Exhibit 10.2


ARTICLES OF
ASSOCIATION


OF


HENGYANG
VALIN MPM STEEL TUBE CO., LTD.


August
15, 2006


 















 


 


TABLE OF CONTENTS


	
  1

  	
   

  	
  DEFINITIONS

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  GENERAL PROVISIONS

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  PURPOSES, SCOPE OF BUSINESS AND SCALE OF PRODUCTION OF THE COMPANY

  	
   

  	
  7

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

  	
   

  	
  9

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  NON-ENCUMBRANCE

  	
   

  	
  10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6

  	
   

  	
  BOARD OF DIRECTORS

  	
   

  	
  10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  MANAGEMENT ORGANIZATION

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8

  	
   

  	
  ANTI-CORRUPTION

  	
   

  	
  24

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9

  	
   

  	
  LABOR MANAGEMENT

  	
   

  	
  25

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  TRADE UNION

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  ANNUAL OPERATING PLANS AND BUDGETS

  	
   

  	
  26

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
   

  	
  TAXATION, THREE FUNDS AND PROFIT DISTRIBUTION

  	
   

  	
  27

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
   

  	
  FINANCIAL AFFAIRS AND ACCOUNTING

  	
   

  	
  28

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  BANK ACCOUNTS AND FOREIGN EXCHANGE

  	
   

  	
  30

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15

  	
   

  	
  DURATION AND EARLY TERMINATION

  	
   

  	
  30

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16

  	
   

  	
  LIQUIDATION AND DISSOLUTION

  	
   

  	
  31

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17

  	
   

  	
  INSURANCE

  	
   

  	
  33

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  33

  	
   

  



 


Schedule 1                           The Authority of the Director of
Quality Assurance and the Director of International Marketing


Schedule 2                           Qualification Requirements for
the Candidates of CFO















 


 


ARTICLES OF ASSOCIATION


THESE
ARTICLES OF ASSOCIATION are formulated in accordance with the
Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures
and the Regulations for the Implementation of the Law of the People’s Republic
of China on Chinese-Foreign Equity Joint Venture and other relevant and
officially promulgated Chinese laws and regulations and in accordance with the
Joint Venture Contract dated August 15, 2006 between:


Hunan Valin Steel Tube & Wire Co.,
Ltd.(hereinafter as “Valin TW”), a legally established and lawfully
existing joint stock company of the
People’s Republic of China, with the legal address at Valin Plaza, Fu Rong
Zhong Lu, Second Section, No.111, 
Changsha, Hunan, China, and the legal representative is Li Xiaowei;


Hengyang Valin
Steel Tube Co., Ltd. (hereinafter as “Valin ST”), a legally
established and lawfully existing limited liability
company of the People’s Republic of
China, with the legal address at Dalixincun No 10, Zhengxiang District, Hengyang,
Hunan, China, and the legal representative is Hu Henghua;


AND


Star China Ltd.(hereinafter as “Star China”),
a legally established and lawfully existing corporation under the laws of Cayman Islands, with the
legal address at: c/o Lone Star Technologies, Inc., 15660 N.
Dallas Pkwy., Ste. 500, Dallas, TX 75248, United States of America, and the
legal representative is Mr. Rhys Best.


The above Parties
may hereinafter be referred to individually as a “Party” or collectively
as the “Parties”. Valin TW and Valin ST may be referred to
collectively as “the Chinese Parties”.



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WHEREAS,


Hengyang Valin MPM
Steel Tube Co., Ltd. (“Valin MPM”) is a limited liability company duly
organized and validly existing under Chinese Laws. On or about the date hereof,
Valin TW, Valin ST, Valin MPM and Star China have entered into the Capital
Increase Agreement (the “Capital Increase Agreement”) and Valin TW,
Valin ST and Star China have entered into the Joint Venture Contract (the “JV
Contract”), according to which Star China will contribute to the registered
capital of Valin MPM, such that upon the contribution of registered capital by
Star China in accordance with the Capital Increase Agreement and the Joint
Venture Contract and the completion of the registration of change of status
with the business registration department, Valin MPM will be converted from a
domestic company into a Sino-foreign equity joint venture company and “Hengyang
Valin MPM Steel Tube Co., Ltd. (衡阳华菱连轧管有限公司)”
will remain to be the company name of it.


1       DEFINITIONS


1.                       In these
Articles of Association, the following expressions shall have the following
meanings:


“Auditors” means one of the Four Accounting
Firms appointed by Valin MPM after the date hereof to serve as the Auditors of
Valin MPM and the Company, and once the Auditors are appointed, the change of
Auditors shall be approved by the Board of Directors pursuant to Section 6.8
below.


“Affiliate” means any
Person which is directly or indirectly controlled by, under common control with
or controlling a Party, and its officers, directors, managers, and
employees.  The terms “controlled”,
“control” or “controlling” shall mean the holding of more than
fifty percent (50%) equity interests or of the power to appoint the majority of
directors.


The term “assist” or “assistance” means, respectively, to actively and
aggressively support and implement, or the active and aggressive support and
implementation of, an activity or application with full intent and commitment
to obtain the results sought by the Party or the Company which is being
assisted.


“Board” or “Board of
Directors” means the Board of Directors of the Company.


“Business Day” means a
day, other than a Saturday, Sunday or public holiday, on which banks in the
People’s Republic of China and Dallas, Texas, the United States of America are
open for general business.


“Business License” means
the business license of the Company issued by the Registration Authority, as
the same may be amended from time to time.



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“Capital Increase Agreement”
means the capital increase agreement for the Company entered into on or about
the date hereof among Valin TW, Valin ST, Star China and Valin MPM in respect
of Star China’s contribution to the registered capital of the Valin MPM.


“Chairman” means the
chairman of the Board of Directors.


“China” or the “PRC”
means the People’s Republic of China, for the purposes of these Articles of
Association only, excluding Hong Kong Special Administrative Region, Macao
Special Administrative Region and Taiwan.


“Company” means Hengyang
Valin MPM Steel Tube Company Limited (衡阳华菱连轧管有限公司) which is a Sino-foreign equity joint venture
company and is converted from Hengyang Valin MPM Steel Tube Co., Ltd. by the
Parties on the Establishment Date pursuant to the Capital Increase Agreement
and the Joint Venture Contract.


“Company Law” means
the PRC Company Law amended and adopted by the Standing Committee of the
National People’s Congress on October 27, 2005 which  came into force as of 1 January 2006 and the
relevant amendments, supplements, restatements or judicial explanations from
time to time according to legal procedure.


“Confidential Information” shall mean technology and know-how as well as
trade secrets, strategic business or marketing information, business
projections, secret processes and other processes, data, formulae, programs,
manuals, designs, sketches, photographs, plans, drawings, specifications,
reports, studies, findings, non-patented inventions and ideas, and other
information relating to the production, packaging, use, pricing, or sales and
distribution, whether of a technical, engineering, operational, business or
economic nature, no matter whether it is designated as “Confidential” by the
Parties or their Affiliates, or provided by the Parties or their Affiliates in
connection with the JV Company and any matters related thereto, or the
implementation of and/or the conduct of the business contemplated by this
Agreement and the other contracts contemplated herein.  Confidential Information, however, shall not
include (i) information which is now or hereafter becomes part of the public
domain through no fault of the receiving Party, (ii) information that the
receiving Party can demonstrate was already in its possession at the time of
receipt from a disclosing Party, and (iii) information which hereafter comes
into the possession of the receiving Party and was or is not acquired by the
receiving Party from a Person directly or indirectly under an obligation of
secrecy to the original providing Party.


“Deputy General Manager”
means the deputy general manager of the Company.


“Director” means a
member of the Board of Directors.



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“Effective Date” means
the effective date of these Articles of Association in accordance with Article
18.3.


“Establishment Date”
means the date on which the Company is converted into a Sino-foreign joint
venture and the first Business License of the Company is issued.


“Examination and Approval
Authorities” means the Ministry of Commerce of China or its
authorized local counterparts.


“Foreign Exchange” means
any foreign currency which can be freely exchanged, converted, or traded in the
open international currency market.


“Four Accounting Firms” means
any branch or Affiliate of PriceWaterhouseCoopers, Deloitte & Touche, Ernst
& Young and KPMG, such branch or Affiliate to have the required
qualification certificate and business license for their conducting of audit or
evaluation business.


“General Manager” means
the general manager of the Company.


“Governmental Body”
means any government or governmental or regulatory body thereof, or political
subdivision thereof, whether national, state, local or foreign, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private).


“JV Contract” means the
joint venture contract entered into on or about the date hereof among Valin TW,
Valin ST and Star China in respect of conversation of Valin MPM into a
Sino-foreign equity joint venture company and the establishment and operation
of the Company.


“Labor Contract” means
the individual labor contract to be entered into between the Company and each
Senior Management Personnel in the form as attached in Schedule 2 of JV
Contract and/or each Working Personnel.


“Law” or “Laws” means any
national, state, provincial, local or foreign law, statute, rule, regulation or
ordinance of any Governmental Body.


“Liabilities” means any debt, loss, damage,
adverse claim, fines, penalties or obligation (whether direct or indirect,
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, matured or unmatured, determined or determinable, liquidated or
unliquidated, or due or to become due, and whether in contract, tort, strict
liability or as a result of law or otherwise), and including all costs and
expenses relating thereto including all fees, disbursements and expenses of legal
counsel, experts, engineers and consultants and costs of investigation.


“Lone Star Technologies” means Lone Star
Technologies, Inc., a company legally established and lawfully existing corporation under the
Laws of the State of Delaware (USA), with its legal address at 15660 N.
Dallas Pkwy., Ste. 500, Dallas, 



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TX 75248, United States of America.  Star China is an indirect wholly-owned
subsidiary of Lone Star Technologies.


“Overseas” means any
place outside China.


“Person” means any
individual, corporation, limited liability company, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.


“PRC GAAP” means
generally accepted accounting principles in the PRC, applied on a consistent
basis throughout the periods presented.


“Product” or “Products”
means products to be manufactured by the Company.


“Renminbi” or “RMB”
means the lawful currency of the PRC.


“Registration Authority”
means the State Administration for Industry and Commerce of the PRC or its
designated local authorities.


“Sale, Marketing and Supply
Agreement” means the sale, marketing and supply agreement entered or to be
entered into between the Company, Trading Company (as defined therein), Star China
(or any of its Affiliate, including without limitation Lone Star Technologies) and
VTW in respect of the sale, marketing and supply of Tubular Products (as
defined therein) in the Territory (as defined therein), as the same may be
amended or supplemented from time to time.


“Senior Management Personnel”
means the General Manager, Deputy Genral Mangers, the Chief Financial Officer
and the Chief Operating Officer of the Company.


“Subsidiaries” means the subsidiaries of the
Parties in which the Parties holds more than 50% equity interest.


“Three Funds” means,
collectively, the Company’s reserve fund, bonus and welfare fund and enterprise
expansion fund.


“Tubular Products” has
the meaning as defined in the Sale, Marketing and Supply Agreement.


“United States Dollars”,
“US Dollars” or “US$” means the lawful currency of the United
States of America.


“US GAAP” means
generally accepted accounting principles in the United States of America,
applied on a consistent basis throughout the periods presented.


“Working Personnel”
means all employees of the Company other than Senior Management Personnel and
members of the Board.



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2       GENERAL PROVISIONS


2.1                 Name
and Address of the Company


(a)                          The
name of the Company shall be Hengyang Valin MPM Steel Tube Company Limited in
English and 衡阳华菱连扎管有限公司
in Chinese.


(b)                         The
legal address of the Company shall be Dalixincun No 10, Zhengxiang District,
Hengyang, Hunan, China.


2.2                       Use
of Name


The name of the Company shall not be changed except
with the prior written consent of the Parties.


2.3                       Limited
Liability Company


The Company shall be a limited liability
company.  The liability of each of the Parties for the obligations,
liabilities, debts and losses of the Company shall be limited to that Party’s
obligation to make its respective contribution to the registered capital of the
Company within the period required by Chinese law. Unless it has agreed
otherwise in a separate agreement with a third party, a Party shall not be
liable for any obligations or liabilities of the Company.  Creditors of
the Company shall have recourse only to the assets of the Company and shall not
have any claim against the Parties for the obligations of the Company, and in
case any creditor of the Company brings any action or claim against any Party
for any act of omission of the Company, the Company shall defend, at its cost,
such Party and hold harmless such Party against such claims or actions or any
loss or expenses incurred thereby.  A Party shall not be required to
provide any further funds to or on behalf of the Company beyond the amount
contributed by the Party under the Joint Venture Contract.


2.4                       Legal
Status


The Company shall be a legal person in the PRC. The
Company shall be governed by, and shall be entitled to the protection of the
laws, decrees and pertinent rules and regulations of the PRC.



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2.5                       Profits
and Losses


The profits of the Company shall be shared by the
Parties in proportion to and, in the event of losses, to the extent of their
respective contributions to the registered capital of the Company.


2.6                       Branches
and Subsidiaries


The Company may establish
branch offices and/or subsidiaries in the PRC upon the approval of the Board of
Directors and, if necessary, the Examination and Approval Authorities and the
relevant local Government Bodies where such branch offices and/or subsidiaries
shall be located.


3                      PURPOSES, SCOPE OF BUSINESS AND SCALE OF
PRODUCTION OF THE COMPANY


3.1                         The business objectives of the Company are:  to make full use of the advantages of each
Party hereto, strengthen the Company’s capabilities in the areas of technology
research and development, expand the Company’s market share, enhance the
Company’s comprehensive competitiveness, improve the Company’s economic
efficiency, and derive investment returns satisfactory to each Party hereto.


3.2                         The business scope of the Company is:  to produce, process, sell and market
steel tubes, processed products of steel tubes, billet, and by-products during iron
making, steel making and rolling, purchase scraps for production use and any
other business relating to the above (subject to the business scope set forth
in the business licence of the JV Company).


3.3                         Initial Estimated Scale of Production: annual
production of 1,000,000 tons of billet, 500,000 tons of steel tubes and
processed products of steel tubes.


3.4                         Powers of
the Company


In order to achieve its
principal purposes, the Company shall be empowered, within the scope of the
promulgated Laws of the PRC, to undertake the following:


(a)                  employ,
remunerate and dismiss the Working Personnel and retain, compensate and dismiss
outside agents, advisors, consultants and contractors, and pay the above
Working Personnel;



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(b)                 purchase,
lease or otherwise establish, acquire, maintain and operate offices,
facilities, branches, subsidiaries and sites in China;


(c)                  lease,
purchase or otherwise acquire premises, equipment, machinery, tools, parts, raw
materials and other property of all kinds;


(d)                 enter
into and perform relevant contracts with any individual, company, enterprise,
economic organization or entity within or outside China;


(e)                  purchase
or otherwise acquire and undertake all or any part of, the business, assets and
liabilities of any other company, enterprise, economic organization or entity
within or outside China;


(f)                    sell,
lease and otherwise dispose of the assets of the Company during the course of
its operations and during the liquidation and dissolution of the Company;


(g)                 acquire
and deal with patents, copyrights, trademarks and other intellectual property
rights;


(h)                 maintain
banking relationships of all types with financial institutions within or
outside the PRC and to draw and deal with cheques, bills of exchange,
promissory notes and other negotiable instruments;


(i)                     obtain
loans, lines of credit or other appropriate financing, obtain or provide
guarantees, indemnities and power of attorney, and mortgage, pledge, create
security interests in, or otherwise encumber, any of its assets as security for
loans;


(j)                     issue
bonds, securities and other financial instruments;


(k)                  obtain
insurance as may be necessary in the course of the Company’s operations;


(l)                     deal
with disputes and participate in legal proceedings of all types including
mediation, administrative proceedings or arbitration;



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(m)               invest
the income of the Company and distribute the profits of the Company;


(n)                 perform
all other generally lawful act as may be necessary or desirable to accomplish
the purposes of the Company.


4                                 TOTAL AMOUNT OF INVESTMENT AND REGISTERED
CAPITAL


4.1                         Total
Amount of Investment


The total amount of investment
of the Company shall be RMB2,844,000,000.


4.2                                 Registered
Capital


With the contribution by Star China to the registered capital of the
Company, the Company will have a registered
capital of RMB1,622,875,000, of which the equity interest proportions of each Party
in the registered capital of the Company will be as follows:


(a)          the equity interest proportion of Valin TW
shall be 41.11%;


(b)         the equity interest proportion of Valin ST
in the registered capital of the Company shall be 18.89%; and


(c)          with its contribution of RMB649,150,000 to the
registered capital of the Company, payable in cash in US$ or other convertible
foreign currencies as acceptable to the Chinese Parties, the equity interest
proportion of Star China shall be 40%.


4.3                                 Additional
Financing


The
Company may obtain additional funds through loans from domestic or foreign
financial institutions on terms and conditions approved by the Board of
Directors.  The Company may also obtain
loans or guarantees from the Parties or their Affiliates on terms and
conditions to be determined by the relevant Parties; provided, however, that no
Party shall be obligated to lend funds to the Company or to guarantee a loan to
the Company from a third party or financial institution.  The Company may mortgage or otherwise grant a
security interest in those of its assets permitted by Law to be mortgaged or
secured in order to obtain loans.


4.4                                 Increase
or Reduction of Registered Capital



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Any
increase or reduction in the registered capital of the Company shall be
approved by the Board of Directors and submitted to the appropriate Examination
and Approval Authority for approval. 
Upon receipt of such approval, the Company shall register the increase
or reduction in the registered capital with the Registration Authority.


4.5                                 Investment
Certificates


Within five (5) business days after the Parties have
made their respective capital contributions, the Company shall engage an
accountant registered in China (which has been mutually agreed to by the
Parties) to verify such contributions. 
Upon the issuance of a verification report by such accountant, the
Company shall issue to each contributing Party an investment certificate
setting forth the aggregate amount of such Party’s contribution(s).  Such investment certificate shall be signed
by the Chairman with the Company seal affixed thereto.


5                      NON-ENCUMBRANCE


No Party may encumber its share
of the registered capital of the Company or its equity interest, rights and
obligations under the Joint Venture Contract without the prior written consent
of the other Parties and prior approval of the Examination and Approval
Authorities (if applicable).


6                      BOARD OF DIRECTORS


6.1                                 Establishment


The Board of Directors of the Company shall be
established by the Parties and shall hold its first meeting within thirty (30 )
days of the Establishment Date.


6.2                                 Composition
and Term


The Board of Directors shall be composed of ten (10)
Directors, of whom four (4) shall be appointed by Valin TW, four (4) shall be
appointed by Star China and two (2) by Valin ST.   The chairman shall
be appointed by Valin TW. Each individual serving in the capacity of Director
shall hold office for a term of four (4) years, and each shall be eligible for
consecutive terms of office upon 



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reappointment by the original appointing Party. 
Any vacancy created in the Board of Directors shall be filled by the Party
which originally appointed the absent Director causing the vacancy.  Any
Party may at any time remove for any reason any or all of the individuals
appointed by such Party as a Director and appoint in lieu thereof another
individual or individuals to serve the remainder of the relevant term(s).


6.3                                 Authority


The Board of Directors shall be the highest authority
of the Company and shall make decisions on all major and important matters of
the Company.  The rules of procedure
governing the Board of Directors and its powers and responsibilities are as set
forth in the Joint Venture Contract and these Articles of Association.


6.4                                 Legal
Representative


The Chairman of the Board shall be the legal
representative of the Company and shall act only in accordance with the specific decisions, resolutions and
instructions of the Board of Directors. Whenever the Chairman is unable
to discharge his duties, he shall authorize another Director to represent the
Company.


6.5                                 Personal
Liability of Directors


A Director, including the
Chairman, shall not have personal liability for action he undertakes on behalf
of the Company within the scope of authority of these Articles of Association
or the Board resolutions unless his or her action:


(a)                                  is outside
the scope of the approval or authorization given to him by the Joint Venture
Contract, these Articles of Association or the Board of Directors’ resolution;
or


(b)                                 is in breach
of Articles 148 to 150 of the Company Law; or


(c)                                  is in
breach of the Laws of China at the time.


 


 



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Any
Director, including the Chairman, acting in material violation of these
Articles of Association or Board of Director’s resolutions shall indemnify and
hold harmless the Company against all losses caused to or liabilities and
expenses incurred by the Company.  The
Company shall, to the extent permitted by Law, indemnify any Director for
damages or losses incurred in good faith by such Director in the performance of
his or her obligations.


6.6                                 Duties of the Chairman are as follows:


(a)                                  call and
chair the board meetings;


(b)                                 check and
supervise the implementation of the board resolutions;


(c)                                  sign the
Company’s investment certificates;


(d)                                 sign
important legal documents on behalf of the Company; and


(e)                                  undertake
any other responsibilities delegated by the Board of Directors.


6.7                                 Unanimous Approval


Resolutions
of the Board of Directors involving the following matters shall be adopted only
upon the unanimous affirmative vote of all Directors (whether present in person
or by proxy) participating at a duly convened meeting:


(a)                                  amendment
of these Articles of Association;


(b)                                 increase or
reduction of registered capital of the Company;


(c)                                  adjustment
of any Party’s equity interest in the registered capital of the Company;


(d)                                 merger or
consolidation of the Company with any other economic organization or
reorganization of the Company; and


(e)                                  termination,
liquidation or dissolution of the Company.



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6.8                                 Other Decisions of the Board


Except
for those matters set forth in Article 6.7, the following matters shall require
the affirmative vote of not less than two-thirds (2/3) of the Directors of
which at least two (2) votes are cast by Directors appointed by the Chinese
Parties and at least two (2) votes are cast by Directors appointed by Star
China:


(a)                                  establishment
of branch offices and subsidiaries;


(b)                                 transfer,
sale, lease or other manner of disposition of the business or assets of the
Company, in whole or in part, which involves an aggregate amount in excess of
five percent (5%) of the net asset value of the Company (based on the latest
financial reports of the Company); the acquisition of the business or assets,
in whole or in part, of any other company or entity that involves an aggregate
amount in excess of five percent (5%) of the net asset value of the Company (based
on the latest financial reports of the Company); or the making of investments
not in the ordinary course of business that involves an aggregate amount in
excess of five percent (5%) of the net asset value of the Company (based on the
latest financial reports of the Company);


(c)                                  granting of
a security interest in any assets of the Company that does not fall within the
annual finance budget as approved by the Board and involve in excess of five
percent (5%) of the net asset value of the Company in the aggregate in any
fiscal year (based on the latest financial reports of the Company) or other
value or amount as may be determined by the Board from time to time;


(d)                                 approval of
any loan that does not fall within the annual finance budget as approved by the
Board, guarantee or lease agreement that involves an aggregate rental income or
payment amount exceeding RMB five (5) million in a financial year;


(e)                                  approval of
the capital expenditures of the Company in an aggregate amount in excess of two
percent (2%) of the net asset value of the Company in any fiscal year (based on
the latest financial reports of the 



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Company) or other amount as may be determined by the Board from time to
time;


(f)                                    the entry
by the Company into any joint ventures or partnerships or any other
profit-sharing agreement and the amendment or termination of any such agreement
or arrangement;


(g)                                 entering
into any substantial transaction that is not in the ordinary course of business
or not on an arm’s length basis;


(h)                                 entering
into any transaction or understanding involving receipt or expenditure of an
amount which exceeds the lesser of (i) US$5 million and (ii) five percent (5%)
of the net asset value of the Company, which has not been included in the
annual finance budget approved by board;


(i)                                     declaration
of dividends and determination of the distribution plan of profits;


(j)                                     determination
of the amounts to be allocated to each of the Three Funds;


(k)                                  the
appointment or dismissal of Senior Management Personnel, examining and
approving the Labor Contracts between the Company and the Senior Management
Personnel and determination of the compensation of such personnel;


(l)                                     examining
and approving significant reports, including long-term business and production
plans, annual operating plans and budgets and financial reports;


(m)                               approving
any change that adversely affects the Company’s tax position or treatment;


(n)                                 approving
any decision which would cause the Company to have an accounting change unless
such change is mandated by law;



 14
 






 



(o)                                  the resolving, settling or
compromising of any conflicts with third parties which is determined by the
General Manager or the CFO to have significant impact on the JV Company’s
business or operation;


(p)                                 examining
and approving contracts between the Company and its shareholders, Affiliates,
Directors or Senior Management Personnel or their Affiliates;


(q)                                 any
agreement or understanding for the transfer of the technology of the Company;


(r)                                    other
contracts or agreements that will have substantial impact on the Company;


(s)                                  any
agreement that restricts the ability of the Company to compete;


(t)                                    the
engagement of the Company’s Auditors;


(u)                                 approval of
any agreements or understandings regarding regional distribution, distribution
on the basis of exclusive agency or plans regarding engaging agents in respect
of the Company’s products;


(v)                                 approval of
the establishment of Board committees and approval of the appointment of
Directors to serve on such committees; and


(w)                               approval of
any plan for environmental investigation or remediation and any capital
expenditures associated therewith, with the exception of the environmental
plans and expenditures that have been included in the annual budget for
environmental protection.


6.9                                 Board
Meetings


The
regular meeting of the Board of Directors shall be held at least once every
quarter. Meetings of the Board of Directors shall normally be held at the
registered address of the Company, but may be held at any other place as may be
jointly selected by the Chairman and one Director appointed by Star China.



 15
 






 



 


6.10                           Special
Board Meeting


Within three (3) Business
Days after the receipt of the request by at least one director appointed by any
Party requesting that a special Board meeting shall be held, either the
Chairman, or in his absence or failure to act, an authorized Director, of the
Board shall deliver a notice to all the Directors to convene a special Board
meeting, which shall be held within fourteen (14) days after the deliver of
such a notice.  A special Board meeting
shall not be requested by a director nominated by the same Party more than once
every calendar quarter, provided that this restriction shall not apply if such
proposal is requested by at least one-third (1/3) of the Directors.


6.11                           Notice
of Meetings


The
Chairman, or in his absence or failure to act, an authorized Director, shall
issue a notice by telephone, facsimile transmission, personal delivery or
verified e-mail at least fourteen (14) days prior to any Board meeting stating
the specific agenda, time and place of the meeting.  Such notice period may be abridged or waived
by the written consent of all the Directors.


6.12                           Attendance


A
Director may attend a Board meeting in person, by conference telephone or
designate another person by proxy to vote in his place.  Such designation shall be in writing, shall
be signed by the Director, and shall identify the meeting or meetings at which
the person may act as a proxy and any instructions that may be applicable to
the proxy.  A Director may appoint
another Director as his proxy.  A person
acting as a proxy may do so for more than one Director at the same time.


6.13                           Quorum
for Meetings


The quorum for a Board
meeting shall consist of two-thirds (2/3) of the total number of Directors
(i.e. seven (7) Directors) present in person or by conference telephone or by
proxy, which shall include at least one (1) Director appointed by each
Party.  However, if proper notice to
convene a Board meeting has been given and there are more than tow-thirds of
the Directors attending the meeting and if the Directors appointed by a Party
fail to attend the meeting in person or by 



 16
 






 



proxy or by conference
telephone, and therefore a quorum is not present in accordance with the
preceding sentence, such Board meeting shall be adjourned and reconvened at the
same location and time fifteen (15) days later and the Directors then present
(which shall be more than Two-thirds of the total number of Directors) shall be
sufficient to form a quorum and the above-mentioned requirement of at least one
Director appointed by each party will not be applicable for this meeting.


6.14                           Voting


The
Directors may vote on any matters either by attending meetings in person, by
telephonic conference or by proxy. 
Except for the matters set forth in Articles 6.7 and 6.8, if a quorum is
present, a simple majority of all of the Directors may pass a resolution at a
duly convened board meeting.


6.15                           Resolutions
of the Board


Resolutions of the Board shall be in the written form.  The Directors shall be responsible for
resolutions adopted by the Board of Directors. 
Where a resolution of the Board violates any Laws or these Articles of
Association, and causes the Company to incur serious loss, those Directors
participating in the adoption of the resolution are liable to the Company for
damages; provided, however, if a Director is proven to have cast a vote against
such a resolution and such a negative vote is recorded in the minutes, the
Director shall be exempt from liability.


6.16                           Decision
of the Board regarding Co-Investment


With respect of the co-investment
proposal of Star China to the Board in accordance with Clause 7.4 of the JV
Contract, Star China undertakes that (i) it will not delay the Board meeting
to discuss the investments in question by not attending the Board meeting, and
(ii) the directors nominated by Star China shall vote in favor of such
investments.



 17
 






 



6.17                           Correspondence
Voting


Notwithstanding any other provisions of these Articles of Association, a
written resolution may be adopted by the Board in lieu of a meeting of the
Board provided that such a resolution is sent to all the directors of the
Company and is signed by the number of Directors required to carry such
resolution had a Board meeting been convened.


6.18                           Compensation
and Expenses


The Company shall not pay any remuneration or subsidy to any Director
for attendance at a Board meeting.  The
Company may reimburse a Director for reasonable expenses incurred in respect of
travelling, accommodation and other living expenses to attend Board meetings if
the Board of Directors agrees to do so.


6.19                           Minutes


Minutes
shall be kept for each Board meeting and signed by all Directors present at the
Board meeting in person or by proxy.  In
order to facilitate the smooth conduct of Board meetings, the Chairman shall
appoint a designee for the purpose of the Board meeting.  The duties of such designee shall be to take
detailed minutes of the Board meeting, procure the proper signatures for the
adoption of such minutes, translate or arrange for the translation of documents
and dispatch documents relating to the Board meeting to the Directors.  Minutes of the Board meeting shall be
maintained in both Chinese and English by the Company.


6.20                           Agreement
to Extend Marketing Agreement


Each Party shall, upon
request of any Party, cause the Directors nominated by such Party to approve
the extension of the term of the Sale, Marketing and Supply Agreement, without
making any other amendment, for the remaining of its original term in the event
that such agreement is early terminated before the expiry of its original
term  mandated by PRC Law, provided that
such extension and the terms and conditions do not contravene applicable PRC
Law.


6.21                           Establishment
of Trading Company


Each Party hereto agrees a
trading company should be established in Cayman Islands by Star China (or its Affiliate, including without limitation,
Lone Star Technologies) and Valin TW for the purpose of being the
importer of 



 18
 






 



record in North America
(Canada, the United States of America and Mexico, which includes any offshore
drilling within the territorial waters of such countries).


6.22                           Establishment
of Audit Committee


The Board will establish an Audit Committee consisting
of three directors. Two members of this committee will be appointed by Star
China and one member will be jointly appointed by the Chinese Parties.  The rights, authority and function of the
Audit Committee are set forth in Schedule 6 hereto.


7                      MANAGEMENT ORGANIZATION


7.1                                 Establishment


(a)                                  The Company
shall establish a management organization which shall be in charge of the daily
operations and management of the Company.


(b)                                 The
management organization shall be headed by the General Manager and constituted
with Senior Management Personnel and other management personnel.


(c)                                  The General Manager and all of the
Deputy General Managers shall be nominated by Valin TW.


(d)                                 The Chief Financial Officer, the
Chief Operating Officer, the Director of Quality Assurance and Technical
Support and the Director of International Sales and Marketing shall be
nominated by Star China.  The Chief
Financial Officer and the Chief Operating Officer are among the Senior
Management Personnel at the same level as Deputy General Manage.  The Director of Quality Assurance and
Technical Support and the Director of International Sales and Marketing shall
be appointed by the General Manager and are among the middle level management
personnel of the Company, which is a level immediate lower than Senior
Management Personnel, and their scope of authority is attached as Schedule 1
(The Authority of the Director of Quality Assurance and Technical Support and
the Director of International Sales and Marketing).



 19
 






 



 


(e)                                  Each Party
agrees to cause the Directors appointed by it to approve all persons nominated
to Senior Management Personnel positions. 
Each individual serving in the capacity of Senior Management Personnel
shall hold office for a term of three (3) years, and each shall be eligible for
consecutive terms of office if re-nominated by the original nominating Party.


7.2                                 Responsibilities
of the General Manager


The duties of the General
Manager shall consist of carrying out the decisions of the Board of Directors
and organizing and directing the day-to-day operations and management of the
Company and shall have the authorities and responsibilities set forth below:


(a)                                  implementation
of the decisions of the Board;


(b)                                 formulation
and execution of rules and regulations of the Company within the scope of power
delegated by the Board;


(c)                                  supervision
of the Senior Management Personnel;


(d)                                 implementation
of Operation Plan as approved or amended by the Board of Directors;


(e)                                  determination
of the criteria and number of Working Personnel of the Company and formulation
of training scheme;


(f)                                    employment
and dismissal of Working Personnel other than Senior Management Personnel, and
determination of salaries, wages, subsidies, benefits, insurance, allowances,
rewards and other compensation matters related to Working Personnel;


(g)                                 within
the scope of power delegated with a board resolution, being responsible for
external relations and execution of business documents and other corporate
documents with third parties on behalf of the Company;


 



 20














 


 


(h)                                 presentation
to the Board of reports related to operation, including but not limited to
long-term business and production plans, annual operational plans and budgets,
and financial plans and budgets; and


(i)                                     within
the scope of power delegated by the Board and subject to the restrictions
imposed by the Board, being responsible for other affairs.


7.3                                 Duties
of Deputy General Managers


Deputy General Managers shall
assist General Manager, assume powers and responsibilities assigned by General
Manager and save as provided otherwise below report to General Manager.


(a)                                  Duties of Finance and Accounting Deputy General
Manager:


(i)            report to the General Manager;


(ii)           provide information
and assistance required by the Chief Financial Officer to enable him to
exercise the power to supervise the Company’s financial matters as indicated in
(d) below;


(iii)                               management of financial and accounting affairs
of the Company in a manner as consistent with the China Laws, PRC GAAP and US
GAAP;


(iv)                              formulation and implementation of accounting
rules and procedures of the Company;


(v)                                 analysis and advice on the managements and
operations of the Company;


(vi)          maintenance of accounting books and
records of the Company;


(vii)         management of insurance affairs of the
Company; and


(viii)                        presentation of financial reports as required by the General Manager
and/or the Chief Financial Officer and the Board of Directors;



 21
 






 



(b)                                 Duties of other Deputy General Managers:


(i)                                     give suggestions about production , technology,
sales, supply, marketing and administrative management when required by General
Manager;


(ii)                                  each Deputy General Manager shall carry out
temperately General Manager’s duties regarding the Company’s daily operation
and management when required by General Manager;


(iii)                               permitted by Board of Directors and head by
General Manager, each Deputy General Manager supervise certain matters of the
Company and has rights to make decisions in the scope of their daily work;


(iv)                              Deputy General Managers shall supervise the
departments distributed by General Manager;


(v)                                 Deputy General Managers shall complete the tasks
asked by General Manager.


(c)                                  Duties of Chief Operation Officer:


(i)                                     give suggestions to General Manager about
appointment of the Working Personnel, adjusting of organization system, project
, new services, annual operation budget, salary management, training and
establishment management;


(ii)                                  supervise the implementation of operation budget
approved by Board of Directors to ensure that the implementation of the budget
meets the purposes and objectives set by the Board of Directors;


(iii)                               supervise the implementation of various
operation and management systems of the Company;


(iv)                              formulate and implement special operation plans
so as to make up the defect of the Company and utilize the business opportunity
advantage of the Company; evaluate operations to detect the demand for
improvement and to resolve the problems;



 22
 






 



 


(v)                                 participate in formulating five-year finance
objectives.


(d)                                 Duties of Chief Financial Officer:


Under the guidance of General
Manager, Chief Financial Officer shall be responsible for financial supervision
of following matters:


(i)                                     direct and assist in general operation of the
Company;


(ii)                                  cooperate with the Deputy General Manager who is
responsible for financial affairs to supervise daily accounting and financial
work of the Company;


(iii)                               participate in formulating annual funds and
business budget;


(iv)                              be responsible for evaluating product potential
and cost analysis;


(v)                                 establish and maintain the accounts in line with
the PRC GAAP ; and


(vi)                              prepare the financial statements of the Company.


Because the CFO has the duty to
apply US GAAP and to ensure compliance with the strict requirements in respect
of finance and accounting for listed companies in United States, the candidates
of CFO should have special back ground of education, training and practice, the
details of such qualification requirements are set out in Schedule 2 (Qualification Requirements for the
Candidates of CFO)


7.4                                 Employment


Except
as otherwise described in the Joint Venture Contract and these Articles of
Association, each Senior Management Personnel shall be appointed and removed by
the Board of the Company. Each Senior Management Personnel (other than the General
Manager) shall receive his assignment from and shall report to the General
Manager, except as provided otherwise in the Joint Venture Contract.  Each Senior Management Personnel shall be
subject to removal at any time by the Board if he/she fails to fulfill his/her
duties properly and the General Manager 



 23
 






 



proposes
the removal.  In the event a Senior
Management Personnel is removed, the Party that originally nominated such
personnel shall nominate another individual for such position.  The Chairman shall have the right to
temporarily appoint such a Senior Management Personnel if such Party fails to
nominate another individual within thirty (30) days of such individual’s
removal until such Party nominates another individual.


7.5                                 Compensation


Matters
such as salaries, wages, subsidies, benefits, insurance, allowances, rewards
and other compensation matters of the Senior Management Personnel shall be
stipulated in the Labor Contract between the Company and such Senior Management
Personnel.


7.6                                 Confidentiality
and Non-Competition


Each Working Personnel who
has access to confidential information of the Company, including technology and
intellectual property, shall, as a condition to employment by the Company,
execute an agreement substantially in the form of Schedule 2 attached to
the JV Contract, which contains provisions prohibiting the disclosure of
confidential information and also restricting the ability of such to compete
with the business of the Company.


8                      ANTI-CORRUPTION


Each of the Chinese
Parties acknowledges that Lone Star Technologies will be required to consolidate
the financial results of the JV Company and its subsidiary(ies) with Lone Star
Technologies’ own financial results, and will be required to ensure that the JV
Company and each of its subsidiaries is operated in accordance with the Laws
that are applicable to companies that are publicly traded in the United
States.  As such, from and after the
Establishment Date, the Chinese Parties will use reasonable efforts to cause
the JV Company to implement, monitor and maintain compliance at the JV Company
and each of its subsidiaries with all policies, procedures and controls that
Lone Star Technologies requires of its subsidiaries (the “LST Policies”).
Such LST Policies will include, but may not be limited to, internal and financial
controls for compliance with the Sarbanes-Oxley Act of 2002 and the rules and
regulations 



 24
 






 



promulgated thereunder,
policies for compliance with the US Foreign Corrupt Practices Act and the rules
and regulations promulgated thereunder, as well as Lone Star Technologies code
of conduct and other financial, treasury, legal, compliance and accounting
policies (including US GAAP).


9                      LABOR MANAGEMENT


9.1                                 Autonomy to Employ Staff


The labour policies of the JV Company shall be formulated
in accordance with applicable PRC Law. 
The JV Company shall have all possible autonomy under the PRC Law
concerning the recruitment, employment, compensation, designation of welfare
benefits, procurement of labour insurance, promotion, discipline and dismissal
of Working Personnel.


9.2                                 Compensation


The compensation to the employees of the JV Company
shall comply with the PRC Law.  Matters
such as the salary system of the JV Company, compensation, wages, subsidies,
benefits, insurance, allowances, rewards and other compensation matters of
Working Personnel shall be stipulated in the Labour Contract between the JV
Company and each Working Personnel.


9.3                                 Training


All candidates hired by the Company must
satisfactorily complete the training program specified in their Labour
Contracts and a subsequent three (3)-month probationary period of work before
they will be officially considered Working Personnel of the Company.  The
General Manager shall have the absolute right to decide, on behalf of the Company,
whether such persons have successfully completed their probationary period and
shall be granted employment, or that such persons shall not be granted
employment for whatever reasons, including lack of qualification, redundancy or
otherwise.  Any person to whom the Company does not offer employment after
the probationary period shall be given notice before dismissal.  The
Company shall not otherwise be liable in any manner to any individual or Party
in connection with the Company’s decision to decline to offer employment to a
person.



 25
 






 



 


10                          TRADE UNION


10.1                           The JV
Company will establish the trade union organization in accordance with the PRC
Law and the Articles of Association of the JV Company and the requirements with
respect to the institutional framework and the activities of the trade union
shall be complied with.


10.2                           The
Company shall contribute such amount to the Company’s trade union fund for such
trade union’s use as is required in accordance with the applicable PRC Laws on
the management of trade union funds.


11                          ANNUAL OPERATING PLANS AND BUDGETS


11.1                           Preparation


The General Manager shall be responsible for the
preparation of the annual operating plans and budgets of the Company.  The operating plan and budget for the next
fiscal year shall be submitted to the Board for examination and approval prior
to November 15 of each year and shall include detailed plans and projections
regarding:


(a)                                  procurement
of materials, machinery, equipment and other capital expenditures of the
Company;


(b)                                 plans
and policies with respect to the manufacture of the Products;


(c)                                  estimated
revenues, expenditures and profits of the Company;


(d)                                 human
resources plans of the Company; and


(e)                                  marketing,
sales and distribution plans and policies for the Products.


11.2                           Examination
and Implementation


The Board shall complete its examination and approval
of each annual operating plan and budget for the next fiscal year on or prior
to December 31 of each year.  



 26
 






 



The General Manager shall be responsible for the
implementation of the annual operating plan and budget as approved by the
Board.


12                  TAXATION, THREE FUNDS AND PROFIT DISTRIBUTION


12.1                           Tax
Treatment


The Company shall comply with
the PRC Law.  The Company shall be
entitled to all preferential treatment in respect to taxes and duties allowed
under China Law.


12.2                           Three
Funds


After fully making up
accumulated losses of previous years, if any, and payment of taxes in
accordance with the relevant Laws of China, the Company shall allocate a
percentage of its annual after-tax profit for contribution towards the Three
Funds.  The amount to be allocated to the
Three Funds shall be decided by the Board of Directors on a yearly basis in
accordance with the financial performance of the Company, in light of the
relevant Laws of China.


12.3                           Profit
Distribution


After recovering prior years’
losses, paying taxes in accordance with the Law and making contributions to the
Three Funds, the remaining earnings of the Company will be available for
dividend distribution to the Parties. 
The Board shall calculate the net profit (or net loss) at the end of
each quarter and distribute the profits in accordance with the dividends
distribution plan passed by the Board. 
In respect to the dividends distribution plan passed by the Board, the
General Manager shall recommend a dividend distribution plan to the Board of
Directors within the first three (3) months following the end of each fiscal
year of the Company for the Board’s consideration and approval or
modification.  In his or her
recommendation, the General Manager shall consider that the Company has
sufficient funds on hand to pay the dividends and meet its approved capital
expenditure budget and working capital requirement for the current budget
year.  The Company shall not distribute
dividends unless the losses of previous fiscal year(s) have been fully made
up.  Remaining undistributed dividend
from previous years may be distributed together with that of the current year.



 27
 






 



 


Dividends shall be distributed
to the Parties in proportion to each Party’s holding of the registered capital
of the Company at the time of the distribution. 
Payment of dividend distributions to each Party shall be in Renminbi,
provided that any dividends payable to Star China shall be freely remittable
out of China in US Dollars or another freely convertible foreign currency
acceptable to Star China.


13                  FINANCIAL AFFAIRS AND ACCOUNTING


13.1                           Accounting
Policy


The
Company shall maintain its accounts in accordance with officially promulgated
PRC Laws and the provisions of the JV Contract and these Articles of
Association and in a manner sufficient to satisfy the PRC GAAP and the
financial and tax reporting requirements of the Parties.  The Chief Financial Officer shall work
together with the Deputy General Manager in charge of finance to establish and
amend from time to time the accounting system and procedures for the Company in
compliance with the PRC GAAP (and to the most extent, US GAAP) and applicable
laws and regulations promulgated by relevant Government Body and submit them to
the General Manager, Audit Committee and the Board for approval.


The
fiscal year of the Company shall start on January 1 of the year and end on
December 31 of the same year.  The first
fiscal year of the JV Company shall commence on the Establishment Date and end
on December 31 of the same year.  The
last fiscal year of the JV Company shall start on January 1 of the year of
termination and end on the date of termination.


13.2                           Books
and Records


The Company shall keep true, correct and complete
records and accounts in accordance with applicable PRC Law and PRC GAAP for
enterprises.


13.3                           Inspection
of Books and Records


Each Party shall have the right to examine and copy all books of
account, records, vouchers, contracts and documents of any kind that are
necessary or appropriate for monitoring the financial performance of the
Company.  Each Party may make such
examination and copies of the documents during the Company’s 



 28
 






 



normal business hours, provided that such examination and copying does
not unreasonably interfere with the business operations of the Company.  Each Party may exercise such rights through
its agent or employee or by an independent accounting firm designated by the
Party.


13.4                           Accounting
Unit


The reporting currency of
accounts of the Company shall be Renminbi. 
When foreign currency transactions take place, the foreign currency
amount will be translated monthly into the reporting currency for recording
purposes in accordance with PRC GAAP, and reconciled to US GAAP on a monthly
basis.  Any increase or decrease in the
balance of accounts relating to foreign currency transactions shall be
translated into the reporting currency of account in accordance with the
Foreign Exchange rate announced by the People’s Bank of China on the
transaction date or on the first day of the month when the transaction takes
place.


13.5                           Audit


(a)                                  The
JV Company’s audited annual financial statements shall be submitted  to the General Manager and the Board for
approval.


(b)                                 Each Party shall be entitled (but not obliged) to appoint (once in each fiscal year) an accountant
registered in China or abroad to audit the accounts of the JV Company. If the
results of any such audit are significantly different from that conducted by the JV Company’s auditors and are accepted by the Board, the expense
of the audit shall be borne by the JV Company. 
Otherwise, the expense of the audit shall be borne by the Party
requesting the audit.  The JV Company
shall permit such accountant to have access to the JV Company’s books and
records and Senior Management Personnel and shall provide such accountant with
office space and all other reasonable facilities to enable the accountant to
carry out the audit.



 29
 






 



13.6                           Additional
Reports and Provision of Returns


The Company shall provide, without charge, to any Party
that may so request a copy of each tax return and report that it is required to
file with any Government Body in sufficient time prior to such filing to permit
its review by such Party prior to filing.


14                  BANK ACCOUNTS AND FOREIGN EXCHANGE


14.1                           Bank Accounts


The Company shall open RMB deposit accounts and
Foreign Exchange deposit accounts in accordance with PRC Law.  The Company may also open Foreign Exchange
deposit accounts with foreign banks outside China, as designated by the Board
subject to approval by the relevant government authorities


14.2                           Foreign
Exchange Requirements of the Company


All of the Company’s Foreign
Exchange receipts shall be deposited in its Foreign Exchange accounts and all
the payments in Foreign Exchange shall be made from its Foreign Exchange
deposit accounts.  Star China and/or its
Affiliates shall have the right to remit outside China all payments made to it
by the Company, including amounts paid to it upon dissolution of the Company, in
accordance with applicable China Laws.


15                  DURATION


Subject to the provisions for
earlier termination under the Joint Venture Contract, the Company shall
continue to operate indefinitely or for the maximum term (including extensions
of term) approved by the Examination and Approval Authorities.


16                  LIQUIDATION AND DISSOLUTION


16.1                           Liquidation


Upon approval by the Examination and Approval
Authorities of a unanimous Board resolution made according to Article 6.7 of
these Articles to dissolve the Company or upon the order of a court or decision
of an arbitration tribunal to 



 30
 






 



dissolve the Company, the Directors shall adopt a
resolution to liquidate the Company. Within seven (7) days after the date of
the court order or arbitral decision to dissolve the Company is rendered (the “Liquidation Commencement Date”), the
Company is required to notify in writing all relevant Government Bodies in
charge (including customs, foreign exchange and tax authorities) and banks of
its proposed liquidation.  The Company shall not carry out any new
business activities prior to the completion of liquidation procedures.


16.2                           Establishment
of Liquidation Committee and Public Announcements


Within fifteen (15) days after Liquidation
Commencement Date, the Board of Directors shall appoint at least three (3)
individuals to form a liquidation committee (the “Liquidation  Committee”). 
Within ten (10) days after its formation, the Liquidation Committee shall
notify in writing all known creditors of the Company of the Company’s proposed
liquidation and make a public announcement in at least one (1) national and one
(1) local newspaper of the Company’s proposed liquidation.  Within sixty
(60) after its formation, the Liquidation Committee shall make a second public
announcement announcement in at least one (1) national and one (1) local
newspaper of the Company’s proposed liquidation.


16.3                           Functions
of the Liquidation Committee


(a)                                  The
Liquidation Committee shall carry out a full examination of the Company’s
assets and liabilities, compile a statement of assets and liabilities, specify
the valuation basis of assets, prepare the plan for liquidation, and submit the
same to the Board for approval and verification by the Examination and Approval
Authorities. Subject to the Liquidation Committee’s recommendations, the
Company’s assets should, in principle, be valued at fair market value as an
on-going concern.


(b)                                 During
the period of liquidation, the Liquidation Committee shall represent the
Company in dealing with the Company’s unfinished business and in any legal
proceedings involving the Company.  As soon as possible after its
establishment, the Liquidation Committee shall, on behalf of the Company,
settle any outstanding accounts receivable with the Company’s debtors.


 



 31














 


(c)                                  The
assets of the Company shall be liquidated in accordance with the specific
liquidation procedures adopted by the Liquidation Committee. The liquidation
procedures shall generally provide that potential buyers, including the
Parties, shall be publicly invited to tender bids. Subject to the approval by
the Board, the Liquidation Committee may also determine whether the bidding
shall be tendered for the entire assets of the Company as a going concern or on
an individual or collective basis.  For the same piece of asset or
category of assets, as the case may be, the bidder tendering the highest offer
shall be awarded the same (subject to a right of first refusal by a Party to
purchase the same on no less favourable terms and conditions).


16.4                           Priority
of Payment of Liquidation Proceeds


The proceeds of the liquidation shall be distributed
in the following order of priority:


(a)                                  payment
of the liquidations costs and expenses and the remuneration of the members of
the Liquidation Committee;


(b)                                 payment
of outstanding salaries, wages, subsidies, benefits, allowances, rewards and
other compensation of Senior Management Personnel and Working Personnel;


(c)                                  payment
of outstanding taxes and customs duties; and


(d)                                 payment
of unsecured debts of the Company.


Any remaining proceeds shall be distributed to the
Parties in proportion to the respective percentage interest each Party holds in
the Company’s registered capital.


16.5                           Cancellation
of Registration


After the liquidation of the Company is completed and
no later than one hundred eighty (180) days after the Liquidation Commencement
Date (unless a special extension is approved), the Liquidation Committee shall
promptly submit a report 



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thereon for verification by the Board and submission
to the relevant Examination and Approval Authority and shall carry out
cancellation procedures with the tax and customs authorities.  Application
shall be made with the Registration Authority for surrender and cancellation of
the business license of the Company and a public announcement of the Company’s
dissolution shall be made.


17                  INSURANCE


The Company shall, at its own cost and expense and at
all times during the operation of the Company, procure and maintain full and
adequate insurance coverage in a manner prudent and advisable for the Company
as permitted by PRC Law.  The relevant
insurance policies may be obtained from any insurance company authorized to
provide such policies in China and approved by the Board.


The insurance shall include property, casualty,
product liability and general liability, which are necessary for fulfilling
obligations or liabilities under relevant Laws of China, contracts with
customers and as required by the terms of the MPM Sale, Marketing and Supply
Agreement.  If one Party proposes to
purchase an insurance policy not directly related to the business of the
Company, such a Party shall be responsible in full for the payment of the
premium.


18                  MISCELLANEOUS


18.1                           Applicable
Law


The Laws of China which are
officially published and publicly available shall apply to and govern the
validity, interpretation and implementation of these Articles of Association.


18.2                           Language


These
Article of Association shall be written and executed in both English and
Chinese in ten (10) originals in each language and each language version has
the same effect.  Each Party shall
receive one original and the remaining originals will be submitted to the
Examination and Approval Authorities as well as the Registration Authority for
approval or registration.  Each Party
acknowledges that it has reviewed these Articles of Association in both
language versions and that they are substantially the same in all material
respects.



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18.3                           Effective
Date and Amendment.


These Articles of Association shall become effective
on the date they are approved by the Examination and Approval
Authorities.  Any amendments to these Articles of Association shall be
made in accordance with the Joint Venture Contract and Article 6.7 hereof and
subject to the approval by the Examination and Approval Authorities.


18.4                           Notices


Unless otherwise provided in these Articles of
Association, notices or other communications required to be given by any Party
or the Company pursuant to these Articles of Association may be delivered
personally, by a recognized courier service, sent by facsimile transmission, or
sent by e-mail transmission to the addresses, facsimile numbers or e-mail
addresses of the other Parties set forth below or to such other address,
facsimile number or e-mail address as a Party may have specified by notice
given to the other Parties pursuant to this provision.  The dates on which notices shall be deemed to
have been effectively given shall be determined as follows:


(a)                                  Notices
given by personal delivery shall be deemed effectively given on the date of personal
delivery.


(b)                                 Notices
given by registered airmail (postage prepaid) shall be deemed effectively given
on the seventh (7th) day after the date on which they were mailed (as indicated
by the postmark).


(c)                                  Notices
given by air courier shall be deemed effectively given on the third date after
the date of delivery (as indicated by the airway bill).


(d)                                 Notices
given by facsimile or e-mail transmission shall be deemed effectively given on
the first (1st) Business Day following the date of transmission (as indicated
by confirmation of transmission recorded by the sender’s fax machine or return
email).


For the purpose of notices, the
addresses, facsimile numbers and e-mail addresses of the Parties are as
follows:



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Hunan Valin Steel Tube & Wire Co.,
Ltd.:


Address:  Valin Plaza, Fu Rong Zhong Lu, Second
Section, No.111, 
                  Changsha, Hunan, China

Attention:  Head of Securities Department

Facsimile No.:        (86) 731-2245196;(86)
731-4447112


Hengyang Valin
Steel Tube Co. Ltd.:

Address: Dalixincun No 10, Zhengxiang District, Hengyang, Hunan, China

Attention: Head of Office

Facsimile No:         (86)734-8870188


Star China
Ltd.:


c/o Lone Star Technologies,
Inc.

15660 N. Dallas Pkwy., Ste. 500,

Dallas, TX 75248

United States of America

Attention: General Counsel

Facsimile No:         (+1) 972-770-6474


with a copy to:


Weil, Gotshal & Manges LLP

200 Crescent Court, Suite 300

Dallas, Texas 75201

United States of America

Attention:  Mary R. Korby

Fax: (+1) 214-746-7777


Any Party may at any time
change its address for service of notice or communication in writing delivered
to the other Party in accordance with the terms hereof.


18.5                           Headings


The headings contained in these
Articles of Association are for reference only 



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and shall not be deemed to be a
part of these Articles of Association or to affect the meaning or
interpretation hereof.


IN
WITNESS WHEREOF, the Parties hereto have caused these
Articles of Association to be executed as of the date first above written by
their duly authorized representatives.



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  Hunan Valin Steel
  Tube & Wire Co., Ltd.

  	
  Hengyang Valin
  Steel Tube Co., Ltd.

  
	
  By:

  	
  /s/ Cao HuiQuan

  	
   

  	
  By:

  	
  /s/ Zhao JianHui

  
	
  Name:

  	
  Cao HuiQuan

  	
   

  	
  Name:

  	
  Zhao JianHui

  
	
  Title:

  	
  Director/General
  Manager

  	
   

  	
  Title:

  	
  Chairman/General
  Manager

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Star China Ltd.

  	
   

  	
   

  
	
  By:

  	
  /s/ Rhys J. Best

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Rhys J. Best

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
   

  	
   

  



 


[Signature Page of
Articles of Association]



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Schedule
1


The Authority of the Director of Quality Assurance
and Technical Support and the

Director of International Sales and Marketing


POSITION: Director of Quality Assurance and
Technical Support — Mid-level Management


REPORTS TO:  General Manager


BASIC FUNCTION:  works with Company Quality
Assurance personnel, and is responsible for overseeing the development,
implementation and coordination of the Company quality control program to
prevent or eliminate defects in new or existing products, processes, and
services.  Responsible to provide
technical support for sales of Tubular Products, and has a coordinating role
with the Director of International Marketing in this respect.  Directs changes in quality control and
related manufacturing policies, procedures, and practices for the purpose of
continual improvement and provides recommendations and guidance for meeting
customer product and service requirements.


EXTERNAL CONTACTS: 
Frequent contact with customers, vendors, consultants, and contractors.


INTERNAL CONTACTS:  Frequent contact with senior
and middle management personnel in sales and operations.


DECISION MAKING RESPONSIBILITIES:  Required
to provide input to decision making regarding the key quality control
activities in the company, which also support commercial initiatives.  Decisions impact sales, operations,
production planning and capital project evaluation.


EXPOSURE TO CONFIDENTIAL INFORMATION: 
Access to confidential business information including proprietary
product information, employee relations information, and company financial
data; unauthorized release could result in financial loss to the company, loss
of current and potential customers, customer and/or employee dissatisfaction,
damage to the company’s reputation, and potential litigation.


KEY ACTIVITIES:  Examples of key activities in which this
position will participate include:


·                  The management
of all aspects of ISO/ABS/TS16949/API5CT/API5L/A2LA programs to maintain
current certifications and upgrade to new versions of these programs.  Ensure compliance of all operations to
standards.  Conduct and oversee periodic
quality review meetings.


·                  Suggest
alternative methods and procedures in solving quality and manufacturing
problems and meeting changing market opportunities.


·                  Develop initial
and subsequent modifications of quality control programs to delineate areas of
responsibility, personnel requirements, and operational procedures within the
department.



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·                  Visit and confer
with vendors to obtain information related to vendor quality standards.  Conduct site audits where appropriate.


·                  Develops customer relationships with goal of
increasing company sales and overall Tubular Products market share.


·                  Interprets drilling and testing information
as it relates to product and system design issues.


·                  Performs product and system design / redesign
engineering activities in full compliance with all American Petroleum Institute
(API) standards.


·                  Conducts research to improve or modify Oil
Field Tubular and Pipe equipment.


·                  Evaluate findings to develop, design, or test
equipment or processes.


·                  Assist engineering or other personnel in
solving operational problems.


·                  Assist customers in interpretation of data
relating to Oil Field Tubular and Pipe equipment performance.


·                  Assists in the resolution of customer claims
and complains.



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POSITION: Director of International
Marketing — Mid-level Management


REPORTS
TO:  General Manager


BASIC FUNCTION:  Responsible for directing and managing
international (non-domestic) sales, business development, marketing, and
product development activities for tubular product lines to meet company sales
objectives and customer expectations.


EXTERNAL CONTACTS:  Frequent contact with customers, Trading
Company, distributors, prospects, and leaders of industry groups (API, PESA,
IPAA, NASPD, etc.) as well as Lone Star Technologies’ sales department and
other senior Lone Star Technologies’ staff.


INTERNAL CONTACTS:  Frequent contact with members of senior and
middle management and board members.


DECISION MAKING RESPONSIBILITIES:  Attending 
the meetings regarding sales and marketing strategy with General
Manager.  Oversees development of new
products and markets, participates in making credit recommendations, and the
resolving of product delivery, pricing, transportation, logistics and credit
issues.


The Director of
International Marketing will be responsible for all export marketing and sales,
and will also have a close working relationship with the Marketing General
Manager responsible for domestic sales.


KEY ACTIVITIES:


·                  Provides the
marketing, sales, account management and leadership and business acumen
essential to achieving revenue, market and profit goals according to the
business plan.  Interfaces productively
and closely with peers in operations, quality assurance and technical support,
finance, human resources, etc.


·                  Aggressively
manages time and territory objectives with the sales team.  Proactively spends a majority of his time
with the sales staff and clients.


·                  Developing,
implementing and continuously updating the Joint Venture’s international
strategic marketing plan, services, business development, pricing, promotion,
etc.


·                  Creates and fosters an environment of
high energy, creativity and teamwork.


·                  Collects and integrates market
intelligence including, but not limited to, competitor analysis, customer
operations and industry trends.  Uses
this data to ensure market share and profitability exceeds industry and
regional averages.



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·                  Creating marketing & sales
programs and develops account management strategies and other tactical plans to
enhance international market penetration. 
Measures the effectiveness of programs and fine-tunes as necessary.


·                  Oversees advertising and promotional
material content to ensure that it represents the JV’s desired image, products
and services.


·                  Prepares detailed budgets, forecasts,
sales updates, gross margin plans and related reports, communicating sales
performance, account effectiveness, etc. 
Also, contributes to the development of the JV’s annual business and
marketing plan.


·                  Develops and confirms actions of
policies, procedures, and disciplines required to effectively manage the field
sales organization.


·                  Assisting in the development and
confirms actions of policies, procedures, and disciplines required to
effectively manage the field sales organization.


·                  Responds quickly
to customer problems and develops corrective action plans.  Ensures that inquiries, orders and customer
requests for assistance are handled effectively and efficiently.


·                  Builds and
maintains a professional and capable sales & marketing team.  Conducts regular performance appraisals,
prepares development programs and provides opportunities to existing staff to
gain additional responsibilities.  Making
proposal one employee promotion and employment of additional employees as
required.


·                  Continually
analyzes the need for professional development programs and works with the
Human Resources staff to ensure effective delivery and proactive participation.



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Schedule 2 Qualification Requirements for the
Candidates of CFO


EDUCATIONAL REQUIREMENTS: Bachelor’s degree in Finance or Accounting required. CPA and/or
MBA also preferred.


EXPERIENCE
REQUIREMENTS:  Public
accounting background and/or extensive knowledge of U.S. public reporting
requirements and accounting systems required. 
Strong management, analytical, and problem solving skills, as well as
the ability to make sound financial decisions, is also required.  Must possess demonstrated intellectual and
task management agility.


 



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