EXHIBIT 41
 
AGREEMENT ON
 
EQUITY TRANSFER
 
AND
 
CAPITAL INCREASE
 
BETWEEN
 
WINNER GROUP LIMITED
 
 
AND
 
 
LOHMANN & RAUSCHER LIMITED, Hong Kong
 

 
Project: Winner Xishui / PRC
 

 
 
BEITEN BURKHARDT
Hong Kong Office
14th Floor • Hong Kong Diamond Exchange Building
8-10 Duddell Street • Central • Hong Kong
Tel + 852 2524 6468 • Fax + 852 2524 7028
Email : BBLAW-HONGKONG@BBLAW.DE

Dated : 8 April 2005
 
 
 

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This Agreement on Equity Transfer and Capital Increase ("Agreement") is made and
entered into on 8 April, 2005 between:
 
(1)
WINNER GROUP LIMITED, a company incorporated in the Cayman Islands whose
registered office is situated at Scotia Centre, 4m Floor, P.O. Box 2804, George
Town. Grand Cayman, Cayman Islands ( "Seller"); and

 
(2)
LOHMANN & RAUSCHER LIMITED, a company incorporated in Hong Kong whose registered
office is situated at 14/F, Hong Kong Diamond Exchange Building, 8-10 Duddell
Street, Central, Hong Kong ("Buyer").

 
(the Seller and the Buyer hereinafter collectively referred to as the "Parties",
and if the situation requires, in the singular form referred to as the "Party").
 
PREAMBLE
 
(A)
Winner Medical & Textile Ltd., Xishui ("Xishui Winner") is a wholly foreign
owned enterprise duly incorporated and existing under the laws of the People's
Republic of China ("PRO"), registered with the State Administration of Industry
and Commerce in Huanggang City of Hubei Province on16 April 2003 with a term of
15 years commencing from 9 April 2003. A copy of Xishui Winner's business
license is attached hereto as Annex 1.

 
(B)
The Seller holds 100 percent of the equity interest in Xishui Winner in
accordance with the Articles of Association of the WFOE.

 
(C)
Xishui Winner has been registered with a total investment of US$ 4.300,000, and
it has a registered capital of US$ 2,420,000.00 of which only US$2,161,600.00
has been contributed by the Seller before 28 February 2005 resulting in a
remaining unpaid balance of US$ 258,400.00 ("Outstanding Capital") as at 28
February 2005.

 
(D)
The Seller is willing to sell and the Buyer to purchase sixty percent (60%) of
the equity interest in Xishui Winner ("Equity"), and the Parties will thereby
become the two shareholders of Xishui Winner on the terms set out in this
Agreement.

 
NOW, therefore, the Parties hereby agree as follows:
 
ARTICLE 1
 
TRANSFER OF EQUITY INTEREST
 
The Seller agrees to transfer to the Buyer, and Buyer agrees to acquire the
Seller's equity interest in Xishui Winner, i.e. 60% of the paid in registered
capital of US$2,161.600.00 (hereinafter referred to as the Transferred
Interest") in Xishui Winner and Buyer hereby accepts Seller's transfer of the
equity interest in the Company to the intent that the benefits rights and
obligations of the Parties in Winner Xishui shall be as follows starting from 1
March 2005 (unless otherwise specified to the contrary herein or in the Articles
of Association) :
the Seller: 40%
the Buyer: 60%
 
 
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ARTICLE 2
 
TRANSFER PRICE / PAYMENT
 

2.1  
The Parties agree that consideration for the Transferred Interest shall be
determined as follows:

 

2.1.1  
The consideration to be paid by the Buyer to the Seller for the Transferred
Interest transferred by the Seller shall be United States Dollars two million
four hundred thousand (US$ 2,400,000.00) ("Transfer Price").

 

2.1.2  
The Buyer shall make the payment of the Transfer Price to the Seller in a lump
sum within two (2) working days after the Buyer has received a written notice
from the Seller informing that all necessary government approvals for this
Agreement as mentioned in Article 6 have been obtained and the new business
license of Xishui Winner showing its shareholders and their equity ratio
comprised of the Seller (40%) and the Buyer (60%) has been duly issued together
with certified true copies of all relevant supporting documents for
verification. For the purpose of this Agreement, working days shall mean
business days in Federal Republic of Germany.

 

2.2  
The Buyer shall pay any amount due pursuant to Article to the following account
of the Seller:

 
Account Holder: Winner Group Limited
Bank Name: Standard Chartered Bank, Hong Kong Branch
Account Number: 413-1-068813-0
SWIFT Code: SCBL HK HH
 
ARTICLE 3
 
INCREASE OF AND CONTRIBUTION TO THE REGISTERED CAPITAL
 

3.1  
The Parties have estimated that an additional capital of US$ 400,0 shall be
required for the following purpose:

 

3.1.1  
construction and fitting cost of a new warehouse at the premises of Xishui
Winner shall be around US$ 350,0; this is a capital investment; and

 

3.1.2  
purchase of additional equipment and storage facilities for the new warehouse
mentioned in Article ; costs shall be around USS 0; this is a capital investment

 
 
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3.2  
Both Parties unanimously agreed that they shall jointly increase the capital of
the Xishui Winner by US$ 400,0 based on the registered and fully paid up capital
of US$2,161,600 so that the registered capital of Xishui Winner will increase to
US$2,561,6. Since Xishui Winner has already completed the procedure for
registration of US$2,420,000 as its registered capital with local government
departments, it only has to apply with the government department for a capital
increase of US$141,600 ("Additional Capital") after the transfer of equity
interest.

 

3.3  
The Outstanding Capital together with the Additional Capital shall form the
amount to meet the purpose mentioned in Article .

 

3.4  
The Parties shall contribute the Outstanding Capital and Additional Capital in
the following manner:

 

3.4.1  
The Seller shall contribute 40%, amounting to United States Dollars one hundred
and sixty thousand (US$ 160,000) in cash and remit such amount to the Xishui
Winner's bank account in the following manner :-:

 
US$160,0 in March 2005; in fact, the Seller has already paid in a sum of
US$258,4 as capital to Winner Xishui and has arranged capital verification
procedure. This means that the Seller has already prepaid a sum of US$98,4 as
capital on behalf of the Buyer.
 

3.4.2  
The Buyer shall contribute 60%, amounting to United States Dollars two hundred
and forty thousand (US$ 240,0) in cash and remit a sum of US$ 141,6 to the
Xishui Winner's bank account within 30 calendar days after receiving a written
notice of the change of Winner Xishui's business licence and in any event no
later than 30 days after the Effective Date. In view that the Seller has already
prepaid a sum of US$98,4 as registered capital for the Buyer, so the Buyer shall
directly remit that part of capital in a sum of US$98,4 to the designated
account of the Seller.

 

3.5  
Upon making of the above, the Seller will hold 40% of the registered capital
equivalent to United States Dollars one million twenty-four thousand six hundred
and forty (US$ 1,024,6) and the Buyer will hold 60% of the registered capital
equivalent to United States Dollars one million five hundred thirty-six thousand
nine hundred and sixty (US$ 1,536,9) of Xishui Winner.

 

3.6  
Save as otherwise provided under Article 3 or in the revised Articles of
Association of Xishui Winner, neither party is obliged to provide any financial
assistance to Xishui Winner and any future financing matters shall be determined
in accordance with the provision under the revised Articles of Association of
Xishui Winner based on the business needs of Xishui Winner.

 
 
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ARTICLE 4
 
OTHER SPECIAL AGREEMENT
 

4.1  
The Seller shall:

 

4.1.1  
be solely responsible for all debts and liabilities of Xishui Winner existing or
accrued before 1 March 2005;

 

4.1.2  
entitled to all receivables of Xishui Winner existing or accrued before 1 March
2005;

 

4.1.3  
undertake to keep Xishui Winner indemnified for any debts or liabilities accrued
before 1 March 2005 if such debts or liabilities are not duly settled before 1
March 2005; and

 

4.1.4  
pay in cash to balance the loss and the pre-operating expenses of Xishui Winner
up to 28 February 2005 to become zero on the basis that the amortization of the
relevant costs shall not be beyond 28 February 2005 and if this is not
permissible under PRC accounting rules, then the Seller agrees to make special
provision under the financial statements in order to achieve the same effect as
if no loss will be carried forward to the period starting from 1 March 2005.

 

4.2  
The Parties further mutually agree as follows:

 

4.2.1  
to continue with the use of the current Chinese name of Xishui Winner NNW i.e.
Wen Jian in Chinese) but shall rename the English name of Xishui Winner to "L+L
Healthcare Hubei Co. Ltd";

 

4.2.2  
the management structure and the appointment of key personnel of Xishui Winner
shall be in accordance with the provision stipulated under the revised Articles
of Association of Xishui Winner;

 

4.2.3  
matters requiring unanimous consent of the Parties and the board of directors
shall be in accordance with the provision stipulated under the revised Articles
of Association of Xishui Winner;

 

4.2.4  
the business, sales, pricing and non-competition issues in accordance with the
provision stipulated under the revised Articles of Association of Xishui Winner;

 

4.2.5  
provision of operational assistance from Winner Group and Mr. Li Jian Quan shall
be in accordance with the provision stipulated under the revised Articles of
Association of Xishui Winner;

 

4.2.6  
transfer of equity interest by the Parties shall be in accordance with the
provision stipulated under the revised Articles of Association of Xishui Winner;

 

4.2.7  
the dividend policy in accordance with the provision stipulated under the
revised Articles of Association of Xishui Winner.

 
 
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ARTICLE 5
 
AMENDMENTS TO THE ARTICLES OF ASSOCIATION
 

5.1  
As per the Effective Date, the Articles of Association including its Annexes (if
any) shall be modified as agreed in the "Third Amendment to the Articles of
Association of "Winner Medical & Textile Ltd., Xishui ", attached as Annex 3 to
this Agreement.

 
ARTICLE 6
 
CONDITIONS PRECEDENT AND CLOSING
 

6.1  
The closing (hereinafter referred to as the "Closing") will be effective on the
date ("Effective Date") that all the conditions precedent (as specified in
Article through Article ) are completed.

 

6.1.1  
The board of directors of the Seller and the board of directors of the Buyer
have approved the transactions contemplated by this Agreement. Such approvals
shall forthwith be attached to this Agreement in the Annex 2.

 

6.1.2  
The issuance of an approval certificate by the original examination and approval
authority stating the shareholding ratio of the Seller and the Buyer is 40% :
60% as mentioned in Article 1 and the issuance of a corresponding business
license export / import licence, customs registration etc. by the responsible
registration authority in accordance with the applicable laws.

 

6.1.3  
Written evidence of the audited financial statements of Xishui Winner for the
period up to 28 February 2005 satisfactory to the Buyer proving that the Seller
has at its own costs equalized the profit and loss of Xishui Winner to the
effect that the opening balance of Xishui Winner is zero as at 1 March 2005.

 

6.1.4  
The verification certificate issued by the competent examination authority in
charge of Xishui Winner confirming that the Seller has contributed the
Outstanding Capital.

 

6.1.5  
The issuance of an approval certificate by the original examination and approval
authority stating the registered capital of Winner Xishui has been increased to
US$ 2,561,6 and the issuance of a corresponding business license by the
responsible registration authority in accordance with the applicable laws.

 

6.1.6  
The registration of this Agreement by the relevant PRC authority without
altering its terms and conditions on any Party unless each Party has been
notified in advance of and consented in writing to such alteration.

 

6.1.7  
The approval document for the "Third Amendment to the Articles of Association of
"Winner Medical & Textile Ltd., Xishui", attached as Annex 3 has been issued to
Xishui Winner.

 
 
 
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6.1.8  
All the approval documents as mentioned under this Article to have been handed
over to the Parties by the competent examination and approval authority in
charge of Xishui Winner.

 

6.2  
The Parties shall use their reasonable endeavors to ensure that the conditions
precedent to the effectiveness of this Agreement shall be fulfilled within 2
months after the date of this Agreement. In the event that these conditions
precedent have not been fulfilled within 2 months after the date of this
Agreement or such other later date as the Parties may agree in writing, then the
Buyer may rescind this Agreement in accordance with Article .

 

6.3  
Each Party shall bear the costs incurred in the fulfillment of the conditions
precedent to the effectiveness of this agreement by each Party.

 
ARTICLE 7
 
MANAGEMENT OF XISHUI WINNER PRIOR TO THE CLOSING
 

7.1  
The Seller undertakes that during the period from the date of execution of this
Agreement until the Closing, the management of Xishui Winner:

 

7.1.1  
will not engage in any activity or enter into any commitment in this respect
outside the ordinary course of business of Xishui Winner;

 

7.1.2  
will carry on the business of Xishui Winner consistently and without
interruption, in particular with respect to settlement of claims, collection of
outstanding debts, personnel and related costs;

 

7.1.3  
will not hire or commit to hire any regular employees unless otherwise agreed
with the Buyer; and

 

7.1.4  
will grant the Buyer access to Xishui Winner's books and records, contracts,
corporate files, lawsuit files and other documents, to the extent reasonably
required by the Buyer in order to evaluate Xishui Winner's business and
financial position. The Seller shall notify the Buyer of any confidentiality
obligations owed to third parties and shall communicate to the Buyer in a
reasonable way of the contents of such documents which the Seller cannot
disclose because of such obligations.

 
 
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ARTICLE 8
 
REPRESENTATIONS AND WARRANTIES OF THE BUYER
 

8.1  
The Buyer represents and warrants to the Seller that as of the date hereof and
as of the Closing:

 

8.1.1  
The Buyer is a company organized and validly existing under the laws of the Hong
Kong, and has all requisite power and authority to enter into this Agreement and
to consummate the transactions contemplated thereby. This Agreement constitutes
legal, valid and binding obligations of the Buyer.

 

8.1.2  
The execution of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof will not result in a
breach of any of the terms or provisions of, or constitute a default under or
conflict with, any agreement to which the Buyer is a party, the Articles of
Association/Charter of the Buyer, any decree of any court or governmental body
or arbitrator by which the Buyer is bound or any law, rule or regulation
applicable to the Buyer.

 

8.1.3  
All consents, approvals, authorizations and other requirements described by law
or otherwise which must be obtained or satisfied by the Buyer in order to permit
the consummation of the transactions contemplated by this Agreement have been
obtained and satisfied.

 

8.1.4  
No lawsuit, arbitration or other legal or governmental proceeding is pending or,
to the Buyer's knowledge, threatened against it that would affect Buyer's
ability to perform its obligations under this Agreement.

 

8.2  
If any of the representations and warranties assumed by the Buyer in Article
above is totally or partially incorrect, the Buyer shall be liable for all
direct damages incurred by the Seller because of this incorrectness or breach.
The liability for any indirect losses or damages shall be excluded.

 
ARTICLE 9
 
REPRESENTATIONS AND WARRANTIES OF THE SELLER
 

9.1  
The Seller represents and warrants to the Buyer that as of the date hereof and
as of the Closing:

 

9.1.1  
The Seller has a good title to the Transferred Equity and good title will vest
with the Buyer upon assignment and transfer of the Transferred Equity pursuant
to this Agreement, free and clear of restrictions, encumbrances or any third
party rights whatsoever. The Seller has obtained all consents, approvals and
authorizations in order to permit the consummation of the transactions
contemplated by this Agreement. This Agreement constitutes legal, valid and
binding obligations of the Seller.

 
 
 
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9.1.2  
The execution of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof will not result in a
breach of any of the terms or provisions of, or constitute a default under or
conflict with, any agreement to which the Seller is a party, the Articles of
Association/Charter of the Seller, any decree of any court or governmental body
or arbitrator by which the Seller is bound or any law, rule or regulation
applicable to the Seller.

 

9.1.3  
The Articles of Association of Xishui Winner and their amendments, enclosed in
the Annex 4, are the currently valid Articles of Association of Xishui Winner.
The revised Articles of Association as agreed between the Seller and the Buyer,
are attached in the Annex 3.

 

9.1.4  
The Seller is not a party to, subject to or bound by any agreement or judgment
or decree of any court or governmental body which would prevent the execution or
performance of this Agreement including all Annexes by the Seller or the
transfer of the Transferred Equity pursuant to the terms in this Agreement.

 

9.1.5  
The registered capital of Xishui Winner has been fully paid in as described in
Preamble (C)and not been repaid to the Seller in whole or in part.

 
None of the following events will occur between signing of this Agreement and
the Closing:
 

 
(1)
transfer of assets of any kind of Xishui Winner to the Seller, and/or any of its
affiliates, and/or any third party;

 

 
(2)
transactions of Xishui Winner outside its business scope;

 

 
(3)
any material changes in the financial conditions, assets, liabilities or
business of Xishui Winner as reflected in the Financial Statements for the
period up to 28 February 2005 attached in the Annex 5, and no such material
adverse change is likely to occur, in particular the Seller guarantees that it
will pay in cash to balance the loss of Xishui Winner up to 28 February 2005 to
become zero and that on 1 March 2005:

 
• Cash in the amount of at least RMB 159,4 is available;
 
• Inventory with a value of at least RMB 1,490,1 exists;
 
• Trade Receivables amount to at least RMB 287,4 ;
 
• Trade Payables amount to not more than RMB 1,078,1
 

 
(4)
the net profit and loss for the period commencing 1 March 2005 will be pro rata
between the Seller and the Buyer based on their shareholding of 40% : 60%;

 
 
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(5)
substantial amendments, supplementation or terminations of important agreements
of contracts to which Xishui Winner is a party of; or

 

 
(6)
an obligation to increase the salary of an employee, including the General
Manager of Xishui Winner.

 

9.1.6  
Xishui Winner is the legal and exclusive owner of the land use rights (basically
50 years) as described in the state land use right certificate and building
ownership certificate attached hereto in the Annex 6. Xishui Winner has paid the
total amount of the land use right grant fees and relevant taxes applicable in
full, and the respective official receipts have been issued to Xishui Winner.

 

9.1.7  
All of the payment obligations of Xishui Winner arising out of or related to any
tenancy agreements (if any) entered into by Xishui Winner have been fulfilled.

 

9.1.8  
The Annex of this Agreement contains a true, correct and complete list of all
the employees of Xishui Winner and the salaries and wages applicable upon the
execution of this Agreement.

 

9.1.9  
All contracts or agreements concluded prior to the signing of this Agreement to
which Xishui Winner is a party have been performed by Xishui Winner pursuant to
the contractual terms and conditions.

 

9.1.10  
Within the time and manner prescribed by law or. if it was not the case, without
ensuing legal effects, Xishui Winner has filed all PRC national and/or local tax
returns including Individual Income Tax returns for its staff and personnel
and/or tax returns of foreign countries, having jurisdiction to levy taxes upon
Xishui Winner and Xishui Winner has paid all customs duties and social security
contributions and social benefits for its employees (except those "part time
jobs" which are more or less free of social costs under PRC's rules) required by
PRC laws and regulations. Up to the date of the Closing for which taxes, customs
duties and social security contributions will become due, such taxes, customs
duties and social security contributions have been paid in full.

 
All taxes, customs duties, other debts or liabilities which become due and
payable after 28 February 2005 but result from the time before 1 March 2005 will
be borne by the Seller.
 
No fiscal issues have been raised in connection with any prior or pending
reviews or audit of said PRC national and/or local or foreign tax return which
the Seller reasonably believes may be expected to be raised again in the future
by such tax authority.
 

9.1.11  
No action, lawsuit or proceeding to which Xishui Winner is a party (either as
plaintiff, defendant or any type of intervening party) is pending before any
court or governmental agency, authority or body or arbitrator, and there is no
action, suit or proceeding threatened against Xishui Winner.

 
 
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No order, judgment or decree of any court or other tribunal is in existence on
the date hereof and ordering or requiring Xishui Winner to take any action of
any kind with respect to its business, assets, properties.
 
Xishui Winner has duly complied with all environmental requirements under the
relevant PRC regulations affecting its business. No environmental issue or
problem is in existence on the date hereof and there is no potential action,
suit or proceeding threatened Xishui Winner to take any action of any kind with
respect to its business, assets, properties.
 

9.1.12  
Xishui Winner has upon Closing no liabilities or obligations of any nature
except for those arisen from the ordinary course of business and except for the
salaries, wages and other costs related to the employment of the employees for
the calendar month in which the Closing takes place.

 

9.1.13  
Xishui Winner has not entered into any license agreements (except the item
mentioned under Article ) whatsoever.

 

9.1.14  
Xishui Winner is under no regulations, stipulations or agreements obliged to
erect any other buildings in addition to the existing buildings.

 

9.1.15  
There are no other contracts resulting in material liabilities and entered into
by Xishui Winner than those listed in this Article .

 

9.1.16  
Xishui Winner has obtained all valid environmental and operational approvals and
permits (including its own import and export license) required under PRC law
necessary for its legally valid existence and the continuation of production as
defined in its business scope.

 

9.1.17  
With the exception of the existing license (not in writing) from the affiliated
company of the Seller to permit Xishui Winner to use the trademark [Chinese
character] (i.e. Wen Jian in Chinese)" as described in the trademark
registration certificate attached hereto in the Annex 7, Xishui Winner does not
own any patents, service marks and similar industrial property rights and there
is no other license agreement regarding such industrial property rights and
there are no infringement claims with respect to such industrial property
rights.

 

9.1.18  
The Seller undertakes that the affiliated company of the Seller will provide a
written license to allow Xishui Winner to use the trademark mentioned in Article
and will provide the Buyer with all necessary filing documents upon Closing.

 
Any government fees regarding the transfer of the trademarks will be borne by
Xishui Winner.
 

9.1.19  
The fixed and movable assets as listed in the Annex 8 are owned by and in the
possession of Xishui Winner and there are no fixed and movable assets belonging
to Xishui Winner but leased to a third party.

 
 
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9.1.20  
The Seller herewith assigns to the Buyer its 60% of all claims and rights which
may arise or have arisen against Xishui Winner, including but not limited to
rights to dividends and profits derived out of business commencing from 1 March
2005 and the Seller confirms that by virtue of such assignment the Seller's
claims have been reduced to 40% against Xishui Winner.

 

9.1.21  
All certificates, approvals and other official documents, all contracts,
receipts and other accounting documents, all construction plans and all other
files, no matter whether original or copy, will be and stay upon Closing in the
possession of Xishui Winner. In the event that a document referred to in the
foregoing sentence is missing the Parties shall use their best efforts to obtain
such document.

 

9.1.22  
The Seller herewith agrees that the Buyer may transfer any rights or obligations
under this Agreement to any affiliated company of the Buyer.

 

9.1.23  
All information (including but not limited to those translated into English
language) given to the Buyer in the context of this Agreement is correct and
complete, and the Seller has disclosed any information which is relevant for the
decision of the Buyer to enter into this Agreement at all and at the terms and
conditions provided for herein.

 

9.1.24  
Between the date of signing this Agreement and the date of the issuance of the
new business license as defined in Article above or the date of the successful
increase of registered capital as defined in Article above, whichever is later,
Xishui Winner shall not, except for the needs of normal production operations,
entered into any contract which incurs liability exceeding fifty thousand (RMB
50,000); neither the land, the land-use right as defined in Article above refers
to, nor any buildings or structures on such land have been damaged or destroyed,
nor other changes been made. However, indispensable and urgent expenditures
exceeding fifty thousand (RMB 0) outside the scope of normal production
operations and required by the course of business may only be made after
obtaining the written approval of the Buyer.

 

9.1.25  
The Seller has ensured that the bankers of Xishui Winner are notified on the
equity transfer if any existing agreement requires such disclosure prior to any
equity transfer.

 

9.2  
If any of the representations and warranties assumed by the Seller in Article
above is totally or partially incorrect, the Seller shall be liable for all
direct damages incurred by the Buyer and/or Xishui Winner accordingly. The
liability for any indirect losses or damages shall be excluded.

 
The Seller shall be liable for any damage or other financial burden which incurs
or may incur to the Buyer by intentional or negligent acts or omissions occurred
until the Closing.
 
The Buyer shall be entitled to claim, or to detain or reduce the Transfer Price
mentioned in Article 2 by all taxes, customs duties, debts or liabilities which
become due and payable after 28 February 2005 but result from the time before 1
March 2005. However, such right shall not apply if the aforesaid sums have
already been duly provided in the financial statement of Xishui Winner before 28
February 2005 unless the provisions become untrue.
 

9.3  
Notwithstanding Articles 9.1 and 9.2 above, the Seller undertakes to fully
indemnify Xishui Winner and the Buyer in case Xishui Winner is or may be held
liable by any PRC authorities or any third parties for any and all liabilities
of Xishui Winner arising out of or related to Xishui Winner's operations prior
to 1 March 2005, including but not limited to tax liabilities, labor liabilities
(overtime payment, social insurance contributions, annual leave payments and
etc.), land use liabilities, contractual liabilities.

 
 
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ARTICLE 10
 
TERMINATION OF THE AGREEMENT
 

10.1  
If any of the representations and warranties of either Party made in Article
above and Article above are found to be untrue, misleading or incorrect, or if
any Party defaults its obligations under this Agreement and fails to remedy the
same within 30 days after receiving a written notice from the other Party to do
so, then the other Party shall have the right to terminate this Agreement by
written notice without liability on its part but without prejudice to any other
rights it may have under this Agreement and / or the laws of the PRC.

 

10.2  
This Agreement may be terminated by the Buyer by giving written notice to the
other if:

 

10.2.1  
this Agreement has not been approved by the responsible authorities in the PRC
within two (2) months of the date of execution of this Agreement or such later
date as the Parties may agree in writing, or

 

10.2.2  
the conditions precedent have not all been fulfilled within two (2) months of
the date of execution of this Agreement or such later date as the Parties may
agree in writing.

 

10.3  
In the case of a termination pursuant to Articles 10.1 or 10.2 above, each Party
shall have no further obligations and/or rights resulting from this Agreement
and/or from the previous negotiations with exception of those obligations and/or
rights which have arisen prior to the termination date. However, Articles 12,
and shall remain effective.

 

10.4  
The Parties agree to use their best endeavours to solve any and all legal and/or
administrative problems which may impede the accomplishment of the matters
contemplated under this Agreement.

 
 
 
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ARTICLE 11
 
COSTS
 

11.1  
Each Party shall bear the costs and expenses incurred during and for the
preparation of this Agreement, in particular fees of advisors such as attorneys
and engineers engaged by such Party. The stamp duty and any fees occurring from
or related to the implementation of this Agreement, if any, unless such fees
shall be borne by the Seller and/or the Buyer as set forth in the relevant
applicable PRC laws and regulations, shall be equally shared by the Parties. The
registration fees, if any, shall be borne by Xishui Winner.

 

11.2  
Each Party shall bear the costs incurred in the fulfillment of the conditions
precedent to the Closing to be fulfilled by each Party respectively.

 

11.3  
All taxes related to the transaction, except for the stamp duty as provided in
Article above, shall be borne by the respective Party in accordance with the
applicable laws. In case any Party is required under the relevant PRC laws to
act as a withholding agent for any taxes arising out of or related to any
payment to the other under this Agreement, then the Party's fulfillment of such
withholding tax obligation shall not be recognized as a breach of this
Agreement.

 
ARTICLE 12
 
APPLICABLE LAW AND DISPUTE RESOLUTION
 

12.1  
The formation, validity. interpretation and implementation of this Agreement,
and any disputes arising out of or related to this Agreement, shall be governed
by the laws of the PRO.

 

12.2  
All disputes, controversy or claim arising from the execution of, or in
connection with this Agreement, or the breach termination or invalidity thereof,
shall be settled through friendly consultations between the Parties.

 
If no settlement can be reached through consultation within ninety (90) days
after either Party has given written notice to the other Party of the existence
of a dispute under this Article, the dispute may be submitted to arbitration
with the Hong Kong International Arbitration Centre ("Centre") according to the
UNCITRAL arbitration rules for the time being in force by the Centre.
 
There shall be three (3) arbitrators, one (1) of whom shall be appointed by the
Seller, one (1) of whom shall be appointed by the Buyer and one (1) of whom
shall be appointed by the Centre and shall serve as chairman of the tribunal.
The place of arbitration shall be in Hong Kong. The language of the arbitration
shall be English. The arbitration award shall be final and binding on the
Parties. The losing Party shall bear the expenses of the arbitration, if not
otherwise decided by the arbitration tribunal.
 
When any dispute occurs and when any dispute is under arbitration, except for
the matters under dispute, the Parties shall continue to exercise their other
respective rights and fulfill their other respective obligations under this
Agreement.
 
 
-14-

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ARTICLE 13
 
MISCELLANEOUS
 

13.1  
Any notice or written communication provided for in this Agreement from one
Party to the other Party shall be made in writing in English and sent by courier
service delivered letter or by facsimile with a confirmation copy sent by
courier service delivered letter. The date of receipt of a notice or
communication hereunder shall be deemed to be seven (7) days after the letter is
given to the courier service or three (3) working days of the receiving party
after sending in the case of a facsimile, provided it is evidenced by a
confirmation receipt and the confirmation letter is sent. All notices and
communications shall be sent to the appropriate individuals and addresses set
forth below, until the same is changed by notice given in writing to the other
Party.

 
Seller:
 
Mr. Li Jian Quan
Telephone: +86 755 2813 4988
Facsimile: +86 755 2813 4588
 
Buyer:
 
Mr. Hans-Willi Mueller
Telephone: +49 2634 99 6975 / private: +49 2689 6841
Facsimile: +49 2634 99 66 60
Mobile: +49 171 213 3820
 

13.2  
This Agreement including all Annexes supersedes any other agreement, whether
written or oral, that may have been made or entered into by the Buyer and the
Seller prior to the execution of this Agreement relating to the matters
contemplated hereby. This Agreement constitutes the entire agreement by and
between the Parties and there are no further agreements or commitments by or
between the Parties. Any amendments must be made in writing. This requirement
shall also apply to the amendment of the written form requirement.

 

13.3  
If one or several provisions of this Agreement is or becomes invalid or
unenforceable, or if this Agreement is incomplete, the validity and
enforceability of the other provisions of this Agreement shall not be affected
thereby.

 

13.4  
All information and data exchanged between the Parties in respect of the
transfer of the Transferred Equity in Xishui Winner shall remain confidential
unless they are publicly known or become publicly known without the fault of the
other Party. The Parties agree that this clause does not affect the right of
either Party to disclose such information and data to any third party which is
by law obliged to keep such information and data confidential, in particular
professional advisers and bank personnel. The Parties further agree that the
Buyer is permitted to disclose to the Chairman of the supervisory board of
Lohmann & Rauscher GmbH all information or data, which may at its discretion,
facilitate the transaction.

 
 
-15-

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13.5  
Neither Party shall issue any press release or otherwise communicate with any
news medium concerning the transfer of the Transferred Equity without the prior
written consent of the other Party.

 

13.6  
Any conversion of RMB to US$, if necessary, shall be made on the basis of the
intermediate exchange rate between RMB and US$ announced by the People's Bank of
China on the date payment in RMB is effected (Article 3; payments are in US$).

 

13.7  
To the extent permitted by PRC law, failure or delay on the part of either Party
hereto to exercise a right under this Agreement and the Annexes hereto shall not
operate as a waiver thereof, nor shall any single or partial exercise of a right
preclude any future exercise thereof.

 

13.8  
Except as otherwise provided herein, this Agreement may not be assigned in whole
or in part by either Party without the prior written consent of the other Party.

 

13.9  
This Agreement is executed in the Chinese language in five (5) originals and in
the English language in five (5) originals with the English and the Chinese
version equally binding. Each Party shall hold one (1) set of each language
version. The other sets shall be used for the examination and approval
authorities.

 

               Seller   Buyer

 
 
 
-16-

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THIRD AMENDMENT
 
TO
 
ARTICLES OF ASSOCIATION
 
OF

 
L+L HEALTHCARE HUBEI CO. LTD.
 
(previously known as Winner Medical & Textile Ltd., Xishui)
 
(Chinese characters)

 
 
BEITEN BURKHARDT
RECHTSANWALTSGESELLSCHAFT MBH
BEIJING REPRESENTATIVE OFFICE
Suite 3130 • 31st Floor • South Office Tower • Beijing Kerry Centre
1 Guang Hua Road • Chao Yang District • Beijing 100020
Telefon: + 86 10 / 8529 8110 • Telefax + 86 10 / 8529 8123
E-MAIL: bblaw-beijing@bblaw.de

 

8 April 2005
 
 
 
 

--------------------------------------------------------------------------------

 
 
TABLE OF CONTENTS
 
TO BE GENERATED
 
 
 
-2-

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The Third Amendment of the Articles of Association (the "Third Amendment") is
made and entered into by and between
 
Lohmann & Rauscher Limited, a corporation legally incorporated and validly
existing under the laws of Hong Kong and whose registered office is situated at
14th Floor, Hong Kong Diamond Exchange Building, 8-10 Duddell Street, Central,
Hong Kong ("L&R");
 
and
 
Winner Group Limited, a corporation legally incorporated and validly existing
under the laws of Cayman Islands and whose registered office is situated at
Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman
Islands ("Winner").
 
RECITALS
 
A.
Winner signed the Articles of Association for the establishment of Winner
Medical & Textile Limited, Xishui (the "Company") on 18 January 2003 and amended
such documents on 8 June 2003 and 1 April 2004;

 
B.
L&R and Winner have signed an Agreement on Equity Transfer and Capital Increase
("the Contract") on 8 April 2005 under which Winner has transferred 60% of its
equity in the Company to L&R, L&R and Winner have agreed to increase the
registered capital of the Company and other related matters.

 
NOW THEREFORE, in consideration of the foregoing recitals the Parties hereto
agree as follows :
 
CHAPTER 1
GENERAL PROVISIONS
 
Article 1
 
In accordance with the "Company Law of the People's Republic of China", the "Law
of the People's Republic of China on Wholly-Foreign Owned Enterprises", as
supplemented ("Wholly Foreign Owned Enterprises Law") and other relevant Chinese
laws and regulations, Lohmann & Rauscher Limited of 14th Floor, Hong Kong
Diamond Exchange Building, 8-10 Duddell Street, Central, Hong Kong, and Winner
Group Limited of Cayman Islands, hereby agree to operate the Company according
to these Articles of Association in substitution of previous Articles of
Association.
 
Each of the Parties hereto represents and warrants that:
 
-
it possesses full power and authority to enter into these Articles of
Association and to perform its obligations hereunder; and

 
-
its representative whose signature is affixed hereto shall be its legal
representative or another person authorized by a valid power of attorney to sign
these Articles of Association.

 
 
-3-

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Article 2  
 

2.1  
First Investor ("Investor A") :-

 
Legal Name:
Lohmann & Rauscher Limited
 
Legal address is:
14th Floor,
 
Hong Kong Diamond Exchange Building,
 
8-10 Duddell Street, Central, Hong Kong
 
Legal Representative:
Mr. Hans-Willi Mueller
 
Position:
Director
 
Nationality:
German

 

2.2  
Second Investor ("Investor B"):-

 

 
Legal Name:
Winner Group Limited
 
Legal address is:
Scotia Centre,
   
4th Floor, P.O. Box 2804,
   
George Town, Grand Cayman, Cayman Islands
       
Legal Representative:
Mr. Li Jian Quan
 
Position:
Managing Director
 
Nationality:
Hong Kong, China
     

Investor A and Investor B Company collectively referred to as the "Investors" or
"Parties" and if the situation requires, in the singular form referred as the
"Investor" or "Party").
 
For the purpose of this Agreement:-
 
(1)
"Winner Group" means Investor B, its holding company and all companies which now
or in the future become subsidiaries of Investor B or of any such holding
company or are otherwise controlled by the majority shareholder of Investor B or
any such holding company;

 
(2)
"L&R Group" means Investor A, its holding company and all companies which now or
in the future become subsidiaries of Investor A or of any such holding company
or are otherwise controlled by the majority shareholder of Investor A or any
such holding company.

 
 
-4-

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Article 3
 

3.1  
The name of the Company in Chinese shall remain as: [Chinese characters]

 
The name of the Company in English shall be changed from "Winner Medical &
Textile Ltd. Xishui to L + L Healthcare Hubei Co., Ltd."
 
The legal address of the Company is: Hongshan Industrial Park, Xishui County,
Hubei Province, People's Republic of China, Xishui County, Hubei Province,
People's Republic of China ("PRC").
 

3.2  
Investor B will provide to the Company the right to use in its corporate name
and in the course of trade the trade names and trademark [Chinese character]
i.e. ”Wen Jian in Chinese " royalty free.

 
Article 4
 
The Company shall be a limited liability company. The liability of the Company
shall be limited to its total assets. The liability of each Investor shall be
limited to the amount of the registered capital subscribed by it. The profits
and liabilities of the Company shall be shared by the Investors in proportion to
their respective contribution to registered capital.
 
Article 5
 
The Company shall have the status of a legal person of the PRC and shall be
subject to the jurisdiction and protection of the laws of the PRC. All its
activities shall be governed by the promulgated and publicly available laws,
rules and regulations of the PRC.
 
Activities of the Company outside the PRC shall comply with applicable foreign
laws, decrees and rules and regulations.
 
CHAPTER 2
PURPOSE AND SCOPE OF BUSINESS
 
Article 6
 
The purpose of the Company is to contribute to the development of the production
of medical health care products in the PRC. It will use advanced and appropriate
methods for the manufacture of its products in order to open new markets for the
products with the aim of raising long term economic results and long term
economic benefits to the Investors.
 
 
-5-

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Article 7
 

7.1  
The business scope of the Company shall be the development, production, sale
distribution and servicing of such medical disposal product such as surgical
dressing, medical gauze products, non-woven face mask, non-woven surgical gowns,
drapes, non-woven caps etc..

 

7.2  
Products of the Company shall be medical health materials and protection items
("Products").

 

7.3  
The Products shall be mainly for export outside the PRC as well as for the
domestic market in the PRC. The Company shall only act as private label
manufacturer unless the Investors come to a new arrangement.

 

7.4  
The Company may establish branch offices and representative offices inside or
outside the PRC with the consent of the Board of Directors and approval from the
relevant PRC governmental authorities.

 
CHAPTER 3
TOTAL AMOUNT OF INVESTMENT, REGISTERED CAPITAL AND
ADDITIONAL FUNDS
 
Article 8
 
The total amount of investment of the Company shall remain as US$4,300,000.00 .
 
Article 9
 
The registered capital of the Company shall be US$2,561,600.00 (increased from
the sum of US$2,420,000.00).
 
Article 10
 

10.1  
The manner, amount, and ratio of contribution to the registered capital:

 
Investor
Name of Contribution
Amount
Ratio
Lohmann & Rauscher Limited, Hong Kong
CASH
US$1,536,960.00
60%
Winner Group Limited, Cayman Islands
CASH
US$1,024,640.00
40%

 
Article 11
 

11.1  
The Investor shall make their capital contribution, as defined in Article 10.1,
within thirty (30) days after the date of issuance of the new business license
of the Company in accordance with the terms of the Contract.

 
The Investors' cash contribution shall be made to the Company's foreign exchange
bank account.
 
 
-6-

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Article 12
 

12.1  
Capital contributions shall be verified by a registered certified public
accountant of the PRC, who shall issue a report verifying the capital
contributions of the Investors within sixty (60) days after the respective
capital contribution has been made. The Company, on the receipt of satisfactory
verification reports, shall issue a Certificate of Capital Contribution to each
of the Investors.

 

12.2  
If any assessed value exceeds the value set forth in Article 10.1, any
surpassing amount shall be treated as capital surplus of the Company. Any
assessed value less than the value set forth in Article 10 shall be covered by
the respective Investor in cash in US dollars within 20 days after receipt of
the capital contribution certificate.

 
Article 13
 

13.1  
During the duration of the Company, the Investors may not reduce the registered
capital of the Company, and neither Party may reduce its amount of capital
contribution if not otherwise permitted by the PRC laws and regulations.

 
The registered capital of the Company may be increased only upon unanimous
decision made by the Board of Directors and approval by the examination and
approval authority.
 

13.2  
The registration procedures for changes due to increase or transfer of
registered capital shall be carried out with the competent department of the
Administration of Industry and Commerce.

 

13.3  
During the duration of the Company, neither Investor may sell, assign, transfer
, mortgage, pledge or in any other way encumber its share of the registered
capital or part thereof to a third party without the prior written consent of
the other Investor (unless the procedure mentioned under Chapter 8 hereof has
been followed ) and approval of the original examination and approval
authority..

 
CHAPTER 4
BOARD OF DIRECTORS
 
Article 14
 
The members of the Board of Directors of the Company shall be designated by the
Investors, and the Board of Directors thereby be established, no later than the
date of issue of the business license of the Company.
 
 
-7-

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Article 15
 
The Board of Directors shall consist of three (3) Directors, of which two (2)
director shall be appointed by Investor A and one (1) director appointed by
Investor B. . The Board of Directors shall have one Chairman to be appointed by
Investor A and one Vice-Chairman so appointed by Investor B. The term of office
for the Chairman and the Vice-Chairman shall be four (4) years unless replaced
earlier, and any Director may be reappointed or replaced at any time by the
Investor which originally appointed him.
 
Article 16
 

16.1  
The Board of Directors shall be the highest organ of authority of the Company
and shall decide all major policy issues of the Company.

 

16.2  
The main functions of the Board of Directors are to:

 

1.      
Approve the important reports submitted by the General Manager;

 

2.      
Approve the annual financial reports, income and expenditure accounts, profit
and loss accounts, and to approve proposals for the distribution of the profits
for the year;

 

3.      
Pass important rules and regulations of the Company;

 

4.      
Decide in establishing branch organizations;

 

5.      
Decide on any formation of joint ventures or any merger with any third party;

 

6.      
Approve any amendment or alteration of these Articles of Association;

 

7.      
Apply for dissolution of the Company in case of expiration or early termination;

 

8.      
Approve the appointment of and engage the General Manager, Deputy General
Manager, Chief Accountant, Deputy Chief Accountant, other senior staff and
Auditors;

 

9.      
Approve the salary of the high ranking administrative personnel of the Company;

 

10.      
Being in charge for the liquidation matters upon the expiration or early
termination of the Company;

 

11.      
Any other matter which shall be decided by the Board of Directors according to
the Contract between the Investors or the Articles of Association and any other
important matters that require the decision of the Board of Directors:

 

12.      
Price structure, staff planning.

 
 
 
-8-

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Article 17
 
The Chairman of the Board is the legal representative of the Company. Should the
Chairman of the Board be unable to exercise his responsibilities, he shall
authorize the Vice-Chairman or any other Director to represent the Company
temporarily.
 
Article 18
 

18.1  
The Board of Directors shall convene at least once every year. The meeting shall
be called and presided over by the Chairman of the Board. The Chairman of the
Board shall call and preside over a special meeting of the Board of Directors
after receiving the request made by any two (2) Directors.

 

18.2  
If the Chairman of the Board is unable to attend a meeting, he shall appoint the
Vice-Chairman to preside at the meeting, and if the Vice-Chairman is unable to
attend, the Chairman shall appoint another Director to preside over the meeting.
Notice of each Board of Directors meeting specifying the date, time and place of
a Board meeting together with relevant papers including the proposed agenda
shall be given in writing and shall be delivered by the Chairman of the Board to
each Director not later than thirty (30) days prior to the date set for such
meeting. Notice shall be given by telex or telefax to the Directors residing
outside Hong Kong.

 

18.3  
Complete and accurate written minutes of all meetings in Chinese and English
language shall be made for each Board meeting by the Chairman of the Board and
signed by all Directors who attended the meeting in person or by proxy right
after each meeting. Minutes of all meetings shall be placed on file and copies
sent to the Investor within thirty (30) days after each meeting.

 

18.4  
The meetings of the Board of Directors shall generally be held at the legal
address of the Company or Hong Kong, unless otherwise agreed by the Board of
Directors.

 

18.5  
A quorum of (two-thirds) Directors is required for a meeting of the Board of
Directors. If a quorum is not met at such meeting, the Chairman shall call
another meeting. If again the quorum is not met at such meeting a quorum shall
not be required if the chairman so informed all members of the Board of
Directors when calling the meeting. Any decision adopted at a Board meeting at
which a quorum, if necessary, was not present shall be invalid.

 

18.6  
If any Director is unable to attend a meeting, he may by a written proxy
designate another person to attend the meeting in his place and vote on his
behalf. If a Director who is unable to attend a meeting fails to so designate
another person, he shall have no rights to participate in, or vote at such
meeting.

 

18.7  
The quorum of the Board of Directors may by written consent waive the notice
requirements for meetings.

 
 
-9-

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18.8  
The Board of Directors shall have the right to adopt resolutions without
meeting. pursuant to an unanimous written consent resolution of all Directors of
the Board]. In such case, the resolution shall be made in writing, including
facsimile, in which case the circulation of the original for signature shall
immediately follow but the resolution be deemed passed upon signature by the
necessary number of Directors on the facsimile.

 

18.9  
The first meeting of the Board of Directors of the Company shall be held within
sixty (60) days after the issue of the new business license of the Company.

 
Article 19
 
Except for matters mentioned in items (1) to (12) hereunder, all decisions made
by the Board of Directors shall be valid only if they are agreed upon by the
majority of those Directors participating in person or by proxy, provided that
the Board of Directors shall reach decisions on major policy issues through
friendly consultation on the basis of mutual benefit, and that Each Director
shall have one (1) vote.
 
The following major policy issues must be unanimously agreed by the Directors
attending the meeting of the Board of Directors in person or by proxy:
 

1.      
changes or amendment to the Articles of Association of the Company;

 

2.      
termination or dissolution of the Company;

 

3.      
any increase or decrease in the registered capital of the Company or assignment
of a share of such registered capital or a part thereof;

 

4.      
merger of the Company with another economic entity and the division or
restructuring (except for internal reorganization) of the Company;

 

5.      
approval of annual financial budget plan for operation of the business of the
Company (but if no unanimous agreement, then the annual financial budget shall
remain the same as the one adopted in the preceding year);

 

6.      
any material change in the Company's business scope, strategy and nature;

 

7.      
any change in the profit distribution plan of the Company from the provision
mentioned in Article 52.2 ;

 

8.      
any decision to provide a guarantee or other security (including creation of
mortgage) for the benefit of a third party, to give a loan to a third party, or
to invest in other entity;

 
 
-10-

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9.      
approval for obtaining a loan for the Company in excess of RMB 1,000,000 in a
single or repeated transaction;

 

10.      
approval for pricing principle and payment method for contracts that the Company
signs with any of its shareholder(s), directors or other affiliated parties;

 

11.      
approval for employment of senior management personnel by the Company with
yearly remuneration of RMB 100,000.00 or above;

 

12.      
matters which require signatures of any two directors.

 
Above decisions 1.) - 4.) shall become effective only upon written consent of
the Investor A and Investor B and approval by the examination and approval
authority.
 
Article 20
 

20.1  
The members of the Board of Directors shall not be entitled to any remuneration
for services rendered to the Company. Each of the Investors shall be responsible
to pay for the expenses incurred by its own nominated directors for attending
the board meetings including travel expenses, accommodations and other related
expenses.

 

20.2  
No member of the Board of Directors shall have any personal liability for any
act performed in his capacity as Board member except for such acts as would
constitute violations of the laws of any jurisdiction to which the Company or
the relevant Board member is subject to.

 
CHAPTER 5
BUSINESS MANAGEMENT
 
Article 21
 

21.1  
The Company shall establish a management office which shall be responsible for
its daily management. The management office shall have a General Manager, and
two Deputy General Managers if business so requires.

 

21.2  
The General Manager and Deputy General Managers shall be nominated by the
Investors and appointed by the Board of Directors and their maximum term of
office shall be four (4) years.

 

21.3  
The Board of Directors may reappoint or revoke the appointment at any time upon
the consent of the Investor.

 

21.4  
The management office shall proceed in accordance with the Articles of
Association.

 
 
 
-11-

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Article 22
 

22.1  
The General Manager shall have the responsibility of implementing the general
policies and decisions of the Board of Directors, and of organizing and
conducting the daily management of the Company and, within the scope empowered
to him by the Board of Directors, to represent the Company in dealing with third
parties.

 

22.2  
The Deputy General Manager shall be responsible to and report to the General
Manager.

 

22.3  
Within fifty (50) days after the end of each fiscal year, the General Manager
shall report to the Board of Directors on the state of the business during such
year and submit a final annual financial report.

 
Article 23
 
The General Manager shall also have the power to act on behalf of the Board of
Directors in emergency situations in which it is impossible to convene a meeting
of the Board of Directors for urgent decisions in time to prevent serious harm
to the Company. Such event has to be reported to the Board of Directors without
delay.
 
Article 24
 
Within the management organization, departments shall be established if so
decided by the Board of Directors. Department managers shall be appointed if and
as necessary. The managers and deputy managers of the various departments shall
be nominated by the General Manager and the Deputy General Managers (if any).
The managers and deputy managers of the departments shall be responsible for the
work of the department concerned, shall execute the tasks assigned by the
General Manager and Deputy General Manager (if any), and shall be responsible to
them.
 
Article 25
 
If the Board of Directors decides at any time that a Chief Accountant and Deputy
Chief Accountant are required for the Company, they shall [jointly] be appointed
by the General Manager and the Deputy General Manager (if any)]. The Chief
Accountant shall assist the General Manager and shall be responsible for the
financial and accounting work of the Company. He shall submit to the General
Manager and the Deputy General Manager (if any) an annual budget for each fiscal
year, not later than sixty (60) days before the beginning of such fiscal year,
quarterly financial statements within fifteen (15) days after the end of the
respective quarter and final annual financial reports within forty (40) days
after the end of the respective year.
 
Article 26
 
Concurrently with the performance of their duties to the Company as provided
herein, the General Manager and the Deputy General Manager (if any) may not
assume any other duties of or participate in other economic organizations in
competition with the Company.
 
Article 27
 
The General Manager and Deputy General Manager (if any) may be dismissed by the
Board of Directors at any time, for intention or gross negligence or for graft
or serious dereliction of duties or other due causes permitted by PRC law. Other
senior management staff may be dismissed by the General Manager [in consent with
the Deputy General Manager], with the approval of the Board of Directors, at any
time for graft or serious dereliction of duties.
 
 
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CHAPTER 6
LABOR MATTERS
 
Article 28
 

28.1  
Labor contracts covering the hiring of workers, their qualifications and
testing, employment, dismissals, resignation, salaries and wages, labor
insurance, welfare, rewards and bonuses, safety, labor discipline, and other
matters concerning the staff and workers of the Company shall be based on the
"Foreign Investment Enterprises Labor Management Provisions", the "PRC Labor
Law", as supplemented, and other relevant promulgated rules and regulations of
the PRC and the Hubei Provincial Government.

 

28.2  
The Company shall sign labor contracts with individual staff and workers and
shall submit a form of them to the local labor management bureau for record.

 

28.3  
Investor B undertakes to use its best endeavours to retain the existing
personnel in charge of the operation and production in the Company to continue
their employment.

 
Article 29
 
The Company acting through its General Manager/management office shall have the
widest authority, consistent with relevant promulgated laws and regulations of
the PRC, to implement modern methods of management and work performance control.
This shall include the power to dismiss workers and staff members as redundant
and to maintain labor discipline which shall include the power to criticize,
educate or take disciplinary actions extending to dismissal for cause against
workers and staff members for violation to the labor contract or other internal
rules of the Company.
 
Article 30
 

30.1  
The qualification and number of staff and workers of the Company shall be in
accordance with the operating needs of the Company.

 

30.2  
The salary of the staff and workers shall be increased corresponding to the
proposal made by the General Manager having regard to the development of
business of the Company and local wages level , but subject always to final
approval of the Board of Directors.

 
Article 31
 
Matters concerning the welfare funds, bonuses, labor protection and labor
insurance shall be stipulated in various rules set forth in Article 56.
 
 
-13-

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Article 32
 
The appointment of high ranking administrative personnel, their salaries, social
insurance, welfare and the standard of travel expenses shall be decided jointly
by the General Manager and Deputy General Managers upon prior consent having
been obtained from the Board of Directors, provided that compensation for
foreign personnel shall be in accordance with prevailing principles of
remuneration in their respective home countries and standards for expatriate
assignments in other similarly situated countries.
 
Investor A shall have the right at its own cost to second to the Company not
more than two (2) expatriate(s) according to the Company's operating needs, but
the Company shall be responsible to pay for the local accommodation cost and
living expenses (including food, local travelling, company car with driver
etc.).
 
Investor B represents and warrants that it shall hold the Company harmless from
all claims arising out of any staff and worker's prior employment with Company
before 1 March 2005.
 
CHAPTER 7
MANAGEMENT SERVICE
 
Article 33
 

33.1  
Investor B further agrees to do the following when the management of the Company
so requires:-

 

 
(a)
Mr. Li Wan Quan and Mr. Fang Xinyuan shall make themselves available to support
the management of the Company free of charge if and when the business of the
Company requires assistance;

 

 
(b)
procure the Winner Group (situated at Shenzhen) to, free of charge. assist due
supervision and control over salary payment and other related labour issues of
the Company in compliance with relevant PRC regulations, and this include Winner
Group to assist raising the standard of book-keeping of the Company free of
charge.

 
Article 34
 
No sale, assignment, mortgage, pledge or other transfer of an interest in the
Company shall become effective until all necessary approvals in form and
substance, acceptable to the Investors, have been obtained.
 
 
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CHAPTER 8
TRANSFER OF EQUITY, PRE-EMPTION RIGHT
 
Article 35
 

35.1  
If one Investor ("Disposing Party") wishes to assign, or otherwise transfer all
or any part of its share of the registered capital to a third party, the other
Investor ("Other Party") shall have a pre-emptive right to purchase the entire
share of the registered capital ("Offered Equity") of the Disposing Party. The
Disposing Party must first offer the whole of its equity interest to the Other
Party on terms and conditions no less preferential than those offered to the
third party and the price of the Offered Equity shall be determined in
accordance with Article 37 ("Offered Price") .

 
The Other Party shall exercise such pre-emptive right within ninety (90) days
after receipt of notice of such assignment or transfer [including name of
transferee, proposed Offered Price and proposed terms], otherwise such right
shall be deemed forfeited and the Disposing Party shall be free to assign or
otherwise transfer its entire share of the registered capital to such third
party within another sixty (60) days at terms and conditions and a price not
less than the offered terms and conditions and the Other Party and the directors
appointed by the Other Party shall be deemed to have agreed to the assignment or
transfer. Any assignment or transfer in violation of this Article shall render
such assignment or transfer invalid.
 

35.2  
In the event that:

 

 
-
50% or more of the shares of either Investor is acquired by a third party: or

 

 
-
substantially all of the assets of either Investor are acquired by a third
party; or

 

 
-
a competitor of an Investor owns or exercises voting control of over twenty-five
percent (25%) of the shares of such other Investor; or

 

 
-
an Investor merges with or into another entity in a transaction in which such
Investor is not the surviving corporation,

 
then the other Party shall have the right to purchase all (but not less than
all) of the shares of the Company held by such Investor, and such Investor shall
be deemed to have consented to such purchase.
 
In such case, the price for the sale of equity shall be determined in accordance
with Article 37.
 
 
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Article 36
 
If, at any time, when 80% of the business turnover is generated by or through
L&R Group, then Investor A shall have the right to serve a written notice
("First Notice") on Investor B to discuss an increase of registered capital in
order to accommodate an enlargement of the output capacity of the Company. If no
decision on the increase of registered capital could be reached by the Investors
within six months of the date of the said notice or if Investor B desires to
establish its own factory (directly or indirectly) for manufacture of the
Products, then Investor A shall have a call option to acquire the whole of the
equity interest of Investor B in the Company by serving a written notice to this
effect and then the acquisition shall be based on a price to be determined in
accordance with Article 37.
 
Article 37
 
The Offered Price shall be determined as follows on the basis that at the time
of evaluation, (1) the profit and loss of the Company is being treated as at
zero balance and (2) business results and of the Company for the immediate last
3 years have been profit-making;
 
{[Sum A plus 10% of Sum A per year] + Sum B} x percentage of the Disposing
Party's total equity in the Company
 
where Sum A = US$ 4,000,000.00
Sum B = Sum A + base cost of additional investment from 1 March 2005
- depreciation of investment as from 1 March 2005
 
period for depreciation on land = nil
period for depreciation on buildings = 30 years
period for depreciation for machinery = 10 years
period for depreciation for intellectual technology, software. cars etc = 5
years
 
Article 38
 

38.1  
The Investors agree that any increase of registered capital or share transfer
carried out in accordance with Article 37 shall be completed within 12 months of
the First Notice issued by Investor A under Article 37.

 

38.2  
The right given to Investor A under Article 37 shall be repeated whenever the
business turnover of the Company generated by Investor A reaches 80% again after
any increase of registered capital and there shall be no limitation on the
number of times for Investor A to exercise its rights given under Article 36.

 
 
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CHAPTER 9
SALE OF PRODUCTS,
 
Article 39
 

39.1  
It is the plan that the Products shall mainly be sold for overseas market
outside the PRC (excluding Hong Kong, Taiwan and Macao).

 

39.2  
The Company shall only be allowed to sell its Products directly to L&R Group and
Winner Group (depending on the circumstances), and shall not be allowed to sell
through any other third party.

 
If such right of exclusivity of the Investor is violated directly or indirectly
by the Company, then any proceeds deriving from such sales shall be handed over
to the relevant Investor suffered by the violation if not otherwise agreed
between the Investors and the Company.
 

39.3  
Each Investor shall use its best endeavours to bring business to the Company in
order to fill up the Company's production capacity. but Investor A has already
informed Investor B about L&R Group's current activities in having a supply
arrangement for OR drapes, OR gowns and masks from a factory in Kunshan (near to
Shanghai) and this shall not be affected. Insofar as Winner Group has or obtains
any orders for producing private label products which the Company is capable of
handling within its business scope, then Investor B agrees to procure that all
such production orders be given to the Company exclusively and not to any other
party whether inside or outside Winner Group as long as the production capacity
of the Company could permit acceptance of orders.

 
As from 1 March 2005, neither Investor B nor Winner Group shall, whether
directly or indirectly, offer or sell surgical gowns, OR drapes and face masks
to European markets except for United Kingdom and Russia ("European Markets") to
the intent that the European Markets (except United Kingdom and Russia) shall
become the exclusive business territories for Investor A and L & R Group.
Investor B will procure Winner Group to refer or transfer its existing and
potential customers in the European Markets (except United Kingdom and Russia)
to L& R Group as along as the business is related to surgical gowns, OR drapes
and face masks.
 
For the avoidance of doubt, United Kingdom, Russia and all other countries
outside Europe shall be territories open equally to both Investors without any
non-competition restriction.
 

39.4  
The pricing policy of the Company's products shall be the same whether it is for
sale to Winner Group or L& R Group. The Board of Directors shall determine the
sales prices for the products for markets outside the PRC and/or in Hong Kong,
Taiwan and Macao.

 
 
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CHAPTER 10
NON- COMPETITION
 
Article 40
 
If the Company has enough free production capacity and satisfy the order
requirements of the Parties, then while an Investor or any Affiliate is the
holder of any equity of the Company, neither shall without the prior written
consent of the other party either alone or jointly with, through [which includes
by ownership of any equity direct or indirect control] or on behalf of [whether
as director, partner, consultant, manager, employee, agent or otherwise] any
person, directly or indirectly, in the PRC:
 

 
(1)
carry on or be engaged or concerned or interested in any business which is in
competition with the business of the Company carried on at any time during the
term of the Company in any territory in which the business is carried on;

 

(2)
(a)    procure orders or;

 

(b)
do business with or;

 

 
(c)
cause directly or indirectly any other person to procure orders from or do
business with,

 
in connection with any business competing with the business of the Company
carried on during the term of the Company;
 

 
(3)
engage or employ, or solicit or contact with a view to the engagement or
employment by any person, any employee, officer or manager of or any person who
has been an employee, officer or manager of the Company at any time during the
term of this Company;

 

 
(4)
do or say anything which is harmful to the reputation of the Company or which
may lead any person to cease to deal with the Company on substantially
equivalent terms to those previously offered or at all; or

 

 
(5)
seek to contract with or engage in such a way as to adversely affect the Company
any person who has been contracted with or engaged to manufacture, assemble,
supply or deliver products, goods, materials or services to the Company during
the term of this Company,

 
with the intent that each of these restrictions shall constitute an entirely
separate and independent restriction on the Investors and any Affiliate.
 
 
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CHAPTER 11
INSURANCE
 
Article 41
 
Insurance policies of the Company on various risks shall be underwritten with an
insurance company authorized to do business in the PRC. Types, value and
duration of any insurance shall be decided by the Board of Director of the
Company.
 
CHAPTER 12
TAXES, FINANCE, AUDIT, PROFITS AND FOREIGN EXCHANGE
 
Article 42
 

42.1  
The Company shall pay taxes in accordance with the stipulations of Chinese
national laws and regulations, provisions of the Hubei Provincial Government and
other relevant rules and regulations.

 

42.2  
The Investors' share of profit and other income shall be exempted from taxation
in accordance with the "Foreign Investment Enterprises and Foreign Enterprises
Tax Law of the People's Republic of China", as supplemented, the Encouragement
Provision and other relevant rules and regulations, and shall be permitted for
foreign remittance according to the Wholly Foreign Owned Enterprise Law.

 

42.3  
The Company has been approved by the relevant tax authorities that it shall be
completely exempted from income tax in its first and second profit-making years
and be allowed a fifty-percent (50%) reduction in its third to fifth
profit-making years,

 
Article 43
 
Staff members and workers of the Company shall pay individual income tax
according to the "Individual Income Tax Law of the People's Republic of China",
as supplemented, and relevant treaties for the avoidance of double taxation in
effect between the PRC and other countries.
 
Article 44
 
Allocations for reserve funds and expansion funds of the Company and for funds
for welfare and bonuses for staff and workers shall be set aside in accordance
with the stipulations in relevant laws and regulations. The annual proportion of
allocations shall be decided by the Board of Directors according to the business
situation of the Company. The funds must be deposited in specified bank account
under the control of the Company and may only be used for the intended purposes.
 
 
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Article 45
 

45.1  
The fiscal year of the Company shall be the calendar year, from January 1 s' to
December 3151. All vouchers, receipts, financial statements, statistical and
other reports and account books prepared by the Company shall be written in
Chinese and English.

 

45.2  
The first fiscal year of the Company shall be deemed to start from 1st March
2005 upon issuance of the new business licence of the Company, and shall end on
December 315' of2005.

 
Article 46
 

46.1  
The financial and accounting system to be adopted by the Company shall be in
accordance with international accounting standards and relevant laws,
regulations and rules of the PRC governing finance and accounting systems and
shall be reported to the relevant financial and tax bureaus.

 
The Company's accounts shall be kept in Renminbi ("RMB"), with equivalent in
United State Dollars indicated.
 
For the purpose of preparing the Company's accounts and statements, calculation
of profits to be distributed to the parties and for any other purposes where it
may be necessary to effect a currency conversion, such conversion shall be made
using the intermediate exchange rate of such currency as announced by the
People's Bank of China on the date of actual receipt or payment by the Company.
 

46.2  
Accounting statements shall also be prepared in accordance with international
accounting standards and may be stated in a currency as requested by the
Investor.

 

46.3  
Assets of the Company shall be depreciated over a period of years mentioned
below [starting fromis' March 2005:

 
period for depreciation on land = nil
 
period for depreciation on buildings = 30 years period for depreciation for
machinery = 10 years
 
period for depreciation for intellectual technology, software, cars etc = 5
years
 
Article 47
 
The Company shall submit to the Investors quarterly financial statements in
Chinese and English language within twenty (20) days after the end of the
respective quarter and annual financial statements within sixty (60) days after
the end of each fiscal year.
 
 
-20-

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Article 48
 
Audits and examination of the financial accounts of the Company shall be
conducted by certified public accountants registered in the PRC which meet
international standards, and reports of the results thereof shall be in Chinese
and English language and submitted to the General Manager, Board of Directors
and the Investors. The costs of such audits and execution shall be borne by the
Company
 
In addition, each Investor is entitled to designate duly authorized personnel to
inspect at any time the books of the Company at the expense of such party.
 
Article 49
 
Within the first fifty (50) days of each fiscal year, the General Manager shall
have the balance sheet and profit and loss statement of the previous fiscal year
prepared, and shall prepare a proposal regarding the disposal of profits and
submit it to the Board of Directors for examination and approval not later than
within sixty (60) days of the respective fiscal year.
 
Article 50
 

50.1  
The Company shall open with one or more banks authorized to do business in the
PRC, RMB and foreign exchange accounts on the strength of its "Foreign
Investment Enterprises Foreign Exchange Registration Certificate".

 

50.2  
The Company may after obtaining the approval of the State Administration for
Foreign Exchange, if an approval is requested by the relevant PRC laws and
regulations, open an account with a bank outside the PRC or in Hong Kong, Taiwan
or Macao.

 

50.3  
The Company has the responsibility to submit applications to the relevant
Chinese authorities for the approval of remittance in foreign exchange in order
that dividends and other payments to be made to the Investors, payments for
principal of and interest for foreign bank loans, payments for salaries and
other legitimate income of the expatriate personnel, payments for purchase
abroad, and all other expenses which must be paid in foreign exchange, can be
freely transferred outside the PRC.

 
Article 51
 

51.1  
All matters concerning foreign exchange transactions of the Company shall be
dealt with in accordance with the "Regulations of the People's Republic of China
on Foreign Exchange Control" and other relevant laws and regulations in effect.

 

51.2  
If, as a consequence of modifications in the currency system of the PRC at any
time throughout the duration of the Company, other or additional restrictions on
the convertibility of Chinese currency come into force, the Company shall ensure
that it is able to make all payments which it is required to make in foreign
exchange, and shall exert its best efforts to ensure that profits distributed to
the Investors and all other payments to be made to the Investor are made in
foreign exchange or in RMB readily convertible into foreign exchange which the
Investors may freely repatriate.

 

51.3  
Any costs incurred relating to the procurement of foreign exchange, shall be
borne by the Company.

 

51.4  
As required by PRC law, all payments to be made by the Company shall be made and
settled in Renminbi, unless incurred outside the PRC.

 
 
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Article 52
 

52.1  
The Company's annual profit shall be subject to taxation in accordance with
relevant laws and as specified in Article 42. After making allocations to
reserve funds, expansion funds and funds for staff and worker welfare and
bonuses under Article 44, the Board of Directors shall declare the remainder as
net profit for that year, which shall be declared and paid to the Investors
according to the dividend policy under Article 52.2.

 

52.2  
The Investors agree that the dividend policy of the Company shall be as follows:

 

 
(a)
If and when either Investor is liable to pay any tax or fiscal duty ("Tax
Liability") on basis of its equity interest in the Company, the Investors shall
procure that the Company distributes dividend to the Investors within one
hundred and fifty (150) days after the close of the previous fiscal year
according to the proportion of the shares in the registered capital of the
Investors as of the close of the previous fiscal year to the intent that the
distributed dividend received by the relevant Investor affected shall be
sufficient to cover its Tax Liability; if dividends are distributed, any foreign
exchange profits shall first be used to pay the Investor's share of profit; and

 

 
(b)
Subject to (a) above, the Investors shall procure that:

 

(i)
the Company retains its profits for reinvestment; and

 

(ii)
where there is no imminent need for reinvestment, the issue of dividend shall be
decided by the Board of directors of the Company.

 

52.3  
When profits are distributed to the Investor, the Investors may have such
profits remitted in Euro or United States Dollars by telegraphic transfer to the
bank and account number designated by the Investor within ten (10) days after
the declaration of profit distribution after deduction of Chinese taxes, if any,
in accordance with the relevant tax laws of the PRC, or transferred on the
Investor's RMB account respectively.

 
 
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CHAPTER 13
DURATION OF THE COMPANY
 
Article 53
 
The duration of the Company shall be 15 years, commencing from the date of
issuance of the business licence after the signing of this Agreement. Any
application for extension of the duration of the Company shall be submitted by
the Investor to the examination and approval authority at least six (6) months
prior to the expiration of the Company.
 
CHAPTER 14
TERMINATION AND LIQUIDATION
 
Article 54
 

54.1  
The Investors agreed that only if any of the following conditions arises, the
Company may be terminated by either Investor prior to its expiration date by
written notice to the other Investor and the Board of Directors shall submit an
application for dissolution to be approved by the relevant examination and
approval authority:

 

1.      
If the Company suffers heavy losses for a long lasting period and the Investor
decides to dissolve it;

 

2.      
If the Company is unable to continue operations for a period of 4 months due to
an event of force majeure, as defined in Article 57;

 

3.      
If the Company is unable to attain the objectives stated in these Articles of
Association and has no reasonable prospects for development;

 

4.      
If the Company goes bankrupt;

 

5.      
If the assets of the Company are expropriated or requisitioned;

 

6.      
if the Investors mutually agree to dissolve the Company;

 

7.      
the Board of Director resolve not to extend the duration of the Company upon its
expiry of its term.

 

54.2  
Only if any of the following conditions arises, the Contract may be terminated
prior to its stated expiration date by written notice of the non-defaulting
Party to the other Party:

 

 
(1)
if the Company is unable to continue operations due to the failure of one Party
to fulfill its obligations under the Contract or in case of serious breach of
the Contract by one Party, within ninety (90) days after receiving written
notice from the other Party ("non-defaulting Party");

 
 
-23-

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(2)
if a petition for bankruptcy proceeding, compulsory composition or liquidation
is filed for either Party, the other Party ("non-defaulting Party") may
terminate the Contract within ninety (90) days of knowledge of such event;

 

 
(3)
if the ownership in an Investor ("First Investor") changes to the extent that
any entity in competition to the other Investor ("non-defaulting Party")
maintains an economic interest in the First Investor, then the Investor may
terminate the Contract within ninety (90) days of knowledge of such event;

 

 
(4)
if the Company is unable to obtain foreign exchange to make necessary payments
to or distribute profits to Investor ("non-defaulting Party").

 

54.3  
Termination of the Contract shall be without prejudice to the accrued rights and
obligations of the Parties, including, but not limited to, claims of damages
directly caused by the failure of a Party to fulfill its obligations under the
Contract.

 

54.4  
Upon termination of the Contract under Article 54.2, the non-defaulting Party
shall be entitled to acquire the other Party's share or to sell its share to the
other Party or a third party, at a price determined according Article 37 and
according to the rules under Article 35.

 

54.5  
Upon termination of the Contract under Article and of the non-defaulting Party
does not exercise its rights under Article 54.2, the members of the Board of
Directors shall meet and vote in favor of dissolution.

 
Each Party shall cause its nominees to the Board of Directors to vote in favor
of and to submit an application for dissolution to be approved by the
examination and approval authority. In case of termination under Article the
members of the Board of Directors appointed by the Party which gave cause for
termination shall be deemed to consent to the dissolution.
 

54.6  
Upon expiration or termination of the Contract the relevant provisions of the
Contract shall remain applicable to the settlement of claims arising from or in
connection with the Contract.

 
Article 55
 

55.1  
Upon expiration of these Articles of Association or their early termination
pursuant to Article 54 the Company shall be liquidated in accordance with the
"Methods on Liquidation of Foreign Investment Enterprises" dated July 9. 1996
("Liquidation Methods"). In case of ordinary liquidation the Board of Directors
shall, within fifteen (15) days upon the date of commencement of the Liquidation
procedures, appoint a Liquidation Committee consisting of at least three (3)
members to be selected from the members of the Board of Directors [and/or the
members of the management office and/or other experts]. The Board of Directors
shall appoint a Chairman of the Liquidation Committee.

 
 
 
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55.2  
In case of liquidation the procedures shall be handled in accordance with the
Liquidation Methods.

 

55.3  
The tasks of the Liquidation Committee are: to conduct thorough check of the
property of the Company, its creditors, rights and liabilities, to work out the
statement of assets and liabilities and the list of property, to formulate a
liquidation plan, to prepare the final liquidation report and all other tasks as
stipulated in the Liquidation Methods. All these shall, in case of an ordinary
liquidation, be carried out upon approval of the Board of Directors and in case
of a special liquidation under the supervision of the Company's examination and
approval authority.

 

55.4  
During the process of liquidation, the Liquidation Committee shall be the legal
representative of the Company in suing and being sued.

 

55.5  
The Company shall be liable for its debts with all its assets. The value of the
land use rights of the Company shall be considered an asset.

 

55.6  
The Liquidation Committee shall solicit offers for selling the business of the
Company, or assets of the Company.

 

55.7  
Upon the end of liquidation procedures the books of the Company shall be left
with the organization designated by the examination and approval authority of
the Company.

 
The remaining property after the clearance of debts shall be distributed between
the Parties according to the proportion of each Party's share to the registered
capital provided, however, that any property to be distributed to the Party
which caused the termination of the Contract by failing to fulfill its
obligations may be used to pay for the damages sustained by the other Party; all
payments to be made to Investor shall be made in United States-Dollars. The
Parties may elect to receive their respective share of any distribution in kind.
 
CHAPTER 15
RULES AND REGULATIONS
 
Article 56
 
The following rules and regulations shall be formulated by the Board of
Directors:
 

1.      
Management regulations. including the powers and functions of the management
organizations and its working rules and procedures;

 

2.      
Rules for the staff and workers;

 

3.      
System of labor management and salary;

 

4.      
System of work attendance record, promotion and awards and penalty for staff and
workers;

 

5.      
Detailed rules of staff and workers' welfare;

 

6.      
Financial system;

 

7.      
Liquidation procedures upon the dissolution of the Company;

 

8.      
Other necessary rules and regulations (including operation manual on Product
price list).

 
 
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CHAPTER 16
FORCE MAJEURE
 
Article 57
 

57.1  
If any of the Investors or the Company has been prevented from performing its
obligations under these Articles of Associations because of an event of force
majeure such as earthquake, storm, flood, fire, other acts of nature, epidemic,
war, riot, hostility, public disturbance, acts of public enemies, prohibition or
acts by a government or public agency, strikes or other labor disputes or work
stoppage, or other events beyond the control of the Investor or the Company, and
their occurrence is unpreventable and unavoidable, the Investor so prevented
shall notify the Company or the Company so prevented shall notify the Investor
by telefax, telex or cable in writing within fourteen (14) days after the
occurrence of such event of force majeure, act to mitigate damages, if possible,
and within thirty (30) days thereafter provide detailed information of the
event, a certificate of evidence thereof issued by the relevant authorities and
a statement explaining the reason for its inability to perform all or part of
its obligations under these Articles of Association.

 

57.2  
If an event of force majeure occurs, neither the Investor nor the Company shall
be responsible for any damage, increased costs or loss which any of the
Investors or the Company may sustain by reason of such failure or delay of
performance. The party claiming force majeure shall take appropriate measures to
minimize or remove the effect of force majeure and, within the shortest possible
time, attempt to resume performance of the obligation(s) affected by the event
of force majeure.

 

57.3  
The Investor shall decide whether to modify or terminate the Company according
to the effects of the event of force majeure.

 
CHAPTER 17
LIABILITIES FOR BREACH OF THE CONTRACT
 
Article 58
 

58.1  
If an Investor fails to pay all or part of its capital contribution when due in
accordance with the Contract, such party shall pay as compensation for default
to the Company 0.5 percent (D/D) per month for during the first 6 months of
delay and thereafter at one percent (D/D) per month of the amount or portion
thereof or of the value of the assets it has not contributed commencing from the
first day of the month following the date such contribution was due.

 
Notwithstanding such compensation for default, the non-defaulting Investor may
serve notice on the other Party requiring rectification of such defaults within
thirty (30) days of receipt of notice. If, after expiry of such period, no
resolution of default or no other agreement has been reached by the Investors,
the non-defaulting Investor may give notice to the other party that it wishes to
dissolve the Company or that it wishes to purchase the other Investor's share of
the registered capital or part thereof in relation to the defaulted capital
contribution and the other Investor hereby agrees to such purchase or
dissolution. The purchase price is determined according to Article 37.
 

58.2  
The Investor that breaks any of the warranties set out in the Contract or fails
to fulfill all or part of its obligations under the Contract and its Annexes or
these Articles shall bear the losses [directly] caused to the Company and to the
other Investor by such failure. Should such failure be attributable to the fault
of both Investors, they shall be liable therefore according to their respective
degree of fault.

 

58.3  
A failure or delay by one Investor to require the enforcement on any provision
of the Contract or these Articles shall not be construed as a waiver by such
Investor of any of its rights nor shall it affect the validity of the Contract
or these Articles or any provision thereof at any time thereafter.

 
 
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CHAPTER 18
CONFIDENTIALITY AND EXCLUSIVITY
 
Article 59
 

59.1  
The Investors shall keep the contents of the Contract , their negotiations and
their project including information relating to management methods, technology,
know-how, client lists, sales and marketing plans and data and financial affairs
("Confidential Information"), confidential and shall not disclose any part
thereof to any entity or third party, except as required to obtain relevant
government permits or licenses and except if prior written permission has been
obtained from the other Investor; the Investors shall take all necessary care to
prevent third parties from obtaining knowledge or making use in any way of
Confidential Information.

 

59.2  
The Investors shall take all such steps as shall be reasonably necessary at
their own expense, to prevent or stop every violation of this secrecy obligation
by a member of their personnel.

 

59.3  
Confidentiality and non-competition contracts shall be signed by the Company
with such senior employees for which either one of the Investors finds it
necessary or appropriate.

 

59.4  
This secrecy obligation shall apply for the duration of the Company and a period
of five (5) years after its dissolution or termination.

 
Unless otherwise required by law, any public statement or other public
announcement relating to the establishing or operation of the Company shall be
decided by the General Manager upon consultation with the Board of Directors.
 
CHAPTER 19
MISCELLANEOUS
 
Article 60
 
Any amendment or changes to the Articles of Association shall require the
approval of the Board of Directors and shall become effective only after a
written document signed by all the Investors has been approved by the
examination and approval authority.
 
Article 61
 
The Articles of Association shall be written in Chinese and in English versions,
with six (6) sets of each version, and both are equally valid and binding.
 
Article 62
 
The Articles of Association shall become effective upon the approval by the
examination and approval authority and the date of issuance of the appropriate
business license of the Company by the relevant authority whichever date is the
later ("Effective Date").
 
Article 63
 
The formation of the Articles of Association, their validity, termination,
execution and settlement of any disputes arising thereunder shall be governed by
the promulgated and publicly available laws and regulations of the PRC, provided
that if no promulgated and publicly available Chinese law governs a particular
issue, reference shall be made to generally accepted international practice.
 
Any dispute arising out of or in relation to these Articles shall be settled in
accordance with the "Dispute Resolution" clause of the Contract.
 
 
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Article 64
 
If any part of these Articles of Association shall become void or invalid by
virtue of law or government order, the remaining parts shall stay valid and the
Articles of Association shall be fulfilled by the Investors in accordance with
its general principles, and the void or invalid provision(s) shall be replaced
by such valid provision(s) reflecting closest the intentions of the Investors at
the time of signing the Articles of Association.
 
Article 65
 
The Articles of Association are signed in Chinese and English language version,
by the authorized representative of the Investor on 8 April 2005.
 
Investor A :
 

By:  _____________________________
Name: Mr. Hans-Willi Mueller
Title: Director

Investor B :
 
 
By:  _____________________________
Name: Mr. Li Jian Quan
Title:   Managing Director
 

               
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