract”
  Preamble
“Contributed Assets”
  Section 5.2(a)
“Current Financial Year”
  Section 9.2(a)
“Deadlocked Matter”
  Section 8.4(a)
“Deadlock Notice”
  Section 8.4(b)
“Deadlock Notice Date”
  Section 8.4(c)
“Deadlock Put Option Period”
  Section 8.4(d)(i)
“Dispute”
  Section 22.1
“Dispute Notice”
  Section 22.1
“Electing Party”
  Section 8.4(b)
“Establishment Date”
  Section 3.5
“Event of Force Majeure”
  Section 19.1
“Event of Termination”
  Section 16.2
“Excluded Assets”
  Section 2.2(b)(ii)
“Final Equity Interest Purchase Price”
  Section 16.3(c)

 

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      Defined Term   Section Reference
“Final FMV”
  Section 17.1(a)
“Financial Year”
  Section 10.2
“Indemnified Party”
  Section 18.3(b)
“Indemnifying Party”
  Section 18.3(b)
“Independent Auditor”
  Section 10.4(c)
“Initial FMV”
  Section 17.1(a)
“Initial Term”
  Section 15.1
“Interested Party”
  Section 8.3(d)
“JV Term”
  Section 15.1
“Lease Contract”
  Section 6.1(c)
“Liquidation Committee”
  Section 16.4(c)
“List”
  Section 14.2(a)(i)
“New Provision”
  Section 23.13
“Non-Appointing Party”
  Section 16.4(c)
“Non-Electing Party”
  Section 8.4(b)
“Parent’s Chairman”
  Section 22.1
“Party” or the “Parties”
  Preamble
“Party A”
  Preamble
“Party A Affiliate Transferee”
  Section 5.6(g)
“Party A Trademark License Contract”
  Section 6.1(g)
“Party B”
  Preamble
“Party B Affiliate Transferee”
  Section 5.6(g)
“Party B Put Option”
  Section 5.7(a)
“Party B Trademark License Contract”
  Section 6.1(h)
“Party B Technology License and Support Contract”
  Section 6.1(f)
“Plant Number 5 Employees”
  Section 12.1(d)
“Preliminary Approval”
  Section 3.4(a)
“Preliminary FMV”
  Section 17.1(c)(iii)
“Premium”
  Section 16.3(c)
“Prevented Party”
  Section 19.1
“Production Offer Negotiation Period”
  Section 14.2(a)(ii)
“Production Offer Notice”
  Section 14.2(a)(ii)
“Proposing Party”
  Section 14.2(a)(ii)
“Proposition”
  Section 14.2(a)(ii)
“Purchased Assets”
  Section 5.2(c)
“Purchased Equity Interest”
  Section 16.3(b)
“Purchasing Party”
  Section 16.3(b)
“Put Exercise Notice”
  Section 5.7(c)
“Put Exercise Price”
  Section 5.7(c)
“Raw Material Supply Contract”
  Section 6.1(d)
“Receiving Party”
  Section 20.1(a)
“Recipients”
  Section 20.1(b)
“Registered Capital”
  Section 3.7
“Relevant Contracts”
  Section 6.1
“Relevant Financial Year”
  Section 9.2(a)
“Restriction”
  Section 14.2(a)
“Sales Agency Contract”
  Section 6.1(i)
“Second Appraiser”
  Section 17.1(b)(iii)

 

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      Defined Term   Section Reference
“Second FMV”
  Section 17.1(b)(i)
“Selling Party”
  Section 16.3(b)
“Senior Management Staff”
  Section 9.1(b)
“Services Contract”
  Section 6.1(b)
“Special Meeting Request”
  Section 8.6(b)
“Terminating Party”
  Section 16.2(g)
“Third Appraiser ”
  Section 17.1(b)(iii)
“Third Appraiser’s FMV”
  Section 17.1(c)(vii)
“Third FMV”
  Section 17.1(b)(iii)
“Third Party Buyer”
  Section 5.7(c)
“Three Funds”
  Section 8.3(c)(xi)
“Total Investment”
  Section 5.1(a)
“Transfer”
  Section 5.6(a)
“Transfer Notice”
  Section 5.6(e)
“Transferee”
  Section 5.6(a)
“Transferred Assets”
  Section 2.2(b)(ii)
“Transferring Party”
  Section 5.6(e)
“Utilities Supply Contract”
  Section 6.1(a)
“Valuation Notice”
  Section 5.7(b)
“Vice Chairman”
  Section 8.2(b)

1.3.   Principles of Interpretation       The following principles for
interpretation shall apply:

  (a)   Any reference to a “company” in this Contract shall be to a company or
legal person entity incorporated in any relevant jurisdiction.     (b)   Any
reference to a “director” in this Contract shall include reference to a proxy or
proxy director (if relevant).     (c)   Any reference to “statutes” or
“statutory provisions” shall include reference to those statutes or provisions
as amended or re-enacted or serving as amendment (exclusive of any amendment or
re-enactment with retroactive effect).     (d)   Headings set forth in this
Contract shall not affect the interpretation or construction of this Contract.  
  (e)   “Include,” “including,” “are inclusive of” and similar expressions are
not expressions of limitation and shall be construed as if followed by the words
“without limitation.”     (f)   References to any government ministry, agency,
department or authority shall be construed as references to the duly appointed
successor ministry, agency, department or authority of such ministry, agency,
department or authority where the context permits.     (g)   A reference in this
Contract to a document “in the agreed form” is to a document agreed by the
Parties and initialed by them for identification purposes as of the date of this
Contract.

 

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  7

  (h)   Each attachment and appendix hereunder shall constitute an integral part
of this Contract.     (i)   Any reference to “the PRC”, “China” or “the
Territory” shall mean the People’s Republic of China, which for the purposes of
this Contract shall exclude Taiwan and the Hong Kong and Macau Special
Administrative Regions.

2.   Parties to Joint Venture Company   2.1.   Parties to the Contract

  (a)   Party A

          Name:   Sinopec Yizheng Chemical Fibre Company Limited
 
        Nature & Place of Registration:   A company limited by shares registered
in accordance with the laws of the PRC.
 
        Legal Address:   Yizheng, Jiangsu Province, PRC 211900
 
       
Legal Representative:
  Name:   Xu Zhengning

  Position:   Chairman

  Nationality:   PRC

  (b)   Party B

          Name:   UNIFI Asia Holding SRL
 
        Nature & Place of Registration:   A limited liability company registered
in accordance with the laws of Barbados.
 
        Legal Address:   Alphonzo House,     Cr. 2nd Avenue & George Street    
Belleville, St. Michael     Barbados
 
       
Legal Representative:
  Name:   Brian Parke

  Position:   President

  Nationality:   Ireland

2.2.   Representations, Warranties and Covenants

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

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

 

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      license, articles of association, company ordinance or other similar
corporate constitutional documents;     (ii)   Such Party has the full right,
power and authority to enter into this Contract and the Relevant Contracts to
which it is a party, and to perform fully its obligations hereunder and
thereunder;     (iii)   This Contract has been duly authorized, executed and
delivered by such Party and, assuming the due authorization, execution and
delivery by the other Party and approval by the Examination and Approval
Authority, constitutes the valid and binding obligation of such Party
enforceable against it in accordance with its terms;     (iv)   Neither the
execution of this Contract or any Relevant Contract, nor the performance of such
Party’s obligations hereunder or thereunder will conflict with, or result in a
breach of or constitute a default under any provisions of the business license,
resolutions of the shareholders’ meetings or Board, certificate of
incorporation, articles of association, company ordinance or similar
constitutional documents of such Party, as the case may be, or any law,
regulation, rule, authorization or approval of any government agency or
authority or any contract or agreement to which such Party is a party or by
which it is bound;     (v)   Such Party is, has been and, during the JV Term,
will continue to be in compliance in all material respects with all applicable
Law of its jurisdiction of incorporation and is not aware of any circumstances
that would be a breach of any such Law;     (vi)   As of the date of this
Contract, there is no lawsuit, arbitration or legal, administrative or other
proceeding or governmental investigation pending or, to the best knowledge of
such Party, threatened against such Party with respect to the subject matter of
this Contract or that would negatively affect in any way such Party’s ability to
enter into or perform this Contract, and if any such lawsuit, arbitration or
legal, administrative or other proceeding or governmental investigation should
come to the knowledge of such Party after the date of this Contract it shall
promptly notify the other Party and provide the other Party with detailed
information with respect to such matter;     (vii)   All documents, statements
and information of, or derived from, any governmental body in the possession of
such Party relating to the transactions contemplated in this Contract have been
disclosed to the other Party or will be promptly disclosed to the other Party to
the extent that they first come to the attention to such Party after the date of
this Contract, and no document previously provided by such Party to the other
Party contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading; and     (viii)   Such Party has the full right and power to grant
the licenses respectively set forth in the Asset Contribution and Purchase
Contract

 

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

  (b)   Party A further represents and warrants to Party B as follows:

  (i)   Party A has procured all requisite permits and approvals from the
relevant governmental departments to cooperate with the Company and Party B in
accordance with the provisions of this Contract and the Related Contracts to
which it is a party, including all requisite permits and approvals in relation
to the contribution of State-owned assets, and that such permits and approvals
shall be valid and in full force and effect during the JV Term;     (ii)   Party
A is the lawful owner of the Contributed Assets and the Purchased Assets
(collectively with the Contributed Assets, the “Transferred Assets”), free and
clear of all Encumbrances. Party A has the right to contribute the Contributed
Assets and to sell the Purchased Assets to the Company and subsequent to the
contribution of the Contributed Assets and the sale of the Purchased Assets to
the Company such assets shall be owned by the Company free and clear of all
Encumbrances. The Company will not be liable for any import duties, grant fees
or any other fees, charges or expenses in connection with the contribution of
the Contributed Assets and the purchase of the Purchased Assets except for the
deed tax and stamp duty required to be paid by the Company pursuant to the Laws
of the PRC in connection with the contribution or purchase of the machinery and
structures by Party A to the Company. The Transferred Assets together with those
assets specified in Appendix IV attached hereto (the “Excluded Assets”) comprise
of all the assets, used and usable, that are associated with Plant Number 5;    
(iii)   Party A has been duly issued a Land Use Right Approval and Land Use
Rights Certificate with respect to the Land, and Party A has the full legal
right to lease the Land to the Company as contemplated in the Lease Contract
identified in Section 6.1(c);     (iv)   Party A has been duly issued building
ownership certificates with respect to all of the buildings located on the Land
in connection with Plant Number 5 and has the full legal right to contribute or
sell, as the case may be, such buildings as contemplated in the Asset
Contribution and Purchase Contract identified in Section 6.1(e); and     (v)  
All of the JV Products that are currently manufactured by Party A in Plant
Number 5 and which will be manufactured by the Company have received all
necessary environmental approvals from relevant Chinese governmental
authorities, and shall meet all environmental requirements under the Laws of the
PRC.

 

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3.   Establishment of Joint Venture Company   3.1.   Establishment of the
Company       The Parties hereby agree to jointly establish the Company at
Yizheng, Jiangsu Province, PRC in accordance with the Law of the People’s
Republic of China on Chinese-Foreign Equity Joint Ventures, the Regulations for
the Implementation of the Law of the People’s Republic of China on
Chinese-Foreign Equity Joint Ventures, other applicable Law of the PRC, this
Contract and the Articles of Association.   3.2.   Name and Legal Address

  (a)   The name of the Company shall be [Chinese text] in Chinese and Yihua
Unifi Fibre Industry Company Limited in English.     (b)   The legal address of
the Company shall be: Yangzhou Chemical Industry Park, Jiangsu Province, PRC
211900.

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

  (a)   The board of directors of each Party has adopted a resolution approving
the transactions contemplated in this Contract;     (b)   The transactions
contemplated in this Contract have been duly approved by the shareholders of
Party A voting at a duly convened shareholders’ meeting in accordance with Party
A’s charter documents;     (c)   This Contract, the Articles of Association and
the Feasibility Study Report have been executed by the duly authorized
representative of each Party hereto; and     (d)   Each Party has initialed all
of the Relevant Contracts specified in Section 6.1 as indication of its
agreement with the form and content of each such Relevant Contract.

    Party B shall have the right to review and approve all documents to be
submitted in connection with the Application prior to such submission and no
document shall be submitted until it is satisfactory to Party B.   3.4.  
Approval

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

 

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  (b)   If the Parties accept both the format and content of the Preliminary
Approval, Party A shall, within seven (7) days after issuance of the Preliminary
Approval, apply to the Examination and Approval Authority for issuance of the
“Certificate of Approval for Establishment of Enterprises with Foreign
Investment in the PRC” (the “Certificate of Approval”).     (c)   If the
Examination and Approval Authority requires any amendments to this Contract, the
Articles of Association or the Feasibility Report Study Report or any of their
attachments or appendixes with respect to the Application, the Parties shall
promptly consult with each other and decide whether to make such amendments as
required by the Examination and Approval Authority. If the Parties agree to make
such amendment as required, they shall, as soon as practicable, execute an
amended version of the relevant document, reflecting the amendments agreed by
the Parties, and Party A shall apply to the Examination and Approval Authority
for the Certificate of Approval within five (5) days after execution of such
amended version of such document.

3.5.   Business License       The Parties shall, within five (5) days after the
Examination and Approval Authority issues the Certificate of Approval, jointly
file copies of this Contract, the Articles of Association and the Feasibility
Study Report, and an application with the SAIC for registration of the Company
as a limited liability company and obtain the Business License for the Company.
The date on which the first Business License of the Company is issued shall be
hereinafter referred to as the “Establishment Date.”   3.6.   PRC Laws       All
activities of the Company shall be in compliance with all applicable Laws of the
PRC and shall be subject to the jurisdiction and protection of all such Laws.  
3.7.   Limited Liability       The Company shall be a limited liability company
with enterprise legal person status. The liability of each Party with respect to
the Company shall be limited to the amount it has subscribed to contribute to
the registered capital of the Company (the “Registered Capital”) in accordance
with Section 5.2. Neither Party shall have any liability to any third party in
respect of the debts, liabilities or obligations of the Company.   4.   Goals
and Scope of Business Operations   4.1.   Goals       The goals of the Parties
in the establishment of the Company are to: (a) strengthen economic cooperation
and technical exchange between the Parties in the field of manufacturing
differentiated polyester filament in the PRC; (b) to operate a manufacturing
plant in line with world class practices and standards by adopting advanced and
appropriate technologies and scientific management methods; and (c) to earn
favorable returns for the shareholders by producing high-quality products as
designated by the Parties.

 

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4.2.   Business Scope       The initial Business Scope of the Company shall be
the following:       To primarily engage in the manufacturing, processing and
marketing of high value-added differentiated polyester textile filament
products, including fine denier yarn and other polyester textile filament
products; to engage in further value-added processing of polyester textile
filament products, including by means of twisting, dyeing, covering, warping and
beaming; to engage in polyester textile weaving, manufacturing and marketing; to
conduct research and engage in development activities related to polyester
textile products; to engage in the sale of self-produced products; and to
provide after-sales service.   4.3.   Project Scale

  (a)   The initial scale of production for the first year of the Company after
its establishment is estimated to be:         DTY 80,000 tons         FDY 8,000
tons         POY 10,000 tons     (b)   As more fully described in the
Feasibility Study Report, the Parties wish to expand the scale of production to
an annual sales of US$500,000,000 to US$600,000,000 within five (5) years after
establishment of the Company, increasing from the current scale of approximately
US$130,000,000 at Plant Number 5. During such five (5) year expansion period,
the Company shall maintain an acceptable return on investment for the Parties.
Accordingly, the Parties agree that the appropriate course of development for
the Company shall include:

  (i)   optimizing the existing business of Plant Number 5 by higher yields and
productivity, higher-value product mix and increased sales;     (ii)   building
additional processing capacity to absorb Party A’s surplus POY capacity;    
(iii)   introducing further value-added processes such as textured yarn package
dyeing; and     (iv)   investing in new polymerization and POY capacity for the
Company’s use to expand the business.

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

 

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5.   Total Investment, Registered Capital and Method of Contribution   5.1.  
Total Amount of Investment, Registered Capital and Loans

  (a)   The total amount of investment of the Company (the “Total Investment”)
shall be US$90,000,000.     (b)   The Registered Capital shall be US$30,000,000.
    (c)   The difference between the Total Investment and the Registered Capital
may be raised by the Company through loans as determined by the Board. If
required by any financial institutions, the assets of the Company shall be
mortgaged in accordance with Law as security for such loans.     (d)   In order
to realize the goals set forth in Section 4.3, the Parties agree that, within
one year after the Establishment Date, upon approval of the Board, the Parties
shall increase the Registered Capital to US$60,000,000 and the Total Investment
to US$180,000,000.

5.2.   Proportion of Investment, Method of Contribution, Currency

  (a)   The contribution to the Registered Capital subscribed by Party A shall
be equal to US$15,000,000, representing a 50% equity interest in the Company.
Subject to Section 5.4, Party A shall make its contribution to the Registered
Capital in the form of certain assets located within or otherwise associated
with Plant Number 5 (the “Contributed Assets”), and pursuant to an asset
contribution and purchase contract between the Company, Party A and Party B (the
“Asset Contribution and Purchase Contract”). At the time of their contribution,
the Contributed Assets shall be free of all Encumbrances.     (b)   The
contribution to the Registered Capital subscribed by Party B shall be
US$15,000,000, representing a 50% equity interest in the Company. Subject to
Section 5.4, Party B’s contribution shall be made in cash in US Dollars.    
(c)   Party A shall sell to the Company, as mutually agreed by the Parties,
certain assets located within or otherwise associated with Plant Number 5 with a
total value equal to RMB367,469,836 (the “Purchased Assets”) pursuant to the
Asset Contribution and Purchase Contract.     (d)   The Transferred Assets,
having a total value of RMB491,669,836 are listed in Appendix III attached
hereto.

5.3.   Procedure of Contribution

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

 

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      purpose of calculating the US Dollar equivalent of Party A’s capital
contribution, the applicable exchange rate shall be the average of the buying
and selling rates for US Dollars quoted by the People’s Bank of China on the
date on which the contribution is made.     (b)   Subject to Section 5.4(b),
Party B’s contribution specified in Section 5.2 shall be made in cash and shall
be paid in a single lump sum within seven (7) days after the Establishment Date.
    (c)   Party B’s capital contribution to the Company as specified in
Section 5.3(b) above shall be deemed completed when such payment of contribution
is remitted into the bank account of the Company.     (d)   Within fifteen
(15) days after each Party has made its respective capital contributions in
accordance with this Section 5, a certified public accountant registered in the
PRC shall be engaged by the Company to verify the contributions made and issue a
capital verification report to such effect. Within fifteen (15) days after
receipt of each such capital verification report, the Company shall issue to
such Party an investment certificate signed by the Chairman of the Board
evidencing payment of such contributions as of the date of the issuance of the
investment certificate.

5.4.   Conditions for Contribution

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

  (i)   following execution by the Parties, this Contract, the Articles of
Association and other relevant documents have been approved by the Examination
and Approval Authority without substantive amendments thereto;     (ii)   the
Business License has been issued without altering in any material respect the
Company’s initial Business Scope as set forth in Section 4.2;     (iii)   the
Company has received all of the Company Approvals;     (iv)   Party B or its
Affiliate has executed each of the Relevant Contracts to which it is a party;  
  (v)   the Company has secured working capital financing on terms satisfactory
to the Parties; and     (vi)   there has been no breach of any provision of this
Contract by Party B.

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

 

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  (i)   following execution by the Parties, this Contract, the Articles of
Association and other relevant documents have been approved by the Examination
and Approval Authority without substantive amendments thereto;     (ii)   the
Business License has been issued without altering in any material respect the
Company’s initial Business Scope as set forth in Section 4.2;     (iii)   the
Company has received all of the Company Approvals;     (iv)   Party A or its
Affiliate has executed each of the Relevant Contracts to which it is a party;  
  (v)   Party A and the Company have entered into the Assignment and Assumption
Contract in a form acceptable to Party B, and any and all third party consents
in connection therewith have been obtained;     (vi)   Party A has obtained all
approvals necessary for the contribution of the Contributed Assets and the sale
of the Purchased Assets;     (vii)   the Company has secured working capital
financing on terms satisfactory to the Parties; and     (viii)   there has been
no breach of any provision of this Contract by Party A.

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

5.5.   Increase and Reduction of Registered Capital

  (a)   The Company shall not increase or reduce the Registered Capital during
the JV Term unless approved by the Board in accordance with this Contract and
the Articles of Association and approved by the Examination and Approval
Authority. The amount, mode and ratio of any capital increase or reduction shall
be negotiated by the Parties and decided by the Board.     (b)   In case of any
increase or reduction in the Registered Capital, the Parties shall make
amendments to the relevant provisions of this Contract and, upon the approval of
the Examination and Approval Authority, register such change with SAIC. In the
case of an additional subscription of increased Registered Capital, the Company
shall issue to such Party a new investment certificate evidencing payment of the
additional amount of contribution made by such party as of the date of the
issuance of the new investment certificate, and cancel the original investment
certificate issued to such Party.

 

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5.6.   Transfer of Equity Interest

  (a)   Neither Party A nor Party B shall sell, give, assign, transfer or
otherwise dispose of any Equity Interest or any right, title or interest therein
or thereto (each, a “Transfer”) to any third party (a “Transferee”) without the
prior written consent of the other Party, except as expressly permitted by this
Section 5.6. Any purported Transfer in violation of this Section 5.6 shall be
null and void ab initio, and the Company and the Parties shall not register or
recognize any such Transfer.     (b)   Except as otherwise permitted in
Sections 5.6(g), 5.7, 8.4 or 16.3 of this Contract, neither Party shall Transfer
any Equity Interest to any Transferee during the period commencing on the
Establishment Date and ending on the tenth anniversary of the Establishment
Date.     (c)   During the JV Term, neither Party may Transfer any Equity
Interest to any Transferee, including an Affiliate of such Party, that directly
or indirectly through its Affiliates, produces, markets or sells any products in
competition with the JV Products.     (d)   Notwithstanding any other provisions
of this Contract and except if such Transfer is pursuant to Section 5.7, 8.4 or
16.3 of this Contract, no Transfer may be made unless (i) the Transferee has
agreed in writing to be bound by the terms and conditions of this Contract and
the Articles of Association, which may be amended and restated to the extent
that the Parties and the Transferee agree to such amendments; and (ii) the
Transfer complies in all respects with the other applicable provisions of this
Contract, the Articles of Association and other relevant documents designated by
the non-Transferring Party, including any Relevant Contract to which the
Transferring Party or its Affiliate is a party.     (e)   Subject to the
restrictions set forth in Sections 5.6(b) and (c), if a Party wishes to Transfer
all or any portion of its Equity Interest to a Transferee, such Party (the
“Transferring Party”) shall provide a written notice (the “Transfer Notice”) to
the other Party stating its wish to make such Transfer, the interest it wishes
to Transfer, the price of such interest and the identity of the proposed
Transferee. The other Party shall have the right of first refusal to purchase
such Equity Interest on terms no less favorable than those offered to or by such
Transferee. Within thirty (30) days of receipt of the Transfer Notice from the
Transferring Party, the other Party shall deliver its response stating whether
it chooses to exercise its right to purchase the Equity Interest that the
Transferring Party wishes to Transfer. If the other Party fails to respond
within such thirty (30) day period, it shall be deemed to have given its prior
written consent to the Transferring Party’s Transfer of the Equity Interest on
the terms set forth in the Transfer Notice.     (f)   The Transferring Party and
the Transferee shall enter into an equity interest transfer contract with
respect to the Transfer of the relevant Equity Interest. The Parties shall
thereafter amend this Contract and the Articles of Association to reflect the
respective equity interests in the Company held by the Parties and the
Transferee, subsequent to the completion of such equity

 

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      interest transfer contract and to reflect changes in the composition of
the Board in accordance with Section 8.2(c). The Parties shall (i) cause the
Company to apply to the relevant governmental authorities for approval of the
Transfer and the amendments to this Contract and Articles of Association,
(ii) cause the Company to apply for the issuance of a new Business License
reflecting the relevant changes in the particulars of the Company set forth in
the amendments to this Contract and Articles of Association, and (iii) use their
best efforts to assist the Company to obtain all such approvals and the issuance
of such license. The Parties shall, and shall cause the Company to, promptly
execute all such further documents and perform all such further acts as the
Transferring Party may reasonably require to constitute the Transferee, as the
legal and beneficial owner of the equity interest Transferred pursuant to the
Transfer free from any and all Encumbrances.     (g)   Subject to the
restriction set forth in Section 5.6(c), Party A may Transfer all or any portion
of its Equity Interest to one or more Party A Affiliates (a “Party A Affiliate
Transferee”), and Party B may Transfer all or any portion of its Equity Interest
to one or more of its Affiliates (a “Party B Affiliate Transferee”) and the
other Party hereby gives its prior consent to any such Transfer; provided that
such Party A Affiliate Transferee or Party B Affiliate Transferee, as the case
may be, has substantial assets and operating capacities relative to the scale of
the Company’s business operations at the time of such Transfer. In case of a
Transfer under this Section 5.6(g), the Transferring Party shall provide the
other Party documents supporting the status of the relevant Affiliate
Transferee, as a Party A Affiliate, in the case of a Transfer by Party A, or an
Affiliate of Party B, in the case of a Transfer by Party B, and information on
the businesses and commercial activities of the relevant Affiliate Transferee,
including information related to the financial status and economic health of the
relevant Affiliate Transferee and information on whether the relevant Affiliate
Transferee produces, markets or sells any products in competition with the
Company.     (h)   In case of a Transfer by a Party A to a Party A Affiliate
Transferee or Party B to a Party B Affiliate Transferee in accordance with
Section 5.6(g), the Transferring Party and the relevant Affiliate Transferee
shall enter into an equity interest transfer contract with respect to the
Transfer of the relevant Equity Interest. The Parties shall thereafter amend
this Contract and the Articles of Association to reflect the respective equity
interests in the Company held by the Parties and the relevant Affiliate
Transferee subsequent to the completion of such equity interest transfer
contract and to reflect changes in the composition of the Board in accordance
with Section 8.2(c). The Parties shall (i) cause the Company to apply to the
relevant governmental authorities for approval of the Transfer and the
amendments to this Contract and Articles of Association, (ii) cause the Company
to apply for the issuance of a new Business License reflecting the relevant
changes in the particulars of the Company set forth in the amendments to this
Contract and Articles of Association, and (iii) use their best efforts to assist
the Company to obtain all such approvals and the issuance of such license. The
Parties shall, and shall cause the Company to, promptly execute all such further
documents and perform all such further acts as the Transferring Party may
reasonably require

 

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

5.7.   Party B Put Option

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

  (i)   at any time during the period starting on the fourth (4th) anniversary
of the Establishment Date and ending on the date that is six months after the
fourth (4th) anniversary of the Establishment Date, at Party B’s discretion; or
    (ii)   in accordance with the provisions of Section 8.4(d).

  (b)   In accordance with the provisions of Section 5.7(a), Party B may
exercise the Party B Put Option by delivering a notice (the “Valuation Notice”)
to Party A and invoking the valuation procedures set forth in Section 17.    
(c)   After the determination of the Final FMV pursuant to Section 17, Party B
shall have the right, within thirty (30) Business Days after such date of
determination, to issue a notice (the “Put Exercise Notice”) to Party A stating
that it intends to exercise its right to sell its entire Equity Interest to
Party A at a purchase price equal to the Final FMV multiplied by the percentage
of the Company’s total equity interests held by Party B at such time (the “Put
Exercise Price”). Party A shall have the right to designate a third party to
purchase the Equity Interest from Party B (the “Third Party Buyer”) by notifying
Party B of the identity of such third party within thirty (30) Business Days
after its receipt of the Put Exercise Notice.     (d)   Within forty-five
(45) Business Days after the date of delivery of the Put Exercise Notice, Party
A or the Third Party Buyer, as the case may be, and

 

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      Party B shall execute an equity interest transfer contract with respect to
the Transfer by Party B of its entire Equity Interest to Party A or the Third
Party Buyer, as the case may be, for a total consideration of the Put Exercise
Price. Unless otherwise agreed by the Parties, the terms of such equity interest
transfer contract shall consist only of the Put Exercise Price, the date by
which payment of the Put Exercise Price must be made by Party A or the Third
Party Buyer, as the case may be, and any other terms required by Law, and shall
not contain any other terms or conditions, including any representations or
warranties by either Party. Party A agrees and covenants that, in the event that
it designates a Third Party Buyer to acquire the Equity Interest from Party B,
it shall guaranty the due performance of the Third Party Buyer’s obligations in
connection with the Transfer of Party B’s Equity Interest. Each Party shall
promptly cause the directors on the Board appointed by it to vote in favor of a
resolution approving the Transfer. If any director does not vote in favor of
such resolution, the Party that appointed such director shall promptly remove
and replace such director and cause the newly appointed director to vote in
favor of the resolution approving the Transfer.     (e)   The Parties shall
thereafter terminate this Contract and amend the Articles of Association to
reflect the change in the equity interests in the Company subsequent to the
completion of the relevant equity interest transfer contract and to reflect
changes in the composition of the Board. Each Party shall promptly cause the
directors on the Board appointed by it to vote in favor of any resolution
approving any change in the size and/or composition of the Board resulting from
the above sentence, and if any director does not vote in favor of such
resolution, the Party that appointed such director shall promptly remove and
replace such director and cause the newly appointed director to vote in favor of
the resolution approving the proposed change of the Board. The Parties shall
(i) cause the Company to apply to the relevant governmental authorities for
approval of the Transfer and the amendments to the Articles of Association,
(ii) cause the Company to apply to be converted from a Chinese-foreign equity
joint venture company into a non-foreign invested domestic enterprise, if
applicable (iii) cause the Company to apply for the issuance of a new Business
License reflecting the relevant changes in the particulars of the Company set
forth in the amendments to the Articles of Association, and (iv) use their
respective best efforts to assist the Company to obtain all such approvals and
the issuance of such Business License.     (f)   If (i) Party B exercises the
Party B Put Option or the Party B Deadlock Put Option, and (ii) following the
exercise of either such option by Party B, the Company is converted from a
Chinese-foreign equity joint venture company to a wholly domestically-owned
company, then subject to the conditions and limitations set forth in this
Section 5.7(f), Party B shall pay Party A or the Company, as the case may be,
for the amounts of additional tax obligations payable by Party A or the Company,
as the case may be, as specifically set forth in this Section 5.7(f). Party B
shall only be liable under this Section 5.7(f) with respect to the following
three taxes, being value-added tax, import tax and enterprise income taxes that
(1) are directly attributable to the conversion of the Company from a
Chinese-foreign equity joint venture company to a wholly domestically-owned
company; (2) are required to be

 

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

6.   Relevant Contracts   6.1.   Execution of Relevant Contracts       Within
seven (7) days of the Establishment Date, each Party shall execute each of the
following contracts (collectively, the “Relevant Contracts”) to which it is a
party, and shall cause its Affiliate and/or the Company, as the case may be, to
execute each of the following contracts to which such Affiliate and/or the
Company is a party:

  (a)   Utilities Supply Contract between Party A and the Company (the
“Utilities Supply Contract”), pursuant to which Party A shall provide the
Company with electricity, steam, nitrogen gas, water, compressed air, waste
water treatment service and other utilities, in the agreed form;     (b)  
Comprehensive Services Contract between Party A and the Company and its
Affiliates (the “Services Contract”), pursuant to which Party A and its
Affiliates shall provide the Company with property management, road maintenance,
fire control, environmental protection and certain other corporate services, as
well as services related to the welfare and benefits of employees, in the agreed
form;     (c)   Lease Contract between Party A and the Company (the “Lease
Contract ”), pursuant to which Party A shall lease the Land to the Company for
its use, in the agreed form;

 

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  (d)   Raw Material Supply Contract between Party A and the Company (the “Raw
Material Supply Contract”), pursuant to which Party A shall provide the Company
with raw materials for use in the production of the JV Products, in the agreed
form;     (e)   Asset Contribution and Purchase Contract between the Company,
Party A and Party B, pursuant to which Party A shall contribute the Contributed
Assets and sell the Purchased Assets to the Company and license to the Company
certain proprietary information and technology in connection with the
manufacture and sale of the JV Products, in the agreed form;     (f)  
Technology License and Support Contract between Party B and/or its Affiliate and
the Company (the “Party B Technology License and Support Contract”), pursuant to
which Party B and/or its Affiliate shall license to the Company certain
proprietary information and technology in connection with the manufacture and
sale of the JV Products, in the agreed form;     (g)   Trademark License
Contract between Party A and the Company (the “Party A Trademark License
Contract”), pursuant to which Party A shall license to the Company certain of
its trademarks for use on the JV Products, in the agreed form;     (h)  
Trademark License Contract between Party B and/or its Affiliate and the Company
(the “Party B Trademark License Contract”), pursuant to which Party B and/or its
Affiliate shall license to the Company certain of its trademarks for use on the
JV Products, in the agreed form;     (i)   Sales Agency Contract between Party B
and/or its Affiliate and the Company (the “Sales Agency Contract”), pursuant to
which the Company shall pay Party B and/or its Affiliate certain commission fees
for any customer referred to the Company by Party B or its Affiliates, as the
case may be, in the agreed form;     (j)   Assignment and Assumption Contract
between Party A and the Company (the “Assignment and Assumption Contract”),
pursuant to which Party A shall assign to the Company, and the Company shall
assume, all of Party A’s rights and obligations under certain sales contracts
entered into by Party A, in the agreed form;     (k)   Other documents and
agreements necessary for the full accomplishment of the transactions
contemplated in this Contract.

7.   Responsibilities of the Parties   7.1.   Responsibilities of Party A      
Party A shall be responsible for performing the following duties in addition to
the other responsibilities set forth elsewhere in this Contract:

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

 

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      that each of its Affiliates performs its obligations under each Relevant
Contract to which such Affiliate is a party;     (b)   filing all documents
required for the establishment of the Company with the relevant Governmental
Authorities, obtaining all necessary Company Approvals for the establishment of
the Company and assisting the Company in obtaining and maintaining in force
throughout the JV Term all Company Approvals and agreements that are necessary
for the Company to achieve its goals and business objectives;     (c)  
assisting the Company in applying for and obtaining any existing preferential
treatment in tax, customs, foreign exchange and other fields that are available
or may be available under any preferential policy in accordance with Law;    
(d)   appointing in a timely manner members of the Board as specified in
Section 8.2 hereunder;     (e)   nominating in a timely manner candidates for
Senior Management Staff as specified in this Contract and the Articles of
Association;     (f)   assisting the Company in obtaining financing deemed
necessary by the Board, including the initial working capital financing referred
to in Section 5.4(a)(v);     (g)   assisting the Company in liaising with PRC
government authorities and other PRC companies with which the Company wishes to
cooperate (including Affiliates of Party A);     (h)   causing its directors to
exercise their voting rights in accordance with this Contract and the Articles
of Association;     (i)   assisting the Company in obtaining all necessary
visas, travel documents and/or work permits for its expatriate employees and
their families, including Party B’s secondees so as to enable them to enter,
leave and stay in PRC for their work in the Company and other activities;    
(j)   providing and causing the Company to provide Party B and its Affiliates
with all necessary assistance and cooperation in order for Party B and its
Affiliates to comply with applicable Laws;     (k)   assisting the Company in
matters related to the employees of the Company;     (l)   if requested by the
General Manager, and to such extent as is necessary and convenient, supporting
and assisting the Company in its production activities;     (m)   if requested
by the General Manager, assisting the Company in marketing the JV Products
within PRC; and     (n)   assisting the Company in other matters as requested by
the Board from time to time.

 

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

  (a)   strictly performing its obligations under this Contract, the Articles of
Association and each Relevant Contract to which it is a party and ensuring that
each of its Affiliates performs its obligations under each Relevant Contract to
which such Affiliate is a Party;     (b)   appointing in a timely manner members
of the Board as specified in Section 8.2 hereunder;     (c)   nominating in a
timely manner candidates for Senior Management Staff as specified in this
Contract and the Articles of Association;     (d)   assisting in obtaining the
approvals, permits, licenses and tax registration necessary for the
establishment and legal operation of the Company and providing all necessary
documents for such applications on a timely basis;     (e)   assisting the
Company in developing advanced management systems;     (f)   assisting the
Company with respect to developing systems for operation of the Company’s
production lines in an efficient and effective manner;     (g)   assisting the
Company in preparing efficient staffing plans;     (h)   assisting the Company
in obtaining financing deemed necessary by the Board;     (i)   causing its
directors to exercise their voting rights in accordance with this Contract and
the Articles of Association;     (j)   assisting the Company in obtaining all
necessary visas, travel documents and/or work permits for its Chinese employees
so as to enable them to come in and out of and stay in the United States for
technical training, carrying out work responsibilities and conducting other
activities on behalf of the Company as requested by the Board;     (k)   if
requested by the General Manager, and to such extent as is necessary and
convenient, supporting and assisting the Company in its production activities;  
  (l)   assisting the Company in marketing the JV Products outside the PRC in
accordance with the Sales Agency Contract; and     (m)   assisting the Company
in other matters as requested by the Board from time to time.

8.   Board of Directors   8.1.   Establishment of the Board       The Board
shall be established on the Establishment Date.

 

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

  (a)   The Board shall consist of six (6) directors, three (3) of whom shall be
appointed by Party A and three (3) by Party B. The term of office for each
director shall be four (4) years, renewable upon reappointment by the appointing
Party. The term of the directors of the first Board shall commence on the
Establishment Date. There is no restriction on the number of times a director
may be reappointed.     (b)   The Board shall have one (1) chairman (the
“Chairman”) and one (1) vice chairman (the “Vice Chairman”), who shall be
appointed by the Parties on a four-year rotating basis during the JV Term.
During the first four (4) years of the Company upon its establishment, the
Chairman shall be appointed by Party A and the Vice Chairman shall be appointed
by Party B.     (c)   In case of any change to the Equity Interests of the
Parties, the composition of the Board shall be adjusted according to the
following principles:

  (i)   In the case of a Transfer of Equity Interest by either Party to the
other Party, the Party increasing its Equity Interest shall have the right to
appoint one additional director for each incremental ten percent (10%) increase
in its Equity Interest; provided that (1) at any time that either Party
possesses an Equity Interest equal to or in excess of fifty-one percent (51%) of
the Registered Capital, such Party shall be entitled to appoint a majority of
the directors of the Company, and (2) at any time that a Party holds any Equity
Interest in the Company equal to or greater than five percent (5%), such Party
shall retain the right to appoint at least one (1) director;     (ii)   In the
case of a Transfer of Equity Interest by a Party to a Transferee or an Affiliate
Transferee in accordance with the terms of Section 5.6 hereto, such Transferee
or Affiliate Transferee, as the case may be, shall have the right to appoint one
(1) director for each sixteen percent (16%) of the Registered Capital acquired
through such Transfer, and the Transferring Party shall lose the right to
appoint one (1) director for each incremental sixteen percent (16%) Transferred
by such Party.

  (d)   Either Party shall have the right, at any time, to remove with or
without cause and replace any director appointed by it before the expiration of
his or her term. If a director is removed, becomes incapacitated, dies, resigns
or otherwise ceases to be a director, the Party that appointed such director
shall appoint a new director to serve for the remainder of the term of office of
such director.     (e)   The appointment or dismissal of a director shall take
effect fifteen (15) days following the delivery of a written notice by the Party
implementing such appointment or dismissal to the other Party.     (f)  
Directors of the Company shall serve without remuneration but may receive
remuneration as Senior Management Staff when concurrently employed as a member
of the Senior Management Staff.

 

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  (g)   A director shall not engage in the daily operation of the Company,
unless engaged in the daily operation as Senior Management Staff when
concurrently employed as a member of the Senior Management Staff.     (h)   The
Parties agree to cause the Company to file for the record with the Examination
and Approval Authority and/or SAIC any change of director appointed by either
Party, if required by law.     (i)   The Company shall indemnify each director
against all claims and liabilities incurred by reason of his being a director of
the Company; provided that the director’s acts or omissions giving rise to such
claim or liability did not constitute intentional misconduct or a violation of
criminal law. In addition, the Company reserves the right to pursue any claims
against directors who cause the Company to incur unauthorized claims or
liabilities.

8.3.   Functions and Powers of the Board

  (a)   The Board shall be the highest authority of the Company, and shall
direct the overall management, supervision and control of the business of the
Company; provided that the Board shall delegate authority over day-to-day
operational and managerial matters to the General Manager as set forth in
Section 9.2. The resolutions of the Board shall be adopted in accordance with
this Contract, the Articles of Association and applicable Law.     (b)  
Decisions with respect to the following matters shall require the unanimous
approval of all directors present and voting in person or by proxy at a duly
convened meeting of the Board or by unanimous written resolution of all of the
members of the Board:

  (i)   increases or decreases in the Registered Capital or any Transfer of
either Party’s Equity Interest;     (ii)   merger with other companies, division
of the Company or change in the form of organization of the Company;     (iii)  
suspension of the business operations of the Company, termination or dissolution
of the Company or extension of the JV Term; and     (iv)   amendment of the
Articles of Association.

  (c)   Affirmative vote of at least four (4) or more directors, present at a
duly convened meeting of the Board or a unanimous written resolution of all of
the members of the Board shall be required before any decision is made
concerning the following matters:

  (i)   any transaction between the Company and a related party of Party A or
Party B;     (ii)   determination of the Company’s strategy, development
direction and short-term and long-term development plans within the approved
Business Scope of the Company;

 

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  (iii)   determination and amendment of the Company’s Annual Plan (as defined
herein);     (iv)   examination and determination of the Company’s basic
management system proposed by the General Manager;     (v)   entering into an
amendment of any Relevant Contract to which the Company is a party;     (vi)  
in accordance with Section 9.3, appointment or dismissal of Senior Management
Staff pursuant to nomination by the Parties and determination of the terms of
employment and remuneration policy of the Senior Management Staff;     (vii)  
determination of the engagement and dismissal, performance evaluation,
remuneration policy and other matters related to the Independent Auditor;    
(viii)   determination of the wages and welfare policies of the Company’s
employees and adoption of the annual human resource recruitment plan formulated
by the General Manager;     (ix)   determination of the establishment of bank
accounts within or outside the PRC or the development of any financial or
banking relationships;     (x)   determination of the entering into, revision or
termination of any business contract to which the Company is a party and with a
value greater than or equal to US$1,000,000, if such contract is within the
scope of the Annual Plan, or greater than or equal to US$10,000, if such
contract is outside the scope of the Annual Plan;     (xi)   determination of
the amount and timing to allocate funds to, or draw funds from, the employee
bonus and welfare fund, the enterprise expansion fund and reserve fund
(collectively, the “Three Funds”) set forth in Section 10.8;     (xii)  
determination of the entering into, revision or termination of any agreement
with respect to or that includes any provision with respect to any loan or
guarantee not covered by the annual development plan or financial plan adopted
by the Board;     (xiii)   approval of the purchase, disposal or expenditure of
the Company’s assets that are not included in (1) the regular business of the
Company; or (2) the Annual Plan approved by the Board; and     (xiv)   exercise
of other rights and duties authorized by the Company’s Articles of Association
or Laws of the PRC.

  (d)   Decisions with respect to taking any legal action or proceedings against
either Party (the “Interested Party”) or any of such Party’s Affiliates in
connection with the breach by the Interested Party or any of its Affiliates of
any Relevant Contract to which it is a party or any other contract entered into
by the

 

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      Interested Party or any of its Affiliates with the Company shall only
require the affirmative vote of all of the directors appointed by the Party who
is not the Interested Party present at a duly convened meeting of the Board or a
written resolution of all such directors.

8.4.   Deadlocked Matters

  (a)   If the Board is unable to pass a resolution on the matters described in
Sections 8.3(b)(i), 8.3(b)(ii), 8.3(b)(iii) or 8.3(c)(ii) (the “Deadlocked
Matter”) in any two (2) successive meetings of the Board or within sixty
(60) days after any one Board meeting at which the Deadlocked Matter is proposed
and no resolution is passed, whichever is shorter, the disagreement with respect
to such matter shall be resolved pursuant to the procedures set forth in this
Section 8.4.     (b)   Within (i) ten (10) Business Days after the date of the
second successive meeting of the Board at which the Board failed to pass a
resolution with respect to any Deadlocked Matter or (ii) the end of the sixty
(60) day period referred to in Section 8.4(a), whichever is earlier, either
Party (the “Electing Party”) may deliver a deadlock notice (the “Deadlock
Notice”) to the other Party (the “Non-Electing Party”) stating that it has
elected to invoke the escalation procedures with respect to the relevant
Deadlocked Matter and setting forth the name and contact details of the senior
executive of the Electing Party to whom the resolution of the Deadlocked Matter
will be escalated.     (c)   Within ten (10) Business Days after the date of
delivery of the Deadlock Notice (the “Deadlock Notice Date”), the Non-Electing
Party shall deliver a notice to the Electing Party setting forth the name and
contact details of the senior executive of the Non-Electing Party to whom the
resolution of the Deadlocked Matter will be escalated. Within twenty
(20) Business Days after the date of delivery of a Deadlock Notice, the
designated senior executives of Party A and Party B shall meet, either in person
or by telephone, to attempt to resolve the relevant Deadlocked Matter.     (d)  
If the designated senior executives are unable to reach an agreement on the
relevant Deadlocked Matter within a period of forty (40) Business Days after the
Deadlock Notice Date and the failure to resolve such Deadlocked Matter
materially impairs the operation of the Company, the following procedures shall
apply:

  (i)   During the period commencing forty-five (45) Business Days after the
Deadlock Notice Date and ending ninety (90) Business Days after the Deadlock
Notice Date (the “Deadlock Put Option Period”), Party B shall have the right to
exercise the Party B Put Option in accordance with the procedures set forth in
Section 5.7; and     (ii)   If Party B elects not to exercise the Party B Put
Option during the Deadlock Put Option Period, both Parties shall cause the
directors appointed by them to the Board to vote unanimously to terminate and
liquidate the Company pursuant to Sections 16.2, 16.3 and 16.4.

 

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8.5.   Legal Representative and Performance on Behalf of Legal Representative

  (a)   The Chairman shall be the legal representative of the Company. The
Chairman shall have the powers and responsibilities set forth in this Contract
and the Articles of Association, shall have the scope of authority expressly
authorized by the Board, and shall represent the Company for service of process.
    (b)   If the Chairman is temporarily unable to perform his or her duties for
any reason, the Vice Chairman shall perform the duties of the Chairman on his or
her behalf. Should both the Chairman and the Vice Chairman be temporarily unable
to perform their duties for any reason, the remaining directors shall choose a
director to perform the duties of the Chairman by simple majority vote. If the
remaining directors are unable to agree as to which director shall perform the
duties of the Chairman within ten (10) Business Days, the Party who appointed
the current Chairman shall have the right to choose the director who shall
perform the duties of the Chairman during such time.

8.6.   Board Meetings and Board Resolutions

  (a)   Regular meetings of the Board shall be held at least once a year and
shall be convened and presided over by the Chairman. The Chairman shall send a
written notice to all directors specifying the subject matter for discussion,
date and venue of each regular meeting one (1) month prior to the scheduled date
of such regular meeting, or a shorter period of time prior to such date upon the
approval of the Chairman and the Vice Chairman in case of emergency.     (b)  
Special meetings of the Board shall be convened by the Chairman at any time on
his own motion or on the written request of any two directors (a “Special
Meeting Request”). The Chairman shall send a notice of a special Board meeting
to all other directors within three (3) days after receipt of a Special Meeting
Request. Such meeting shall be convened within fifteen (15) days after receipt
of such Special Meeting Request by all other directors.     (c)   Two-thirds
(2/3) or more of all the directors (including those appointed by proxy) shall
constitute a quorum for any board meeting. If such a quorum is not present
within two (2) hours after the time appointed for the commencement of the
meeting, the meeting shall be adjourned to such place and time (which is at
least ten (10) days later or such earlier date as shall be agreed by all the
directors on the Board in writing) as the directors who did attend shall decide.
If a quorum is not present within two (2) hours after the time appointed for the
commencement of such adjourned meeting, any number of directors present shall be
constitute a quorum. A director who is unable to attend a meeting in person may
entrust in writing a proxy to attend and to vote at the meeting on his or her
behalf. Such proxy shall have the same rights and powers as the director by whom
he or she has been entrusted. Delivery of a proxy by facsimile shall be
effective for this purpose. A proxy need not be a director of the Company. A
director may be appointed as proxy for another director, and the same person may
be appointed as proxy for more than one director. A proxy shall have one vote
for each director whom he represents,

 

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      and shall also be entitled to cast one vote in his own behalf if he is, in
addition, a director in his own right.     (d)   Any director who wishes to add
subject matters to the agenda of a Board meeting upon receipt of such meeting
notice as specified in paragraph (a) shall notify the Chairman in writing at
least three (3) Business Days prior to the date of the meeting.     (e)   Board
meetings shall in principle be held at the legal address of the Company, but may
be held at any other location upon the approval of two-thirds (2/3) or more of
all directors.     (f)   Minutes of the Board meetings shall be recorded in both
English and Chinese. All resolutions of the Board shall be included in the
minutes, which shall be kept by the Company for ten (10) years. Directors and
proxies present at the meeting shall sign their names on the minutes for such
meeting.     (g)   Any action that may be taken at any Board meeting may be
taken without a meeting if all directors consent to such action in writing. For
any such action to be taken in writing in accordance with this Section 8.6(g), a
draft resolution shall be formulated by the Chairman and the Vice Chairman and
circulated to all directors for review. All the directors, within three (3) days
of receipt after such draft resolution, shall date, approve or disapprove, sign
such draft resolution and return the same to the Chairman. All written
resolutions shall be passed only by a unanimous affirmative vote of all the
directors.     (h)   Board meetings may be held by telephone, videoconference or
any other means of contemporaneous communication so long as all directors taking
part in a meeting so held are able to hear each other at all times.
Participation by a director or his proxy at a meeting by such means shall be
deemed to constitute presence of such director or his proxy in person at a
meeting.     (i)   Reasonable expenses incurred by directors and their proxies
for travel, accommodation, and meals in connection with any Board meeting, and
all expenses in connection with the meeting, shall be borne by the Company.

9.   Business Management   9.1.   Establishment and Composition of the
Management Organization of the Company

  (a)   The Company shall establish a management organization under the Board in
charge of the daily business operation and management of the Company.     (b)  
The management organization shall consist of one (1) of each of the following
positions: General Manager, Deputy General Manager, Human Resources Manager,
Finance Manager, Purchasing and Service Manager, Manufacturing Manager, Sales
and Marketing Manager and Internal Audit Manager (collectively, the “Senior
Management Staff”).     (c)   The General Manager and the Deputy General Manager
shall be appointed by Party A and Party B on a rotating basis at the end of
every fourth year during

 

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      the JV Term. During the first four (4) years of the JV Term commencing on
the Establishment Date, Party B shall have the right to nominate the General
Manager and Party A shall have the right to nominate the Deputy General Manager.
The Board shall appoint the General Manager and the Deputy Manager pursuant the
nominations of the Parties.     (d)   If Party A, through its appointed
directors, proposes a Board resolution canceling the General Manager rotation
system and granting Party B the right to appoint the General Manager for the
entirety of the JV Term, each Party shall cause its respective directors to vote
in favor of such resolution. Upon the adoption of such resolution by the Board
and the completion by the Parties and the Company of all actions required to
fully implement such resolution (including amending this Contract and the
Articles of Association and obtaining all governmental approval for such
amendments), then Party B’s right to exercise the Party B Put Option in
accordance with Section 5.7(a)(i) shall terminate.     (e)   The General Manager
and the Deputy General Manager shall not concurrently serve as the General
Manager or the Deputy General Manager of any other enterprise within the PRC,
and shall not engage, either on his or her own or through any third party, in
the production, marketing, sale or export of any products in competition with
the Company.     (f)   Any member of the Senior Management Staff may resign or
quit his or her office by giving one (1) month prior written notice to the
Company. In such instance, the original appointing Party shall appoint a
replacement to serve the remainder of the term of such member of the Senior
Management Staff.

9.2.   Rights and Responsibilities of the General Manager

  (a)   Under the leadership of the Board, the General Manager shall be
responsible for the day-to-day operations of the Company. Not less than three
(3) months prior to the end of each Financial Year (the “Current Financial
Year”) during the JV Term, or such other time as agreed by the Board, the
General Manager shall submit an annual budget and business plan (the “Annual
Plan”) for the next Financial Year (the “Relevant Financial Year”) to the Board
for its approval. The General Manager shall collaborate with the Deputy General
Manager and the other Senior Management Staff in the formulation of the Annual
Plan. The Annual Plan shall set forth in detail with respect to the Relevant
Financial Year (a) the annual operating and capital budgets for the Company,
(b) the Company’s marketing strategy and (c) analysis of any other issues
relevant to the operation and performance of the Company for the Relevant
Financial Year as requested by the Board or determined by the General Manager in
collaboration with the Deputy General Manager and the other Senior Management
Staff.     (b)   The General Manager shall exercise the rights and
responsibilities conferred upon him by this Contract, the Articles of
Association and/or the Board. The rights and responsibilities that may be
exercised by the General Manager on behalf of the Company without Board approval
include the following:

 

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  (i)   leading the Company’s production operations, marketing, sales and
management and implementing the resolutions of the Board with respect thereto;  
  (ii)   implementing the Company’s Annual Plan as approved by the Board;    
(iii)   supervising and overseeing the other members of the Senior Management
Staff;     (iv)   formulating the Company’s detailed rules and regulations;    
(v)   appointing or dismissing management personnel other than those required to
be appointed or dismissed by the Board or the Parties;     (vi)   determining
the Company’s day-to-day internal management system, organization and standing
rules;     (vii)   determining the entering into, revision or termination of any
business contract to which the Company is a party and with a value less than
US$1,000,000, if such contract is within the scope of the Annual Plan, or less
than US$10,000, if such contract is outside the scope of the Annual Plan;
provided that the General Manager shall report to the Board of Directors
regarding the entering into, revision or termination of any contract that is
outside the scope of the Annual Plan at the first Board meeting occurring after
the entering into, revision or termination of such contract;     (viii)   other
rights and responsibilities conferred by the Articles of Association or the
Board.

  (c)   In exercising the rights and responsibilities conferred upon him by this
Contract, the Articles of Association and/or the Board, the General Manager
shall regularly and actively collaborate and consult with the Deputy General
Manager and the other Senior Management Staff.     (d)   Following such
collaboration and consultation, the General Manager shall reach a decision and
shall be responsible for the day-to-day implementation of such decision.    
(e)   If the Deputy General Manager, acting in good faith and in exercising his
fiduciary duty, disagrees with the decision of the General Manager, the Deputy
General Manager may bring such decision to the Board for review.     (f)   If
the Board determines that the decision reached by the General Manager which has
been brought to its attention by the Deputy General Manager requires any action
by the Board, the Board may undertake such action in accordance with Section 8.6
of this Contract.     (g)   Until such time that the Board adopts a resolution
modifying, amending, reversing or otherwise acting upon a decision of the
General Manager made within the scope of the rights and responsibilities
conferred upon him by this Contract, the Articles of Association and/or the
Board, such decision of the

 

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      General Manager shall remain valid and in effect, and the Deputy General
Manager and other members of the Senior Management Staff shall implement such
decision in good faith. In the event the Board modifies, amends or reverses any
decision made by the General Manager which was made within the scope of the
rights and responsibilities conferred upon him by this Contract, the Articles of
Association and/or the Board, the General Manager shall have no liability to the
Company with respect to such decision.     (h)   The General Manager and the
Deputy Manager shall have the right to attend all meetings of the Board. If the
General Manager or the Deputy Manager has been appointed as a member of the
Board, he or she shall have the right to vote at such Board meeting.     (i)  
The Party appointing the General Manager or the Deputy General Manager may
replace such General Manager or Deputy General Manager by giving written notice
to the Board. A successor shall then be appointed by the original appointing
Party pursuant to Section 9.1 to serve the remainder of the term of the
dismissed General Manager or Deputy General Manager.

9.3.   Appointment of Senior Management Staff

  (a)   The Human Resources Manager, the Finance Manager and the Purchasing and
Service Manager shall be nominated by Party A and appointed by the Board.    
(b)   The Manufacturing and Operation Manager, Sales and Marketing Manager and
Internal Audit Manager shall be nominated by Party B and appointed by the Board.

9.4.   Changes to Senior Management Staff

  (a)   At the first meeting of the Board convened during each calendar year,
each Party shall have the right (but not the obligation) to submit a written
notice to the Board directing that the other Party replace certain members of
the Senior Management Staff, including the General Manager and the Deputy
General Manager, appointed by such other Party. In such case, the Board shall
dismiss each member of the Senior Management Staff named in the notice, and the
original appointing Party shall have the right to nominate a successor to
complete the term of each such dismissed member of the Senior Management Staff.
All such appointments of successors shall occur as soon as is reasonably
possible following such Board meeting, and in no case longer than ninety
(90) days following such Board meeting.     (b)   In addition to each of the
Parties’ right to direct the removal of any Senior Management Staff set forth in
Section 9.4(a) above, the Board may terminate the employment of any Senior
Management Staff at any time under the following circumstances:

  (i)   such Senior Management Staff has committed a criminal offense and has
been found guilty by a court of law having the appropriate jurisdiction;

 

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  (ii)   such Senior Management Staff: (1) is in serious dereliction of duty;
(2) engages in wanton or reckless behavior that causes, or threatens to cause,
serious injury to persons or damage to property; or (3) engages in deceitful
behavior for personal interests;     (iii)   such Senior Management Staff is
prohibited by Law from fulfilling his her duties;     (iv)   such Senior
Management Staff fails to comply with the terms of his employment contract; or  
  (v)   such Senior Management Staff fails to perform the required duties as a
result of illness or other reasons.

      Upon dismissal of any Senior Management Staff in accordance with this
Section 9.4, a successor shall be appointed by the original appointing Party to
serve the remainder of the term of the dismissed Senior Management Staff.

9.5.   Remuneration of Senior Management Staff       The Company shall
compensate the Senior Management Staff in accordance with the then applicable
local compensation standards, taking into account the standards of other foreign
invested enterprises engaging in an industry similar to the Company in Yizheng
and Beijing.   10.   Financial Management   10.1.   Financial Accounting System

  (a)   The Company shall establish an independent financial and accounting
system and shall prepare financial statements in accordance with the Enterprise
Accounting System Regulations (enacted by the Ministry of Finance on
December 29, 2000), other relevant Law, the particular circumstances of the
Company, and, to the extent permitted by applicable PRC Laws, those methods and
principles that are consistent with the generally accepted accounting principles
in the United States of America and the operating and financial procedures and
requirements of the Parties.     (b)   The Company’s financial management rules
shall be formulated and adopted by the Board based on the recommendations of the
General Manager.

10.2.   Financial Year       The financial year of the Company (the “Financial
Year”) shall be the calendar year. The first Financial Year shall commence from
the Establishment Date of the Company and end on December 31 of the same year.
The last Financial Year shall end on the date of dissolution of the Company.  
10.3.   Financial Reporting

  (a)   The Company shall use RMB as the base currency in its bookkeeping, and
US Dollars may be used concurrently with RMB.

 

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  (b)   The Company shall maintain accounts in accordance with the generally
accepted accounting principles in the PRC and concurrently prepare another set
of account books adjusted in accordance with the generally accepted accounting
principles in the United States of America.     (c)   All vouchers, book
accounts, financial statements and other accounting records of the Company shall
be prepared and kept in Chinese. Accounting reports and annual financial
statements to be submitted to the Parties or the Board shall be prepared and
kept in both Chinese and English.     (d)   The Company shall, within five
(5) days after the beginning of each calendar month, report its monthly business
status (sales, production, inventory, profit and loss, etc.) of the preceding
month to the Parties in both Chinese and English.     (e)   The Company shall,
within five (5) days after the beginning of each calendar month, report its
monthly financial statements for the preceding month to the Parties in English
and Chinese.     (f)   The Company shall, within five (5) days after the
beginning of each financial quarter, report its quarterly financial statements
of the preceding financial quarter to the Parties, and to the relevant
government department for finance, if necessary.     (g)   Within fifteen
(15) days after the end of each Financial Year, the Company shall submit its
pre-audited annual financial statements to the Parties. Within four (4) months
after the end of each Financial Year, the Company shall submit to the Parties
and relevant government financial departments, its formal financial statements
and audit report issued by a certified public accountant registered in PRC.    
(h)   The Company shall for the entire JV Term keep all annual accounting
reports, annual financial statements and audit reports.

10.4.   Internal Audit Manager       The Internal Audit Manager of the Company
shall:

  (a)   report to the General Manager;     (b)   have unrestricted access to all
the books and accounting records of the Company, whether historical or present;
    (c)   have the right to review and comment upon all financial statements of
the Company prior to the provision of such statements to the Board or the
independent auditor of the Company (the “Independent Auditor”) and to present
his audit opinion to the General Manager and/or the Board; and     (d)   have
the right to present opinions to the General Manger and/or the Board regarding
whether business transactions entered into by the Company are fair and balanced
for the Company and the Parties.

 

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10.5.   Independent Auditor

  (a)   The Independent Auditor shall be selected by the Board, and shall be an
individual (i) associated with an accounting firm established and registered in
the PRC by one of the four major international accounting firms, (ii) authorized
to practice in the PRC, and (iii) capable of performing accounting work meeting
both PRC domestic accounting standards and international standards and the
procedures and requirements of the Parties. The initial Independent Auditor
shall be selected based upon the affirmative vote of at least four (4) Board
members present at the first Board meeting of the Company. If the Board
determines that the Independent Auditor is unable to meet such standards, it may
replace such Independent Auditor or retain another auditor, at the Company’s
expense, to supplement or adjust the work of the Independent Auditor or to
perform specific accounting or auditing tasks.     (b)   Each Party shall have
the right at any time to retain independent accountants to audit the books and
records of the Company at its own expense (unless the results of any such audit
are significantly different from that conducted by the Independent Auditor and
are accepted by the Board, in which case the expense shall be borne by the
Company). The Company shall extend full cooperation to any such accountants and
shall allow them full access to the books and records of the Company.

10.6.   Determination of Annual Budget in the Absence of a Board Resolution  
    If at a duly convened Board meeting, the Board is unable to pass a
resolution on the proposed Annual Plan submitted to it by the General Manager in
accordance with Section 9.2(a), then within thirty (30) days of such meeting at
which the Annual Plan for the following Financial Year is proposed and no
resolution is adopted, the Board shall convene a second meeting to consider the
proposed Annual Plan. If at such second meeting the Board is unable to reach
agreement with respect to the proposed Annual Plan, each Party shall cause its
respective directors to vote at such second meeting in favor of the adoption of
an Annual Plan pursuant to which the Company shall be operated in the following
Financial Year in accordance with the capital and operating budgets under which
the Company was operated in the current Financial Year, with an increase of ten
percent (10%) in all approved expenditures over those that appear in such
capital and operating budgets.   10.7.   Approval of Final Accounts       Within
four (4) months after the end of each Financial Year, the General Manager shall
submit the following documents to the Board for approval: the financial
statements, statements of financial status, and plans for profit distribution or
loss make-up of the previous year, attached with the audit report of the
Independent Auditor.   10.8.   Profit Distribution       The Company shall adopt
the following principles with respect to the distribution of profits:

 

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  (a)   The Company may not distribute profits until all losses from previous
years have been made up and the principal of, and all accrued interests on, any
shareholder loans have been repaid in full.     (b)   The remaining amount after
making up prior losses pursuant to the forgoing provision shall be the pretax
profits of the current year. The enterprise income tax shall be paid from the
pretax profits as required by relevant laws and regulations.     (c)   The
remaining amount after payment of the enterprise income tax pursuant to the
forgoing provision shall be the after-tax profits of the current year. Payments
to the Three Funds shall be made from the after-tax profits. The amount of
payments to the Three Funds shall be determined by the Board, but in no case
shall exceed ten percent (10%) of the after-tax profits. No payments shall be
made to the Three Funds in years where the Company does not realize a profit.  
  (d)   Amounts remaining following the fulfillment of the requirements set
forth in paragraphs (a), (b) and (c) plus the profit brought forward from
previous years shall be the distributable profits, which shall be distributed in
full to the Parties unless otherwise decided by the Board.     (e)  
Distribution of profits specified in paragraph (d) shall be made in proportion
to the ratio of each Party’s respective actual contributions in the paid-up
capital. The Company shall remit such distribution into the bank accounts
designated by the Parties within one (1) month after the Board makes its
determination regarding profit distribution. Distributions to Party B shall be
made in US Dollars. In case of a shortage of foreign exchange reserves of the
Company, the Company shall be responsible for converting the dividends in
Renminbi into US Dollars for Party B and shall remit the same to Party B. Any
loss in the exchange rate and charges accrued in the foreign exchange conversion
shall be borne by the Company.

10.9.   Loans       The Company may, based on business requirements and pursuant
to applicable Law, open Renminbi account(s) and foreign exchange account(s) with
PRC or foreign financial institutions that are authorized by the relevant
authorities to conduct foreign exchange business within PRC. The Company may
also apply to borrow foreign exchange or Renminbi within or outside China
pursuant to relevant Law.   10.10.   Insurance       All types of insurance of
the Company shall be purchased from insurance companies authorized to do
business in the PRC, unless adequate coverage as determined by the Board cannot
at any time be obtained from such companies on internationally competitive
terms, in which case the Company shall apply to purchase such insurance from
other insurance companies outside of the PRC in accordance with Laws. The types
of insurance, the insurance value, the insurance term and other insurance
matters shall, in accordance with relevant Law, be decided by the Board.

 

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10.11.   Taxes       The Company shall pay taxes in accordance with relevant
officially published Law. The Parties shall assist the Company in applying to
obtain the benefits for the Company, the Parties and all of their personnel of
all of the applicable tax exemptions, reductions, privileges and preferences
that are now or in the future become available under Law and under any
applicable treaties or international agreements to which the PRC may now be or
may hereafter become a party.   10.12.   Individual Income Tax       The
employees of the Company shall pay their individual income tax in accordance
with applicable PRC Law governing individual income taxes.   11.   Foreign
Exchange   11.1.   Matters Relating to Foreign Exchange       All foreign
exchange matters of the Company shall be handled in accordance with the
provisions of the Foreign Exchange Regulations and relevant officially published
Laws.   11.2.   Foreign Exchange Accounts       The foreign exchange funds of
the Company shall be transferable into and outside of the PRC and deposited in
the foreign exchange account(s) established by the Company with approved
financial institutions within or outside of the PRC in accordance with the
Foreign Exchange Regulations. All foreign exchange payments of the Company shall
be paid out of the above-mentioned foreign exchange accounts in accordance with
the Foreign Exchange Regulations after the payment of any PRC taxes that may be
applicable. Any fees or costs (other than taxes) relating to the remittance
abroad of such payments shall be borne by the Company.   12.   Labor Management
  12.1.   Labor Policies of the Company

  (a)   All matters related to the employment, transfer, dismissal, resignation,
wages, welfare benefits, labor insurance, labor protection and labor discipline
of labor management by the Company shall be handled in accordance with
applicable PRC Law and the labor management policies and procedures approved by
the Board. The estimated number of employees necessary for the Company’s initial
business operation shall be stipulated in the Feasibility Study Report.    
(b)   The Company shall sign an individual labor contract with each of its staff
and workers (including the Plant Number 5 Employees). The form of the individual
labor contract shall be filed with the local labor department for the record if
required by applicable Law.

 

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  (c)   The Company has the right to directly recruit, employ and dismiss all of
its employees. All employees of the Company shall be recruited through
examination.     (d)   The Company shall give priority to the recruitment of the
employees of Party A working in Plant Number 5 on or prior to the date of
execution of this Contract (the “Plant Number 5 Employees”). Those Plant Number
5 Employees who qualify for employment by the Company and pass the examinations
of the Company shall first terminate their employment and labor contracts with
Party A prior to being employed by the Company. Party A shall be solely
responsible for the payment of, and the Company shall have no obligation with
respect to the payment of, any and all of the employment costs or severance
payments to the Plant Number 5 Employees to be employed by the Company which are
associated with their employment by Party A prior to their employment by the
Company.     (e)   During the JV Term:

  (i)   Neither Party shall, without the prior written consent of the other
Party or the Company (as the case may be), directly or indirectly, (1) hire or
make any offer of employment, or cause others to hire or make any offer of
employment, to any person who is employed by the other Party, the Company or any
of their respective Affiliates, or (2) solicit or cause others to solicit,
attempt to influence, persuade or induce any employee of the other Party, the
Company or any of their respective Affiliates to terminate or leave his or her
employment or engagement thereby.     (ii)   Except with respect to the
Company’s employment of the Plant Number 5 Employees pursuant to
Section 12.1(d), the Parties shall ensure that the Company shall not, without
the prior written consent of the relevant Party or its Affiliates, as the case
may be, directly or indirectly, (1) hire or make any offer of employment or
cause others to hire or make any offer of employment, to any person who is
employed by such Party or any of its Affiliates, or (2) solicit or cause others
to solicit, attempt to influence, persuade or induce any employee of such Party
or any of its Affiliates to terminate or leave his or her employment or
engagement with such Party or any of its Affiliates (as the case may be).

12.2.   Labor Productivity       After establishment of the Company, the Company
shall increase per employee output so that the productivity levels of the
Company’s employees will be upgraded to globally competitive levels as soon as
reasonably possible.   12.3.   Labor Protection, Environment, Health and Safety
      The Company shall conduct regular examinations on the implementation of
its labor protection, environment, health and safety policies and report the
results of such

 

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    examinations to the Board. The Company shall also carry out any necessary
and appropriate improvements and corrections to comply with such policies.  
12.4.   Labor Union

  (a)   For so long as required by Law, the staff and workers of the Company
shall have the right to establish a trade union organization and conduct trade
union activities in accordance with applicable PRC Law.     (b)   For so long as
required by applicable Law, the Company shall pay each month an amount equal to
two (2) percent of the total amount of the actual wages received by the PRC
staff and workers of the Company for such month into the Company’s trade union
fund for such trade union’s use in accordance with the relevant procedures of
the PRC for the management of trade union funds.

13.   Technology Transfer   13.1.   Party A Technology License       Within
seven (7) days after the Establishment Date, Party A shall enter into the Asset
Contribution and Purchase Contract with the Company and Party B, whereby Party A
shall grant to the Company a license to use certain proprietary information and
technology to manufacture, produce, market and sell the JV Products during the
JV Term and Party A shall provide ongoing technical assistance with respect to
the JV Products during the JV Term. The terms and conditions of such license
shall be specified in the Asset Contribution and Purchase Contract.   13.2.  
Party B Technology License       Within seven (7) days after the Establishment
Date, Party B and/or its Affiliate shall enter into the Party B Technology
License and Support Contract with the Company, whereby Party B and/or its
Affiliate shall grant to the Company a license to use certain proprietary
information and technology to manufacture and produce the JV Products at Plant
Number 5 and to market and sell the JV Products and Party B and/or its Affiliate
shall provide ongoing technical assistance with respect to the JV Products
during the JV Term. The terms and conditions of such license shall be specified
in the Party B Technology License and Support Contract.   14.   Sales and
Marketing of Products, Restrictions on Competition   14.1.   Sales and Marketing
      The Company shall be responsible for the sale of the JV Products within
and outside China. The Company shall directly enter into contracts with overseas
clients and perform such contracts concerning the export of the JV Products. The
Company shall, in accordance with the Sales Agency Contract stated in
Section 6.1(i) of this Contract, appoint Party B or its Affiliate, as the case
may be, as the sales agent for the sale of the JV Products in Party B’s Home
Markets, as listed in Schedule 2 attached hereto, and shall pay a commission to
Party B or its Affiliate, as the case may be, which introduces purchasers of the
JV Products to the Company.

 

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14.2.   Restrictions on Competition; Right of First Refusal

  (a)   Neither Party nor any Subsidiary of such Party other than the Company
shall produce, market or sell any POY, FDY or DTY products in the PRC (such
limitation, the “Restriction”), except under the following circumstances:

  (i)   The Subsidiaries of Party A engaged in the production of POY, FDY or DTY
products on the Establishment Date shall not be subject to the Restriction;
provided that each such Subsidiary shall not be permitted to increase its
aggregate level of production of such products above its original design
capacity level (“Capacity Level”). Party A shall provide to Party B on the date
hereof a list (the “List,” attached as Schedule 1 hereto ) of all Party A
Subsidiaries engaged in production of POY, FDY or DTY products and the relevant
Capacity Level of each such Subsidiary as of the date of the List, and shall
cause such Subsidiaries not to produce such products above the Capacity Level.
Except in accordance with Section 14.2(a)(ii), increase by any Subsidiary of
Party A of the aggregate production level of such products above the Capacity
Level for such Subsidiary shall be deemed to be a material breach of this
Contract by Party A.     (ii)   Where either Party (the “Proposing Party”)
wishes the Company to increase the production level of any JV Products or to
produce any new POY, FDY or DTY products that are not JV Products (the
“Proposition”), it shall deliver a written notice (the “Production Offer
Notice”) to the other Party stating such desire and setting forth in detail the
Proposition, including the type of products included in the Proposition, whether
the product is a JV Product (if an increase in production is desired) or a new
product, the proposed terms and scope of the product to be produced, the costs
associated with such Proposition and the projected economic benefits of such
Proposition. The Production Offer Notice shall constitute a binding offer by the
Proposing Party as detailed therein. For a period of sixty (60) days following
receipt of the Production Offer Notice by the non-Proposing Party, or such
extended period as agreed in writing by both Parties (the “Production Offer
Negotiation Period”), the Parties shall negotiate in good faith with respect to
the proposal set forth in the Production Offer Notice. If the Parties are unable
to reach agreement during the Production Offer Negotiation Period with respect
to the Proposition, the Proposing Party shall have the right to produce, market
and/or sell the products identified in the Production Offer Notice itself or
through its Affiliates and shall not be bound by the Restriction with respect to
such Proposition. If the Parties reach agreement with respect to the Proposition
pursuant to this Section 14.2(a)(ii), each Party shall cause its directors on
the Board to adopt such resolutions and take such necessary actions to implement
such agreement. The Restriction shall continue in effect for such product
included in the Proposition for which the Parties agree for the Company to
implement.

  (b)   Where Party B desires, either directly or indirectly or through any
Subsidiary other than the Company, to sell any POY, FDY or DTY products in the
PRC

 

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      produced by any Person other than the Company, it shall first provide a
written notice to the Company (i) stating its desire to sell such POY, FDY or
DTY products in the PRC, and (ii) setting forth the terms and conditions of such
sale, including quantity, price, product specifications and delivery date. The
Company shall have a right of first refusal to produce such POY, FDY or DTY
products in accordance with all material terms and conditions set forth in such
written notice. If within ten (10) Business Days of receipt of such written
notice, the Company has not exercised its right of first refusal, Party B shall
have the right to sell such POY, FDY or DTY products in the PRC in accordance
with the terms and conditions set forth in such written notice independent of
the Company and the other Party.     (c)   The Company shall not market or sell
any POY, DTY or FDY products in the home markets of Party B identified in
Schedule 2 hereto without the prior written consent of Party B.

15.   The Joint Venture Term   15.1.   Initial Term       The term of operations
of the Company (as extended from time to time, the “JV Term”) shall initially be
forty (40) years (the “Initial Term”), commencing from the Establishment Date.  
15.2.   Extension       Prior to the expiry of the JV Term, including the
Initial Term or any extension thereof, the Parties may agree to extend such
term, subject to the approval of the Examination and Approval Authority and the
relevant requirements of Laws. Negotiations for such extension shall begin not
later than one (1) year prior to the expiration of the JV Term. If the Parties
agree to extend the JV Term, an application for extension shall be filed with
the Examination and Approval Authority not later than six (6) months prior to
the expiration of the JV Term.   16.   Termination and Liquidation   16.1.  
Termination as Agreed by Both Parties       The Parties may mutually agree in
writing to terminate this Contract and dissolve the Company at any time.  
16.2.   Events of Termination       The Company shall be dissolved upon the
motion of a director appointed by either Party if any of the conditions or
events (each an “Event of Termination”) set forth below shall occur and be
continuing:

  (a)   Upon the motion of a director appointed by either Party, if the Company
is the subject of proceedings for liquidation or dissolution required by Law or
by a court or initiated by a creditor(s) of the Company;

 

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  (b)   Upon the motion of a director appointed by the solvent Party, if the
other Party becomes bankrupt or insolvent or file a petition seeking protection
under any bankruptcy, reorganization or insolvency Law;     (c)   Upon the
motion of a director appointed by either Party, if the Company has sustained
heavy losses for three (3) consecutive years, or the cumulative amount of losses
has exceeded fifty percent (50%) of the total registered capital of the Company,
whichever occurs first;     (d)   Upon the motion of a director appointed by
either Party, if all or any material part of the key assets owned or leased by
the Company are expropriated, causing an adverse material effect on the
operation and production of the Company;     (e)   Upon the motion of a director
appointed by either Party, if any government authority with authority over
either Party or the Company requires any provision of this Contract or the
Relevant Contracts to be revised in such a way that causes a material adverse
effect on the Company and, despite the best efforts of the Company to remedy
such situation, such material adverse effect cannot be cured within six (6)
months and at a cost not exceeding US$10,000,000;     (f)   Upon the motion of a
director appointed by the non-transferring Party, if any Party transfers or
attempts to transfer its Equity Interest in violation of the provisions of this
Contract;     (g)   Upon the motion of a director appointed by either Party (the
“Terminating Party”), should any governmental authority having authority over
either Party or the Company issue any policy or Law or interpret any policy or
Law in such a way that may cause significant adverse consequences to the Company
or the Terminating Party, if the Terminating Party is unable to reach agreement
with the other Party on amendments to this Contract as are required to maintain
the Terminating Party’s economic benefits;     (h)   Upon the motion of a
director appointed by the non-affected Party, should the other Party not perform
any of its material obligations under this Contract as the result of an Event of
Force Majeure affecting such Party that has continued for a period of at least
one hundred and eighty (180) days;     (i)   Upon the motion of a director
appointed by the non-breaching Party, if the other Party breaches any of its
material obligations under this Contract, or if the other Party or any of its
Affiliates breach any of the responsibilities or obligations of such Party or
its Affiliate set forth in any of the Relevant Contracts to which it is a party,
and such breach is not remedied within ninety (90) days after the date on which
a notice of such breach is delivered by the non-breaching Party to the breaching
Party;     (j)   Upon the motion of a director appointed by the Party that has
made its contribution or has not been obligated to make its contribution because
the conditions precedent set forth in Section 5.4 have not been met or waived by
the relevant Party, if the relevant Party fails to make its contributions in

 

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      accordance with the provisions of Section 5 of this Contract, where such
failure is not remedied by the date that is ninety (90) days after the
Establishment Date; provided that the conditions precedent for such contribution
set forth in Sections 5.4(a) and 5.4(b) have been met or waived by the relevant
Party;     (k)   Upon the motion of a director appointed by either Party, should
any Deadlocked Matter not be resolved pursuant to Section 8.4 and without
resolution of such Deadlocked Matter the operation of the Company will be
materially impaired; or     (l)   Upon the motion of a director appointed by
either Party, if a relevant government authority issues a binding order to cease
operations because of serious violations by the Company of PRC Law.

    If a director makes a motion to dissolve the Company pursuant to an Event of
Termination listed in this Section 16.2 or a right granted elsewhere in this
Contract, each Party shall cause the other directors appointed by it to adopt a
resolution in favor of the dissolution of the Company.   16.3.   Buyout Option

  (a)   If the Board adopts a resolution pursuant to Section 16.2 to dissolve
the Company, either Party shall have the right, within ten (10) Business Days
after such resolution, to deliver a Valuation Notice to the Other Party thereby
invoking the valuation procedures set forth in Section 17.     (b)   After the
determination of the Final FMV pursuant to Section 17, either Party (whether or
not such Party issued the Valuation Notice) (the “Purchasing Party”) shall have
the right within thirty (30) Business Days after such date of determination to
issue a notice (the “Buyout Notice”) to the other Party (the “Selling Party”)
stating that it intends to purchase the entire Equity Interest of the Selling
Party (the “Purchased Equity Interest”) at a purchase price equal to the Final
FMV multiplied by the percentage of the Company’s total equity interests held by
the Selling Party as of the date of the Buyout Notice (the “Buyout Price”), and
the Selling Party shall be obligated to sell the Purchased Equity Interest to
the Purchasing Party at the Buyout Price.     (c)   In the event that each Party
issues a Buyout Notice to the other Party, within ten (10) Business Days from
the date on which the second Buyout Notice was delivered, the Parties shall
negotiate in good faith the additional amount (the “Premium”) that each Party is
willing to pay for the Purchased Equity Interest. In the event the Parties are
unable to reach an agreement on the Premium payable for the Purchased Equity
Interest within such ten (10) Business Day period, the Parties shall each submit
a proposal for the Premium in a sealed envelope to the Independent Auditor on
the fifteenth (15) Business Day after the date on which the second Buyout Notice
was delivered. The Party offering the highest Premium shall have the right to
purchase the Purchased Equity Interest at the Buyout Price plus such Premium
(the “Final Equity Interest Purchase Price”).

 

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  (d)   Within ten (10) Business Days (i) after the date of delivery of the
Buyout Notice pursuant to Section 16.3(a), if only one Buyout Notice was
delivered or (ii) after the date the Premium is determined as set forth in
Section 16.3(c) above if two Buyout Notices were delivered, the Purchasing Party
and the Selling Party shall execute an equity interest transfer contract with
respect to the purchase by the Purchasing Party of the Purchased Equity Interest
at the Buyout Price or the Final Equity Interest Purchase Price, as the case may
be.     (e)   The Parties shall thereafter terminate this Contract and amend the
Articles of Association to reflect the change in the equity interests in the
Company subsequent to the completion of the relevant equity interest transfer
contract and to reflect changes in the composition of the Board. Each Party
shall promptly cause the directors on the Board appointed by it to vote in favor
of a resolution approving the Transfer. If any director does not vote in favor
of such resolution, the Party that appointed such director shall promptly remove
and replace such director and cause the newly appointed director to vote in
favor of the resolution approving the Transfer. The Parties shall (i) cause the
Company to apply to the relevant governmental authorities for approval of the
transfer and the amendments to the Articles of Association, (ii) in the case of
a Transfer by Party B to Party A, cause the Company to apply to be converted
from a Chinese-foreign equity joint venture company into a non-foreign invested
domestic enterprise, (iii) in the case of a Transfer by Party A to Party B,
cause the Company to apply to be converted from a Chinese-foreign equity joint
venture into a wholly foreign-owned enterprise, (iv) cause the Company to apply
for the issuance of a new Business License reflecting the relevant changes in
the particulars of the Company set forth in the amendments to the Articles of
Association, and (v) use their respective best efforts to assist the Company to
obtain all such approvals and the issuance of such license.     (f)   In the
event that neither Party issues a Buyout Notice in accordance with this
Section 16.3, the Company shall be dissolved in accordance with the provisions
of Section 16.4.

16.4.   Liquidation Procedures

  (a)   The dissolution and liquidation of the Company shall be conducted in
accordance with then applicable PRC Law and the provisions of this Contract and
the Articles of Association.     (b)   If the termination of the Company results
from a merger, consolidation or other business combination with another Person,
the assets and liabilities of the Company shall be transferred, assumed and
valued as provided in the contractual arrangements with respect to such merger,
consolidation or other business combination and applicable PRC Law.     (c)  
When the dissolution of the Company occurs otherwise than under the
circumstances set forth in Section 16.4(b), the Board shall formulate
liquidation procedures and principles, publish an announcement of the
liquidation in accordance with relevant regulations, provide written notice of
the liquidation to creditors of the Company and establish a liquidation
committee (the “Liquidation Committee”). The Liquidation Committee shall

 

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      be composed of four (4) members. Each Party shall have the right to
appoint two (2) members of the Liquidation Committee. Subject to the provisions
of Section 16.3, within ten (10) Business Days after the Board adopts a motion
to dissolve the Company, each Party shall deliver a notice to the other Party
stating the names of the members that it has appointed to the Liquidation
Committee pursuant to its right set forth in this Section 16.4(c) and shall
attach to such notice documentation evidencing that each such member has
consented to serve on the Liquidation Committee. If either Party (the
“Non-Appointing Party”) fails to deliver such notice within such ten
(10) Business Day period, then the other Party shall have the right to appoint
each member that has not been appointed within such ten (10) Business Day period
by the Non-Appointing Party. Each member of the Liquidation Committee shall have
one (1) vote. A quorum for convening a meeting of the Liquidation Committee
shall be three (3) members. If such quorum is not present within one (1) hour
after the time appointed for the commencement of the meeting, the meeting shall
be adjourned to such place and time (which is at least ten (10) days later or
such earlier date as shall be agreed by all of the members of the Liquidation
Committee) as the members who did attend shall decide. If a quorum is not
present within one (1) hour after the time appointed for such adjourned meeting,
any number of members of the Liquidation Committee shall constitute a quorum.
All decisions of the Liquidation Committee shall be adopted by simple majority
vote. The Company shall deliver to each member of the Liquidation Committee
written notice of each meeting of the Liquidation Committee at least ten
(10) Business Days prior to the date of such meeting or such shorter period as
agreed by all of the members of the Liquidation Committee.     (d)   The tasks
of the Liquidation Committee shall be to conduct a thorough survey of the
property, claims and debts of the Company, draw up a balance sheet and inventory
of assets of the Company, propose a basis for the valuation of the Company and
formulate a liquidation plan, all of which shall be implemented after it has
been submitted to and adopted by the Board. The approved liquidation plan shall
be submitted to the Examination and Approval Authority for the record.     (e)  
During the period of liquidation, the Liquidation Committee shall represent the
Company in any legal proceeding.     (f)   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 Company.     (g)   After payment of
third party claims, the balance of liquidation proceeds shall be distributed to
the Parties in proportion to their respective contributions to the Registered
Capital.     (h)   After the liquidation of the Company is completed, the
Liquidation Committee shall promptly submit a report thereon to a meeting of the
Board for approval and submission to the Examination and Approval Authority for
the record. The Liquidation Committee shall then carry out the procedures for
turning in

 

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      the Company’s Business License and canceling its registration at SAIC, and
at the same time, make a public announcement of such actions.

17.   Valuation   17.1.   Valuation Procedures       Upon the delivery of the
Valuation Notice by (i) Party B pursuant to Section 5.7 or (ii) either Party
pursuant to Section 16.3, the following procedures shall be used to determine
the fair market value of the Company:

  (a)   Within ten (10) Business Days after the date of delivery of the
Valuation Notice, either Party may deliver a notice (an “Appointment Notice”) to
the other Party appointing China Enterprise Appraisals Co., Ltd. or its
successor entity (“CEA”) to conduct an appraisal of the Company to determine its
fair market value (the “Initial FMV”). CEA shall provide both Parties with an
appraisal report within thirty (30) days after the date of its Appointment
Notice. The Company shall bear all costs and expenses associated with such
appraisal. Within five (5) Business Days after the receipt of such appraisal
report, each Party shall provide the other Party with a written notice
indicating whether such Party accepts the Initial FMV as determined by CEA. If
either Party fails to deliver such notice within such five (5) Business Day
period, it shall be deemed to have accepted the Initial FMV. If both Parties
accept the Initial FMV, then the Initial FMV shall be the final fair market
value of the Company (the “Final FMV”).     (b)   If either Party does not
accept the Initial FMV, then the Final FMV shall be determined as follows:

  (i)   The Party that does not accept the Initial FMV shall promptly appoint an
independent and reputable Chinese-foreign joint venture accounting firm
registered in the PRC (each an “Appraiser”) to conduct a second appraisal of the
fair market value of the Company (the “Second FMV”). The Appraiser selected to
determine the Second FMV shall be referred to as the “Second Appraiser.” The
Second Appraiser shall provide both Parties with an appraisal report within
thirty (30) days after the date of its appointment. The Party appointing the
Second Appraiser shall bear all costs and expenses associated with such
appraisal.     (ii)   If the difference between the Initial FMV and the Second
FMV is less than or equal to ten percent (10%) of the lower of the Initial FMV
and the Second FMV, then the Final FMV shall be equal to the average of the
Initial FMV and the Second FMV.     (iii)   If the difference between the
Initial FMV and the Second FMV is greater than ten percent (10%) of the lower of
the Initial FMV and the Second FMV, then CEA and the Second Appraiser appointed
in accordance with Section 17.1(b)(i) shall, within five (5) Business Days after
the date on which the second appraisal report was delivered to both Parties,
jointly

 

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      appoint a third Appraiser (the “Third Appraiser”) to undertake an
appraisal of the fair market value of the Company (the “Third FMV”).     (iv)  
If pursuant to Section 17.1(b)(ii), the two firms are unable to agree on the
Third Appraiser within such five (5) Business Day period, the Independent
Auditor of the Company shall promptly select a third Appraiser to determine the
Third FMV. Each Party shall have the right to present its opinion to the
Independent Auditor regarding the selection of the Third Appraiser. The Third
Appraiser selected by the Independent Auditor must be a qualified appraisal firm
which has not had any significant prior relationship with either Party or its
Affiliates. The Third Appraiser shall provide both Parties with an appraisal
report within thirty (30) days after the date of its appointment. The Company
shall bear all costs and expenses associated with such appraisal.     (v)   If
the Third FMV as determined in accordance with Section 17.1(b)(iii) or
17.1(b)(iv), as the case may be, falls within the range between the Initial FMV
and the Second FMV, then the Third FMV shall be the Final FMV. If the Third FMV
falls outside the range between the Initial FMV and the Second FMV, then the
Final FMV shall be equal to the average of (1) the Third FMV and whichever of
(2) the Initial FMV, or (3) the Second FMV, is closer to the Third FMV.

  (c)   If neither Party A nor Party B accepts the Initial FMV as determined by
CEA in accordance with Section 17.1(a), then the Initial FMV shall be
disregarded and the Final FMV shall be determined as follows:

  (i)   The Parties shall consult for a period of five (5) Business Days to
appoint an Appraiser to conduct an appraisal of the fair market value of the
Company. If the Parties agree upon an appraisal firm during such five
(5) Business Day period, the Parties shall promptly appoint such firm as the
Appraiser. The Company shall bear all costs and expenses associated with such
appraisal. The Appraiser shall provide both Parties with an appraisal report
within thirty (30) days after the date of its appointment. The fair market value
of the Company as determined by the Appraiser shall be the Final FMV.     (ii)  
If the Parties are not able to agree upon an appraisal firm during the five
(5) Business Day period set forth in Section 17.1(c)(i) above, then each Party
shall promptly deliver a notice to the other Party appointing an Appraiser to
determine the fair market value of the Company. If either Party fails to deliver
such a notice within fifteen (15) Business Days after CEA has delivered its
appraisal report to both Parties in accordance with Section 17.1(a), it shall be
deemed to have waived its right to appoint an Appraiser, and the Appraiser
appointed by the other Party shall be promptly appointed by the Company to
determine the Final FMV.

 

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  (iii)   If each of Party A and Party B appoints an Appraiser pursuant to
Section 17.1(c)(ii), then each of the two Appraisers appointed shall
independently undertake an appraisal of the fair market value of the Company
(the “Preliminary FMV”) and shall provide both Parties with an appraisal report
specifying the Preliminary FMV as determined by such Appraiser within thirty
(30) days after the date of its appointment. Each Party shall bear all of the
costs and expenses associated with the appraisal undertaken by its appointed
Appraiser.     (iv)   If the difference between the two Preliminary FMVs is less
than or equal to ten percent (10%) of the lower of the two Preliminary FMVs,
then the Final FMV shall be equal to the average of the two Preliminary FMVs.  
  (v)   If the difference between the two Preliminary FMVs is greater than ten
percent (10%) of the lower of the two Preliminary FMVs, then the two Appraisers
shall, within five (5) Business Days after the date on which the second
appraisal report was delivered to both Parties, appoint a third Appraiser to
undertake an appraisal of the fair market value of the Company.     (vi)   If
the two Appraisers are unable to agree on a third Appraiser within the five
(5) Business Day period set forth in Section 17.1(c)(v) above, the Independent
Auditor of the Company shall promptly appoint an Appraiser to conduct an
appraisal of the fair market value of the Company. Each Party shall have the
right to present its opinion to the Independent Auditor regarding the selection
of such Appraiser. The Appraiser selected by the Independent Auditor must be a
qualified appraisal firm which has not had any significant prior relationship
with either Party or its Affiliates.     (vii)   The Company shall promptly
appoint the Appraiser selected in accordance with Section 17.1(c)(vi) to
undertake an appraisal of the fair market value of the Company. Such Appraiser
shall provide both Parties with an appraisal report specifying the fair market
value of the Company as determined by such Appraiser (the “Third Appraiser’s
FMV”) within thirty (30) days after the date of its appointment. All of the
costs and expenses associated with such appraisal shall be borne by the Company.
    (viii)   If the Third Appraiser’s FMV falls within the range between the two
Preliminary FMVs, then the Third Appraiser’s FMV shall be the Final FMV. If the
Third Appraiser’s FMV falls outside the range between the two Preliminary FMVs,
then the Final FMV shall be equal to the average of (1) the Third Appraiser’s
FMV and (2) the Preliminary FMV whose value is closer to the value of the Third
Appraiser’s FMV.

  (d)   Each Appraiser appointed shall calculate and present to each of the
Parties its appraisal of the fair market value of the Company. In determining
the fair market value of the Company, each Appraiser shall take into account the
value of companies that are operating businesses that are similar to the
business

 

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  49

  operated by the Company as of the date of the appraisal and shall take into
account the following valuation methods:

  (i)   discounted cash flow of the Company;     (ii)   industry comparables;
and     (iii)   the cost replacement value of the assets of the Company.

  (e)   If at the time the appraisal is undertaken, the appraisal is required to
be conducted by a valuation company that is approved to issue valuations of
State-owned assets, each Appraiser appointed shall be such a valuation company.
    (f)   The determination of the Final FMV, in accordance with this Section 17
shall (in the absence of fraud) be final and binding on the Parties for the
purposes of this Contract.

18.   Liability for Breach of Contract   18.1.   Breach of Contract       A
Party shall be in breach of this Contract if:

  (a)   It has failed to fully perform or illegally ceased its performance of
any obligation under this Contract or any Relevant Contract to which it is a
party, or any of its Affiliates has failed to fully perform or illegally ceased
its performance of any obligations under any Relevant Contract to which such
Affiliate is a party, and such breach has not been remedied or rectified within
thirty (30) days after receipt of a written notice of such breach from the
Company or the other Party;     (b)   A representation or warranty made by such
Party hereunder is untrue or materially inaccurate;     (c)   It fails to make
its contributions to the Registered Capital when due as stipulated in
Section 5.3 of this Contract; provided that all conditions precedent to making
such contribution have been met or waived by the relevant Party;     (d)   It
fails to cause any director it appointed to vote for the approval of the Party B
Put Option or the Party B Deadlock Put Option in accordance with Section 5.7(d);
    (e)   It fails to cause any director it appointed either (i) to vote for the
approval of Transfer of either Party’s entire Equity Interest in the Registered
Capital of the Company to the other Party in accordance with Section 16.3; or
(ii) to attend in person or by proxy the meeting of the Board where such
decision was included in the agenda, thereby preventing the Board from making
such decision;

 

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  (f)   It ceases to carry on its business, or fails to pay its debts as and
when they fall due; or     (g)   It effectively prevents the other Party from
participating in the Board.

18.2.   Penalty for Breach Concerning Capital Contribution       If either Party
fails to pay its committed contributions to the registered capital of the
Company in accordance with Section 5.3 of this Contract, then, notwithstanding
any other provision contained in this Contract, such Party shall pay the Company
liquidated damages of two hundredths of one percent (0.02%) of its outstanding
payment for each day for the period commencing from the date when such
outstanding contribution is overdue until but not inclusive of such date that
the total outstanding payment is made; provided that all conditions precedent to
making such contribution have been met or waived by the relevant Party.  
18.3.   Liability for Breach of Contract

  (a)   Without prejudice to the rights of Party B pursuant to Section 5.7, if
the Company or a Party suffers any cost, liability or loss, including lost
profits of the Company, but not including any other consequential losses of
whatsoever nature, as a result of a breach of this Contract by any Party, the
Party in breach shall indemnify and hold the Company and the non-breaching Party
harmless in respect of any such cost, liability or loss, including interest paid
or lost as a result thereof.     (b)   Without limiting the generality of the
foregoing, each Party (the “Indemnifying Party”) shall indemnify, defend and
hold harmless the other Party and the Company (each, an “Indemnified Party”)
from and against all claims, losses, liabilities, damages, deficiencies,
judgments, assessments, fines, settlements, costs or expenses (including
interest, penalties and fees, loss of profits by the Company, expenses and
disbursements incurred by any Indemnified Party in any action or proceeding
between the Indemnifying Party and any Indemnified Party or between any
Indemnified Party and any third party, or otherwise) based upon, arising out of,
relating to or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Indemnifying Party or its
Affiliate contained in this Contract, any Relevant Contract or in any other
documents delivered by the Indemnifying Party pursuant to this Contract.

19.   Force Majeure   19.1.   Definition       In case of any unforeseeable
event directly preventing a Party from performing all or part of its obligations
hereunder, the occurrence and consequences of which cannot be prevented or
avoided (an “Event of Force Majeure”), such as earthquakes, typhoons, floods,
fires and other natural disasters, wars, riots and similar military actions,
civil unrest, epidemics, embargoes, expropriation, injunctions or other
restraints and actions of government (provided that the government authority
involved is not the department in charge of such Party or its Affiliate), then
the responsibilities and

 

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   obligations of such Party that is prevented by such Event of Force Majeure
(the “Prevented Party”) shall be handled in accordance with the provisions of
Section 19.2 hereunder.   19.2.   Consequences of Event of Force Majeure

  (a)   In case of an Event of Force Majeure, the liabilities arising out of the
Prevented Party’s failure to perform its obligations hereunder shall be released
in whole or in part, provided that all of the following conditions are met:
(i) the Event of Force Majeure was the direct cause of the stoppage, impediment
or delay encountered by the Prevented Party in performing its obligations under
this Contract; the Prevented Party (ii) notifies the other Party in writing
immediately after such Event of Force Majeure occurs, but in no case shall be
later than ten (10) Business Days after the occurrence thereof; (iii) has made
reasonable commercial efforts to mitigate the losses and take remedial measures.
    (b)   Subject to the conditions set forth in paragraph (a) above, and within
the extent of the effect of an Event of Force Majeure, the Prevented Party shall
not be liable for any damages, losses or increase in costs which the other Party
may sustain due to its non-performance or delayed performance caused by such
Event of Force Majeure, and such non-performance or delayed performance shall
not be deemed a breach of this Contract.     (c)   In case of an Event of Force
Majeure, the Parties shall, based on the effect of such event on the performance
of this Contract, discuss and decide whether to revise this Contract and whether
the Prevented Party should be partially or fully released from performing its
obligations hereunder.

20.   Confidential Information   20.1.   Confidentiality

  (a)   Any Party that receives any Confidential Information during the JV Term
(the “Receiving Party”) shall:

  (i)   keep the Confidential Information confidential;     (ii)   not disclose
the Confidential Information to any Person other than with the prior written
consent of the Company or the Party that disclosed such Confidential
Information, as the case may be, or in accordance with Sections 20.1(b) and
20.1(c); and     (iii)   not use the Confidential Information for any purpose
other than the performance of its obligations under this Contract or in
accordance with Section 20.1(a).

  (b)   The Receiving Party may disclose the Confidential Information only to
its designated employees (the “Recipients”) whose duties require such disclosure
for the implementation of this Contract. The Receiving Party shall take all
reasonable precautions, including the execution of confidentiality contracts

 

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      with each such employee or the inclusion of confidentiality clauses in the
individual employment contract with each such employee, to prevent such
employees from using Confidential Information for their personal benefit and to
prevent any unauthorized disclosure of such Confidential Information to any
third party.     (c)   Each Party shall use its best efforts to ensure that the
Company shall comply with all of the Receiving Party’s confidentiality
obligations herein as if the Company were a party to this Contract, including
the inclusion of confidentiality clauses in all employment contracts between the
Company and its employees.

20.2.   Exceptions

  (a)   The provisions of Section 20.1 shall not apply to:

  (i)   Confidential Information that is or becomes generally available to the
public other than as a result of disclosure by, or at the direction of, a Party,
any of its Recipients or the Company in violation of this Contract;     (ii)  
disclosure to the extent required under applicable Law or the rules of any stock
exchange applicable to a Party or any of its Affiliates; provided that such
disclosure shall be limited solely to the extent required by applicable Law or
the rules of any such stock exchange and, to the extent practicable, the Party
or the Company, as the case may be, that is the proprietor of the Confidential
Information subject to such disclosure shall be given an opportunity to review
and comment on the contents of the disclosure before it is made;     (iii)  
disclosure to the extent required by applicable Law or judicial or regulatory
process or in connection with judicial or arbitration process regarding any
legal action, suit or proceeding arising out of, or relating to, this Contract;
provided that the Party required to make the disclosure promptly notifies the
Company or the other Party, as applicable, so that the Company or such other
Party may seek an appropriate protective order, and if no such protective order
is obtained, the disclosing Party will only furnish that portion of the
Confidential Information that it is advised by counsel is legally required and
will exercise all commercially reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded to the disclosed Confidential
Information; and     (iv)   use of Confidential Information concerning the
Company by the Receiving Party after the termination of this Contract in
accordance with the provisions hereof where the Receiving Party is legally
permitted to continue to operate, whether directly or indirectly, and whether or
not in cooperation with any other Person or any other Party, the business of the
Company.

 

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20.3.   Publicity       Neither Party shall make any announcement about the
Company, this Contract or the other Party in relation to the Company, this
cooperation or the business of the Company without the prior written consent of
the other Party. Either of the Parties may at any time make announcements that
are required by applicable Law or the rules of any stock exchange applicable to
such Party or any of its Affiliates, so long as the Party so required to make
the announcement, promptly upon learning of such requirement, notifies in
writing the other Party of such requirement and discusses with the other Party
in good faith the exact wording of any such announcement and takes precautionary
measures to prevent disclosure of Confidential Information to the maximum extent
permitted.   21.   Governing Law       The formation, validity, interpretation,
performance, modification and termination of this Contract and settlement of
disputes under this Contract shall all be governed by the Laws of the PRC. When
the Laws of the PRC do not cover a certain matter, international legal
principles and practices shall apply.   22.   Dispute Resolution   22.1.  
Consultation       Any dispute, controversy or claim arising out of or relating
to this Contract, or the performance, interpretation, breach, termination or
validity hereof (a “Dispute”), shall be resolved through friendly consultation.
Such consultation shall begin immediately after one Party has delivered to the
other Party a written request for such consultation stating specifically the
nature of the Dispute (a “Dispute Notice”). If within thirty (30) days following
the date on which such Dispute Notice is received the Dispute has not been
resolved, on the thirty-first (31st) day after the date of the Dispute Notice,
each Party shall refer the Dispute to the Chairman of the parent company of such
Party (the “Parent’s Chairman”). The Parent’s Chairman of each Party shall
discuss, and meet in person if practicable, within ten (10) days thereafter (the
“Commencement Date”). If the Parent’s Chairman of the Parties are unable to
resolve the Dispute within thirty (30) days after the Commencement Date, after
such thirty (30) day period, the Dispute may be submitted to arbitration upon
the request of any Party with notice to the other Party.   22.2.   Arbitration

  (a)   The arbitration shall be conducted in Singapore under the auspices of
the Arbitration Center.     (b)   There shall be three (3) arbitrators. Each
Party shall appoint one (1) arbitrator. All selections shall be made within
thirty (30) days after the selecting Party gives or receives the demand for
arbitration. Such arbitrators shall be freely selected, and the Party shall not
be limited in their selection to any prescribed list. If any arbitrator to be
appointed by a Party has not been appointed and consented to participate within
thirty (30) days after the selection of the first arbitrator, the relevant
appointment shall be made by the Chairman of the

 

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      Arbitration Center. The third arbitrator shall act as the presiding
arbitrator and shall be appointed by agreement of the Party-appointed
arbitrators. If no agreement on such appointment can be reached within ten
(10) days after the date on which the second of the first two arbitrations is
appointed, the Chairman of the Arbitration Center shall make the appointment.
Absent the express written consent of the Parties to the contrary, in no event
shall the presiding arbitrator, regardless of how appointed, be of the same
nationality as either Party.     (c)   The arbitration proceedings shall be
conducted in English and Chinese. The arbitration tribunal shall apply the rules
of the Arbitration Centre in effect at the time of the arbitration. However, if
such rules are in conflict with the provisions of this Section 22.2, upon
agreement by the Arbitration Centre as provided in the rules of the Arbitration
Centre, the provisions of this Section 22.2 shall prevail.     (d)   Each Party
shall cooperate with the other Party in making full disclosure of and providing
complete access to all information and documents requested by the other Party in
connection with such proceedings, subject only to relevance, privilege and any
confidentiality obligations binding on such Party.     (e)   The award of the
arbitration tribunal shall be final and binding upon the disputing Parties, and
the winning Party may, at the cost and expenses of the losing Party, apply to
any court of competent jurisdiction for enforcement of such award.     (f)  
Each Party irrevocably consents to the service of process, notices or other
documents in connection with or in any way arising from the arbitration or the
enforcement of any arbitral award, by use of any of the methods and to the
addresses for the giving of notices set forth in Section 23. Nothing contained
herein shall affect the right of any Party to serve such processes, notices or
other documents in any other manner permitted by applicable law.     (g)  
Without prejudice to the provisions contained in this Section 22.2, in order to
preserve its rights and remedies, any Party shall be entitled to seek
preservation of property or evidence or any other emergency relief in accordance
with law from any court of competent jurisdiction, the Centre or the arbitration
tribunal pending the final decision or award of the arbitration tribunal.

22.3.   Continued Performance of this Contract       During the period when a
Dispute is being resolved, except for the matter being disputed, the Parties
shall in all other respects continue to perform their obligations under this
Contract.

 

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23.   Miscellaneous   23.1.   Articles of Association       The Articles of
Association have been completed in accordance with the various principles
stipulated in this Contract and PRC Laws. If there is any inconsistency between
this Contract and the Articles of Association, this Contract shall govern.  
23.2.   Survival       The agreements of the Parties contained in
Section 5.7(f), Section 16, Section 18, Section 20, Section 22 and this
Section 23.2 shall continue to survive after the expiration or termination of
this Contract and the dissolution of the Company.   23.3.   Language       This
Contract is executed in Chinese and English. The two language texts shall have
equal validity and legal effect. Each Party hereby acknowledges that it has
reviewed both language texts of this Contract and that they are the same in all
material respects.   23.4.   Notices       Notices or other communications
required to be given by either Party pursuant to this Contract shall be provided
in writing in both English and Chinese, and delivered by personal delivery,
international courier service or facsimile to the other Party’s address set
forth in Section 23.5 below, (or such other address or facsimile number as the
addressee has by ten (10) days prior written specified to the other Party).
Dates on which the notices shall be deemed as served shall be determined on the
following principles:

  (a)   if by personal delivery, on the date of delivery;     (b)   if by
international courier service on the seventh (7th) day after delivery to an
internationally accepted courier service (as indicated by the receipt issued by
such courier service); and     (c)   if by facsimile, upon receipt of the notice
confirming the delivery.

23.5.   Address and Fax Number for Notices       If to Party A: Sinopec Yizheng
Chemical Fibre Co., Ltd.

         
 
  Address:   Yizheng, Jiangsu Province

      PRC 211900
 
       

  Attention:   Office of Sinopec Yizheng Chemical Fibre Company Limited
 
       

  Facsimile:   [+86] (514) 323-3880

 

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    If to Party B: Unifi Asia Holding, SRL

         

  Address:   7201 West Friendly Avenue

      Greensboro, NC 27410

      USA
 
       

  Attention:   Charles McCoy, Vice President
 
       

  Facsimile:   [+1] (336) 856-4364

23.6.   Entire Agreement       This Contract (including the attachments,
appendices and schedules hereto) and the Relevant Contracts constitute the sole
and entire agreement between the Parties on the subject matter contained herein,
and shall supersede all previous agreements, contracts, understandings and
communications, either written or oral, between the Parties on the subject
matter.   23.7.   Good Faith       The Parties shall use their best efforts to
implement the terms of this Contract and carry out their respective
responsibilities hereunder in good faith and in accordance with Laws.   23.8.  
Waiver       No waiver of any provision of this Contract shall be effective
unless set forth in a written instrument signed by the Party waiving such
provision. No failure or delay by a Party in executing any right, power or
remedy under this Contract shall operate as a waiver thereof, nor shall any
single or partial exercise of the same preclude any further exercise thereof or
the exercise of any other right, power or remedy. Without limiting the
foregoing, no waiver by a Party of any breach by any other Party of any
provision hereof shall be deemed to be a waiver of any subsequent breach of that
or any other provision hereof.   23.9.   Severability       In the event any one
or more of the provisions contained in this Contract is held under any
applicable PRC Law to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The Parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.   23.10.   Non-assignment       This Contract shall be binding upon
and shall inure to the benefit of both Parties and their respective successors
and permitted transferees. Unless otherwise permitted

 

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    herein, neither Party shall assign any of its rights and obligations
hereunder to any third party without the other Party’s prior written consent.  
23.11.   Counterparts       This Contract and any amended versions hereof or any
other agreements delivered pursuant to this Contract may be executed in one or
more counterparts. All of these counterparts shall constitute the same
agreement, and shall take effect upon each Party’s execution of one or more of
such counterparts and delivery to the other Party (unless otherwise stipulated
in such agreement).       This Contract shall be executed in 8 English and 8
Chinese counterparts. One counterpart of each language text shall be retained by
each Party, two counterparts of each language text shall be submitted to the
Examination and Approval Authority and one counterpart of each language text
shall be submitted to SAIC. Three counterparts of each language text shall be
retained in the records of the Company and, if required, shall be provided to
other governmental authorities.   23.12.   Amendment       Amendments to this
Contract may only be made by a written agreement signed by each Party in both
Chinese and English texts, each of which shall have equal validity and legal
effect, and which shall be submitted to the Examination and Approval Authority
(or its successor) for approval before they can become effective.   23.13.  
Changes in Law       If, after the date this Contract is signed, any central or
local government agency of the PRC makes any change in any provision of any Law,
including amendment, supplementation or repeal of an existing Law, or
introduction of a different interpretation or method of implementation of an
existing Law (each, a “Change”), or promulgates a new Law (each, a “New
Provision”), the following shall apply:

  (a)   If a Change or a New Provision is more favorable to the Company or any
of the Parties than the relevant Law in effect on the date this Contract was
signed (and the other Party is not materially and adversely affected thereby),
the Company and the Parties shall promptly apply to receive the benefits of such
Change or New Provision. The Company and the Parties shall use their best
efforts to cause such application to be approved.     (b)   If, after the
Approval Date and because of such Change or New Provision, the economic benefits
of the Company or of any Party under this Contract are materially and adversely
affected, directly or indirectly, then this Contract shall continue to be
implemented in accordance with its original terms. If the adverse effect on the
Company’s or on any Party’s economic interests cannot be resolved pursuant
hereto, upon notice by the affected Party to the other Party, the Parties shall
consult promptly and make all such amendments to this Contract as are required
to maintain the affected Party’s economic benefits hereunder.

 

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The Parties hereto have caused this Contract to be executed as of the date first
above written by their duly authorized representatives in Yizheng, Jiangsu
Province, PRC.

             
Party A:
      Party B:    
 
            Sinopec Yizheng Chemical Fibre Company Limited   UNIFI Asia Holding
SRL
 
           
Signature:
  /s/ Xu Zheng-ning   Signature:   /s/ Brian R. Parke

           
Name:
  Xu Zheng-ning   Name:   Brian R. Parke