Exhibit
10.1


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


HENGYANG VALIN MPM STEEL TUBE


 COMPANY
LIMITED


 


 


 


 


 


JOINT VENTURE CONTRACT


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


August 15, 2006


 



  
  
  















 


TABLE OF
CONTENTS


 


	
  

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  DEFINITIONS

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  REPRESENTATIONS AND WARRANTIES OF THE PARTIES

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  THE JV COMPANY

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

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

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  TRANSFER OF INTEREST

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  RESPONSIBILITIES OF THE PARTIES

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  BOARD

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  MANAGEMENT ORGANIZATION

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  ANTI-CORRUPTION

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  LABOUR MANAGEMENT

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  ANNUAL OPERATING PLANS AND BUDGETS

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  TAXATION, THREE FUNDS AND PROFIT DISTRIBUTION

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  FINANCIAL AFFAIRS AND ACCOUNTING

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  BANK ACCOUNTS AND FOREIGN EXCHANGE

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  CONFIDENTIALITY

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
   

  	
  DURATION OF THE JV COMPANY

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  TERMINATION

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
   

  	
  LIQUIDATION AND DISSOLUTION

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  INSURANCE

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
   

  	
  FORCE MAJEURE

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
   

  	
  CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF
  CONTRACT

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
   

  	
  APPLICABLE LAW

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
   

  	
  DISPUTE RESOLUTION

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  55

  



 


Schedule 1       Articles
of Association


Schedule  2       Form of Labour Contract


Schedule 3       Utilities
Supply Contracts










 



Schedule 4       Star
China and its Affiliates’ Investment Project and Product Sales in China


Schedule 5       List
of Agreements between Valin MPM and VST


Schedule 6       Rights,
Function and Authority of the Audit Committee


Schedule 7       Initial
Organizational Chart


Schedule 8       Name
of General Manager and all of the Deputy General Managers


Schedule 9       Scope
of Authority of COO, CFO, Director for Quality Control and Director for
International Sales


Schedule 10     Employment
Benefit for Valin MPM’s Employees


 



 2














 


 


JOINT
VENTURE CONTRACT


THIS JOINT VENTURE CONTRACT (this “Contract”)
is made in Chang Sha Municipality, Hunan Province, China (as defined below) on this
15th day of August, 2006 by and among the following Parties:


Hunan Valin Steel Tube & Wire
Co., Ltd. (hereinafter referred to as “Valin TW”), a legally
established and lawfully existing joint stock company of China, with its legal address at Valin Plaza, No.
111 Second Section of Fu Rong Zhong Lu, Changsha, Hunan, China, and Mr. Li Xiao
Wei as its legal representative;


Hengyang Valin Steel Tube Co.,
Ltd. (hereinafter referred to as “Valin ST”), a legally established
and lawfully existing limited liability company of China, with its legal address at No. 10 Dali New Village,
Zhengxiang District, Hengyang, Hunan, China, and Mr. Zhao Jianhui as its legal
representative; and


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


Valin TW and Valin ST are hereinafter
collectively referred to as the “Chinese Parties”, and individually as a
“Chinese Party”.


WHEREAS,


1.                         The Parties have conducted friendly negotiations on
the basis of equality and mutual benefit and have agreed to establish the JV
Company (as defined below) 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 Ventures (hereinafter collectively referred to as the “Joint
Venture Law”) and other relevant and officially promulgated PRC Law.


2.                         As at the date hereof, Valin TW and Valin ST
respectively hold 68.52% and 31.48% of the equity interest in Hengyang Valin MPM Steel Tube Co. Ltd. (hereinafter referred to as “Valin MPM”), a legally established and lawfully existing limited liability company
with its legal address at No. 10 Dali New Village, Zhengxiang District,
Hengyang, Hunan, China.



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3.                         Valin MPM’s current registered capital (rounded
down to the nearest RMB1,000) is RMB973,725,000, and subject to the terms of
the Capital Increase Agreement (as defined below), Star China has agreed to
make a capital contribution of RMB1,058,888,000 to Valin MPM, of which
RMB649,150,000 shall constitute registered capital and RMB409,738,000 shall
constitute capital surplus, thereby increasing Valin MPM’s registered capital
to RMB1,622,875,000.


4.                         Upon the approval of the Examination and Approval
Authorities to the aforesaid increase in registered capital and the
establishment of the JV Company and the completion of amendment registration
with Registration Authority, Valin MPM will be converted from a domestic
enterprise to a Chinese-foreign equity joint venture.


The Parties hereby agree as follows:


1.                                      DEFINITIONS


1.1                                 Unless
the context of this Contract otherwise requires, the following terms shall have
the meanings set forth below:


“Auditors” means one of the Four Accounting Firms appointed by
Valin MPM after the date hereof, and once the Auditors are appointed, the
change of Auditors shall be approved by the Board of Directors pursuant to
Section 8.8 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.


“Articles of Association” mean Articles of Association of the JV
Company, dated as of the date hereof among the Parties, substantially in
the form attached hereto as Schedule 1, and as the same
may be amended, supplemented or restated from time to time in accordance with
its terms.



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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 JV
Company which is being assisted.


“Board” or “Board of Directors” means the Board of
Directors of the JV 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 JV Company
issued by the Registration Authority, as the same may be amended from time to
time.


“Capital Increase Agreement” means the capital increase agreement
entered into on or about the date hereof among Valin TW, Valin ST, Star China
and Valin MPM for Star China’s contribution to the registered capital of the JV Company, by which Star China will hold 40% of the
equity interest of the JV Company.


“Chairman” means the chairman of the Board.


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


“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.


“Competing
Business” means any business having the ability and capacity to
manufacture Tubular Products in the PRC which the JV Company or its subsidiary(ies) has
the ability and capacity to manufacture at the time Star China or its Affiliates desires to make an equity
investment in such business.



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“Competing
Products” means any Tubular Products which the JV Company or its subsidiary(ies) has
the ability and capacity to manufacture at the timeStar China or its
Subsidiaries makes a purchase inquiry.


“Confidential Information” means 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 Contract 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
JV Company.


“Director” means a member of the Board.


“Effective Date” means the day on which the Examination and Approval Authorities
issue their approval for the transactions contemplated hereunder.


“Establishment Date” means the date on which the first Business
License of the JV Company is issued after Valin MPM is converted into the JV Company.


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



 6
 






 



“Event of Force Majeure” means any objective event which is beyond the control of the
Parties, and which is unforeseen, unavoidable and unconquerable, and which
prevents any of the Parties from performing all or a material part of its
obligations.  Such event includes any
natural disaster, strike, riot, war and act of terrorism.


“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.


“Funding Date” shall have the meaning ascribed to it in the
Capital Increase Agreement and this date shall be no later than fifteen (15) Business Days after
the Establishment Date. On this date Star China shall make its capital
contribution to the JV Company according to the terms and conditions of the
Capital Increase Agreement.


“General Manager” means the general manager of the JV 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).


“HYST Group” means Hunan Hengyang Steel Tube (Group) Co., Ltd., a
state-owned enterprise group company established according to and existing
under the PRC laws, with its registered office at No. 10 Dali New Village, Zhengxiang District,
Hengyang, Hunan, China.


“Joint Venture Term” means the duration of the JV Company as
provided for in Article 17 hereof.


“JV Company” or “Joint Venture Company” means a Sino-foreign equity joint venture to
be formed by the conversion of Valin MPM from a domestic enterprise pursuant to
the terms of this Contract and the Capital Increase Agreement, with the name of
such company remaining to be Hengyang Valin MPM Steel Tube Co., Ltd..



 7
 






 



“Labour Contract” means the individual labour contract in
substantially the form of Schedule 2 hereto, to be entered into between
the JV Company and each Senior Management Personnel and/or each Working Personnel.


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


“Management
Service Contract” means the management service contract dated January 1,
2006 by and between Valin MPM and Valin ST for the supply by Valin ST of certain management services to Valin MPM.


“Parties”
means Valin TW, Valin ST and Star 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.


“PRC Law” means the laws, regulations and enactments promulgated by
various levels of Chinese legislatures, judicial and administrative authorities
that are knowable to the public.


“Price Adjustment” means an adjustment to the price or imputed
price of the Tubular Products (as defined in the Sale, Marketing and Supply
Agreement) sold by the Company to Buyer (as defined therein) that is required
by the Tax Authorities.



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


“Registration Authority” means the State Administration for
Industry and Commerce or its local counterpart.


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


“Sale, Marketing and Supply Agreement” means the sale, marketing
and supply agreement entered or to be entered into between Buyer (as defined
therein), JV Company, Lone Star Technologies and VTW with respect to 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
General Managers, the Chief Financial Officer and the Chief Operating Officer of the JV Company.


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


“Tax Authorities” means the PRC tax authorities having the power
to tax the JV Company in accordance with the then applicable PRC tax laws,
rules or practices.


“Technology Cross License Agreement” means the agreement to be
entered into between the JV Company and Lone Star Technologies for the license
by Lone Star Technologies or such Affiliate(s) of certain technology and
know-how to the JV Company, which may be revised, supplemented and restated in
accordance with its terms.


“Three Funds” means, collectively, the JV Company’s reserve fund,
employee bonus and welfare fund and enterprisedevelopment fund.


“Trademark License Agreement” means the agreement to be entered
into between the JV Company and Lone Star Steel Company for the license by Lone Star Steel Company or such
Affiliate(s) of certain trademarks to the JV Company, which may be revised,
supplemented and restated in accordance with its terms.


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



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


“Utilities Supply Contracts”
means a series of utilities supply contracts between Valin MPM and Valin ST for the supply of certain
utilities by Valin ST to Valin MPM as set forth in Schedule 3.


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


1.2                                 For
purposes of this Contract, the following terms have the meanings set forth in
the Articles indicated:




	
  Term

  	
   

  	
  Article

  
	
  “Chinese
  Parties”

  	
   

  	
  Recitals

  
	
  “Chinese Party”

  	
   

  	
  Recitals

  
	
  “Contract”

  	
   

  	
  Recitals

  
	
  “Dispute”

  	
   

  	
  24.1(a)

  
	
  “EBITDA”

  	
   

  	
  18.2(a)

  
	
  “Fair Market
  Value”

  	
   

  	
  18.2(a)(i)

  
	
  “ICC Rules”

  	
   

  	
  24.1(a)

  
	
  “Interest”

  	
   

  	
  6.1

  
	
  “Joint Venture
  Law”

  	
   

  	
  Recitals

  
	
  “Star China”

  	
   

  	
  Recitals

  
	
  “Minimum
  Commitment Period”

  	
   

  	
  6.2

  
	
  “Non-
  Transferring Party(ies)”

  	
   

  	
  6.3(b)

  
	
  “Notice”

  	
   

  	
  6.3(b)

  
	
  “Offer”

  	
   

  	
  6.3(c)

  
	
  “Offer Date”

  	
   

  	
  6.3(b)

  
	
  “Receiving
  Party”

  	
   

  	
  16.1(b)

  
	
  “Third
  Appraisal”

  	
   

  	
  18.2(a)(i)

  
	
  “Transfer”

  	
   

  	
  6.3(a)

  
	
  “Transferring
  Party”

  	
   

  	
  6.3(b)

  
	
  “Two Appraisals”

  	
   

  	
  18.2(a)(i)

  
	
  “Valin MPM”

  	
   

  	
  Recitals

  
	
  “Valin ST”

  	
   

  	
  Recitals

  
	
  “Valin TW”

  	
   

  	
  Recitals

  






 


 



 10














 


 


2.                                      REPRESENTATIONS
AND WARRANTIES OF THE PARTIES


2.1                                 Representations
and Warranties of Valin TW


Valin TW represents and warrants to Star China that, on the date hereof and the Funding Date:


(a)                                  Valin TW is a joint stock company, duly organized
and validly existing under the PRC Law and is in compliance with all conditions
required to maintain its status as an enterprise legal person under the PRC
Law.


(b)                                 Valin TW and its relevant Affiliates,
including Valin MPM, have taken all appropriate and necessary corporate action
to (i) empower its legal representative or such other duly authorized
representative whose signature is affixed hereto and thereto to sign this
Contract and all of the contracts contemplated herein to which it is a party,
(ii) authorize the execution and delivery of this Contract and all of the
contracts contemplated herein to which it is a party, and (iii) authorize the
performance and observance of the terms and conditions hereof and thereof.


(c)                                  Valin TW and its relevant Affiliates,
including Valin MPM, have obtained all consents, approvals and authorizations
necessary for the valid execution and delivery of this Contract and all of the
contracts contemplated herein to which it is a party and to observe and perform
its obligations hereunder and thereunder; provided, however, that this Contract
shall be subject to the approval of the Examination and Approval Authorities
before the same may become effective.


(d)                                 Upon the approval of the Examination
and Approval Authorities, this Contract shall constitute the legal, valid and
binding obligation of Valin TW and Valin MPM, respectively, enforceable against
Valin TW and Valin MPM, respectively, in accordance with its terms.


(e)                                  Valin TW’s or its relevant Affiliates’
execution, delivery and performance of this Contract or any of the other
contracts contemplated herein will not violate any of their constitutive
documents, any other agreement or 



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obligation of
Valin TW or its relevant Affiliates, or currently effective PRC Law that may be
applicable to any aspect of the transactions contemplated hereunder.


(f)                                    All information supplied to the
Parties by Valin TW in relation to this Contract, including information
concerning the business and financial status of Valin TW, Valin MPM or any
other relevant Affiliates and any relevant assets, inventories and outstanding
contractual arrangements with their respective suppliers and customers,
Affiliates and other third parties, is true and correct in all material
respects, whether any of the same has been verified or audited by an
independent third party or not.


(g)                                 Save as disclosed by Valin TW to Star
China in writing on the date hereof or the Funding Date, there is no litigation
or proceeding pending nor, to the knowledge of Valin TW, is any litigation,
proceeding or investigation threatened which could, if adversely determined,
materially affect the performance of Valin TW’s or Valin MPM’s obligations
under this Contract or any of the transactions contemplated hereby.


(h)                                 Other than correspondence containing governmental
secrets and commercial secrets of the Chinese Parties (written descriptions,
the subjects of which have been provided to Star China on the date hereof),
Valin TW has provided to Star China copies of all correspondence with a
Governmental Body relating to the transactions contemplated by this Contract.


2.2                                 Representations
and Warranties of Valin ST


Valin ST hereby
represents and warrants to Star China that, on the date hereof and Funding Date:


(a)                                  Valin ST is a limited liability
company, duly organized and validly existing under the PRC Law and is in
compliance with all conditions required to maintain its status as an enterprise
legal person under the PRC Law.



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(b)                                 Valin ST and its relevant Affiliates
have taken all appropriate and necessary corporate action to (i) authorize its
legal representative or such other duly authorized representative whose
signature is affixed hereto and thereto to sign this Contract and all of the
contracts contemplated herein to which it is a party, (ii) authorize the execution
and delivery of this Contract and all of the contracts contemplated herein to
which it is a party, and (iii) authorize the performance and observance of the
terms and conditions hereof and thereof.


(c)                                  Valin ST and its relevant Affiliates
have obtained all consents, approvals and authorizations necessary for the
valid execution and delivery of this Contract and all of the contracts
contemplated herein to which it is a party and to observe and perform its
obligations hereunder and thereunder; provided, however, that this Contract
shall be subject to the approval of the Examination and Approval Authorities
before the same may become effective.


(d)                                 Upon the approval of the Examination
and Approval Authorities, this Contract shall constitute the legal, valid and
binding obligation of Valin ST enforceable against Valin ST in accordance with
its terms.


(e)                                  Valin ST’s or its relevant Affiliates’
execution, delivery and performance of this Contract or any of the other
contracts contemplated herein (including, without limitation, the Utilities
Supply Contract) will not violate any of their constitutive documents, any
other agreement or obligation of Valin ST or its relevant Affiliates, or
currently effective PRC Law that may be applicable to any aspect of the transactions
contemplated hereunder.


(f)                                    All information supplied to the
Parties by Valin ST in relation to this Contract, including information
concerning the business and financial status of Valin ST, Valin MPM or any
other relevant Affiliates and any relevant assets, inventories and outstanding
contractual arrangements with their respective suppliers, customers, Affiliates
and other third parties, is true and correct in all material respects, whether
any of the same has been verified or audited by an independent third party or
not.



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(g)                                 Save as
disclosed by Valin ST to Star China in writing on the date hereof and the
Funding Date, there is no litigation or proceeding pending nor, to the
knowledge of Valin ST, is any litigation, proceeding or investigation
threatened which could, if adversely determined, materially affect the
performance of Valin ST’s obligations under this Contract or any of the
transactions contemplated hereby.


(h)                                 Other than
correspondence containing governmental secrets and commercial secrets of the
Chinese Parties (written descriptions of the subjects of which have been
provided to Star China on the date hereof), Valin ST has provided to Star China
copies of all governmental correspondence relating to the transactions
contemplated by this Contract.


2.3                                 Representations
and Warranties of Star China


Star China
hereby represents and warrants to the other Parties that, on the date hereof:


(a)                                  Star China is a corporation, duly
organized and validly existing under the Laws of the Cayman Islands, and is in
compliance with all conditions required to maintain its status as a company
under the Laws of Cayman Islands.


(b)                                 Star China and its relevant Affiliates
have taken all appropriate and necessary corporate action to (i) empower its
legal representative or such other duly authorized representative whose
signature is affixed hereto and thereto to sign this Contract and all of the
contracts contemplated herein to which it is a party, (ii) authorize the
execution and delivery of this Contract and all of the contracts contemplated
herein to which it is a party, and (iii) authorize the performance and
observance of the terms and conditions hereof and thereof.


(c)                                  Star China and its relevant Affiliates
have obtained all consents, approvals and authorizations necessary for the
valid execution and delivery of this Contract and all of the contracts
contemplated herein to which it is a party and to observe and perform its
obligations hereunder and thereunder; provided, however, that this Contract
shall be subject to the approval of the Examination and Approval Authorities
before the same may become effective.



 14
 






 



(d)                                 Upon the approval of the Examination
and Approval Authorities, this Contract shall constitute the legal, valid and
binding obligation of Star China enforceable against Star China in accordance
with its terms.


(e)                                  Star China’s or its relevant
Affiliates’ execution, delivery and performance of this Contract or any of the
other contracts contemplated herein will not violate any of their constitutive
documents, any other agreement or obligation of Star China or its relevant
Affiliates, or currently effective PRC Law that may be applicable to any aspect
of the transactions contemplated hereunder.


(f)                                    All information (if any) supplied to
the other Parties by Star China in relation to this Contract, including
information concerning the business and financial status of Star China or its
relevant Affiliates, is true and correct in all material respects, whether any
of the same has been verified or audited by an independent third party or not.


(g)                                 Save as disclosed
to other Parties by Star China in writing on the date hereof, there is no
litigation or proceeding pending nor, to the knowledge of Star China, is any
litigation, proceeding or investigation threatened which could, if adversely
determined, materially affect the performance of Star China’s obligations under
this Contract or any of the transactions contemplated hereby.


(h)                                 Except for the
investment projects and sales of products set out in Schedule 4 hereof,
Star China and its Affiliates do not have any other investments or sales of
products in China.


3.                                      THE
JV COMPANY


3.1                                 Legal Status
of the JV Company



 15
 






 



 


In accordance
with the Joint Venture Law and other relevant and officially promulgated PRC
Law, the JV Company shall be a legal person under the PRC Law subject to the
protection and jurisdiction of the PRC Law.


3.2                                 Name
and Address of the JV Company


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


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


3.3                                 Limited
Liability Company


The JV Company shall be a limited liability company.  The liability of each of the Parties for the
obligations, liabilities, debts and losses of the JV Company shall be limited
to that Party’s contribution to the registered capital of the JV Company.


3.4                                 Profits
and Losses


The Parties shall share the profits,
losses and risks of the JV Company in proportion to, and in the event of
losses, to the extent of, their respective contributions to the registered
capital of the JV Company.


3.5                                 No
Agency Relationship


None of the Parties is the agent of the other Party nor does any Party have any power to bind any other Party or to assume or to create
any obligation of responsibility, express or implied, on behalf of any other
Party in the other Party’s name. Neither this Contract nor any of the other
contracts contemplated herein shall be construed as constituting the
Parties as partners or as creating any other
form of legal association which would impose liability upon one Party for the
act or failure to act of the other Parties, individually or
collectively.



 16
 






 



3.6                                 Branches
and Subsidiaries


The JV Company may establish branch
offices and/or subsidiaries in China upon the approval of the Board and, if
necessary, the Examination and Approval Authorities and the relevant local government departments where such branch offices
and/or subsidiaries shall be located.


4.                                      PURPOSES,
SCOPE OF BUSINESS AND SCALE OF PRODUCTION OF THE JV COMPANY


4.1                                 Purposes
and Business Scope of the JV Company


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


The business scope of the JV 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).


4.2                                 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.


5.                                      TOTAL
AMOUNT OF INVESTMENT AND REGISTERED CAPITAL


5.1                                 Total
Amount of Investment


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


5.2                                 Registered
Capital


With the capital contribution by Star China
of RMB 1,058,888,000 (equivalent to USD132,480,232.21 based on the Base Rate of
USD1=RMB7.9928) to the JV Company, of which RMB649,150,000 shall comprise
registered capital and 



 17
 






 



RMB409,738,000 shall comprise capital
surplus, the JV Company will have a registered capital of
RMB1,622,875,000.  Following Star China’s
contribution, the amount of registered capital of the JV Company that would
have been contributed to the JV Company will be as follows:


(a)                                  Valin TW shall have
contributed RMB667,174,132 to the registered capital of the JV Company, and
shall have its equity interest proportion in
the registered capital of the JV Company changed from 68.52% to 41.11%;


(b)                                 Valin ST shall have contributed RMB306,551,000 to
the registered capital of the JV Company, and shall have its equity interest
proportion in the registered capital of the JV Company changed from 31.48% to 18.89%;
and


(c)                                  With
its contribution of RMB649,150,000 to the registered capital of the JV Company, payable in cash in US$ or other freely tradable foreign
currencies  acceptable to the Chinese
Parties, Star China will hold 40%  equity
interest in the JV Company


5.3                                 Adjustments
to Star China’s Capital Contribution


Notwithstanding anything to the contrary
contained herein, the amounts of the aforesaid capital contributions of Star China may be
adjusted in accordance with the relevant provisions of Article 2 of the Capital
Increase Agreement, without affecting the proportion of equity interests to be
held by any of the Parties.


5.4                                 Timetable for
Contributions


Subject to the fulfilment of the
conditions set forth in Article 10 of the Capital Increase Agreement and
Article 23 of this Contract, Star China shall make its capital contributions in
full in one lump sum as soon as practicable, but in any event no later than 15
Business Days of the issuance of the Business License.



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5.5                                 Additional
Financing


The JV Company may obtain additional
funds through loans from domestic or foreign financial institutions on terms
and conditions approved by the Board. 
The JV Company may also obtain loans or guarantees provided by 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
provide funding to the JV Company or to provide guarantee for a loan owed by
the JV Company to a third party or financial institution.  The JV Company may mortgage or otherwise
grant a security interest in its assets which are permitted by PRC Law to be
mortgaged or secured in order to obtain loans.


5.6                                 Increase
or Reduction of Registered Capital


Any increase or reduction in the
registered capital of the JV Company shall be approved by the Board and
submitted to the appropriate Examination and Approval Authorities for approval.  Upon receipt of such approval, the JV Company
shall register the increase or reduction in the registered capital with the
appropriate authority of industry and commerce.


5.7                                 Investment
Certificates


Within five
(5) Business Days after the Parties have made their respective capital contributions, the JV 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 JV 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
JV Company seal affixed thereto.


5.8                                 Use
of proceeds


The Proceeds from the capital contribution by Star China shall only be used for capital expenditure
disclosed in Appendix 6.1 (d) of the Capital Increase Agreement, or for other
purpose to be approved by the Board.



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6.                                      TRANSFER
OF INTEREST


6.1                                 Non-Encumbrance


No Party may
encumber its share of the registered capital or its equity interest, rights and
obligations under this Contract (collectively, “Interest”) without the
prior written consent of the other Parties and prior approval of
the Examination and Approval Authorities (if required).


6.2                                 Minimum
Commitment Period


No Party shall be entitled to assign, sell or
otherwise transfer its Interest within five (5) years after the Establishment
Date (the “Minimum Commitment Period”) except between a Party and
any of its wholly-owned Affiliates; 
provided, that such Party shall issue a notice in writing to the other
Parties 60 days prior to such assignment, sale, or transfer and obtain
the other Parties’ written consent, which shall not be unreasonably
withheld.  The transferee must
become a
Party to
this Contract.  The Selling Party
shall carry out all its obligations under this Contract and be jointly liable
with the transferee.  During the Minimum
Commitment Period, the transferee shall maintain as a wholly-owned Subsidiary of the
Selling Party.


6.3                                 Transfer
of Interest


(a)                                  Subject to the provisions of Article
6.2 and this Article 6.3, a Party may assign, sell or otherwise dispose of all
or part of its Interest in the JV Company to any third party (the “Transfer”).


(b)                                 When a Party (the “Transferring
Party”) wishes to transfer all or part of its Interest to a third party, it
shall provide written notice (the “Notice”) to the other Party(ies) (the
“Non-Transferring Party(ies)”) expressly indicating its intention to
make the Transfer; the Interest it intends to transfer; and offering the
Non-Transferring Parties the right to make a bona fide offer for such Interest
within no more than forty-five (45) days from the date of receipt of such
Notice (the “Offer Date”).


(c)                                  The Non-Transferring Party(ies) shall
communicate as necessary among themselves and, if they so desire, shall
transmit to the Transferring Party a bona fide written offer to purchase all of
the Interest the Transferring Party wishes to sell no later than the Offer
Date, setting forth the material terms and conditions pursuant to which the
Non-Transferring Party(ies) are 



 20
 






 



                                                willing to make such a purchase (the “Offer”).  The Transferring Party shall thereafter meet
with the Non-Transferring Party(ies) at reasonable times and on reasonable
intervals to discuss the Offer and each shall negotiate in good faith for a
period of thirty (30) days after initial transmission of the Offer to reach
agreement as to the material terms of the Offer.  If the participating Parties reach agreement
as to the terms of the Offer, they shall proceed in good faith and in an
expeditious manner to assist in negotiating, completing all necessary internal
approval and authorization procedures, executing all relevant definitive
documents and securing the approvals of the Examination and Approval
Authorities and  other Governmental
Bodies necessary to consummate the contemplated transaction; provided, however,
that in any event all material definitive agreements relating to the Offer
shall have been signed within forty-five (45) days from the date of the
Offer.  Each Party shall cause the
Directors appointed by it to approve the transfer of the Transferring Party’s
Interest pursuant to the Offer and related definitive documentation at a duly
convened Board meeting.  The
Non-Transferring Party(ies) participating in the Offer shall then, within
forty-five (45) days following its execution of the relevant definitive
documentation, subject only to delays caused by obtaining necessary government
and other regulatory approvals, purchase such Interest on the terms and
conditions specified in such documentation, unless all participating Parties
agree otherwise in writing.  The
Transferring Party shall not be obligated to sell its Interest to be
transferred to the Non-Transferring Party unless one or more Non-Transferring
Party(ies) elect to purchase all of such Interest.


(d)                                 If the Transferring Party and the
Non-Transferring Party(ies) delivering an Offer fail to agree to terms and conditions
for a sale of the Transferring Party’s Interest, the Transferring Party is free
to engage in good-faith negotiations with any third party on an arm’s length
basis for the purchase of the offered Interest. 
However, (i) any such purchase and sale must be consummated no later
than ninety (90) days following termination of the negotiations pursuant to
Article 6.3(c), subject only to delays caused by obtaining necessary government
and other regulatory approvals, and (ii) prior to consummating such a purchase
and sale, the Transferring Party must provide a copy of the transfer agreement
to be executed between the Transferring Party and the transferee, and, if the
terms and conditions of 



 21
 






 



                                                such transfer, taken as a whole, are
less favourable to the Transferring Party than the last Offer made by the
Non-Transferring Party(ies), the Transferring Party shall be obligated to offer
the Interest to the participating Non-Transferring Party(ies) on the same terms
and conditions.  Any objections to the
transfer may only be raised by the Non-Transferring Party(ies) for the reasons
set forth in the preceding sentence. Otherwise, the Non-Transferring Party(ies)
shall be deemed to have consented to such transfer by the Transferring Party.
Each Non-Transferring Party which has nominated a Director to the Board shall
instruct its Director to consent to such Transfer; provided, however, that the
Transfer shall not be deemed effective and shall be subject to rescission
unless and until (i) a copy of the transfer agreement to be executed between
the Transferring Party and the transferee has been submitted to the
Non-Transferring Parties and, if only a portion of the Transferring Party’s
Interest in the JV Company is being transferred, the transferee has agreed
therein to assume, jointly and severally with the Transferring Party, the
rights and obligations of the Transferring Party under this Contract, or, if
all of the Transferring Party’s Interest in the JV Company is being
transferred, the transferee has agreed therein to assume all of the rights and
obligations of the Transferring Party under this Contract, (ii) the Board
unanimously approves the Transfer at a duly convened Board meeting, and (iii)
all necessary amendments to this Contract, Schedules and other contracts and documents
contemplated herein and therein have been submitted for approval to, and have
received the approval of, the Examination and Approval Authorities, and (iv)
all other government approvals necessary to give effect to the Transfer have
been obtained.


(e)                                  If any Non-Transferring Party fails to
respond in writing to the Notice within the forty-five (45) day period
mentioned in Article 6.3(b) above, such Non-Transferring Party shall be deemed
to have consented to any subsequent transfer by the Transferring Party that is
exercised in good faith and consummated within 120 days of the date of the
Notice.  Each Non-Transferring Party
which has nominated a Director to the Board of Directors shall instruct its
Director to consent to such Transfer; provided, however, that the Transfer
shall not be deemed effective and shall be subject to rescission unless and
until (i) a copy of the transfer agreement to 



 22
 






 



                                                be executed between the Transferring
Party and the transferee has been submitted to the Non-Transferring Parties
and, if only a portion of the Transferring Party’s Interest in the JV Company
is being transferred, the transferee has agreed therein to assume, jointly and
severally with the Transferring Party, the rights and obligations of the
Transferring Party under this Contract, or, if all of the Transferring Party’s
Interest in the JV Company is being transferred, the transferee has agreed
therein to assume all of the rights and obligations of the Transferring Party
under this Contract, (ii) the Board of Directors unanimously approves the
Transfer at a duly convened Board meeting, (iii) all necessary amendments to
this Contract, Schedules and other contracts and documents contemplated herein
and therein have been submitted for approval to, and have received the approval
of, the Examination and Approval Authorities and (iv) all other government
approvals necessary to give effect to the Transfer have been obtained.


(f)                                    The Transferring Party shall provide
the Non-Transferring Party(ies) with a duplicate of the executed transfer
agreement with the transferee within fourteen (14) days after such agreement is
executed and shall provide to the Non-Transferring Party(ies) copies of the
approval of the Examination and Approval Authorities immediately after it has
obtained such approval.


6.4                                 Continued  Performance Obligation


Prior to the completion of the
updating of the registration at the registration authority with respect to the
Transfer of all of a Party’s Interest, the Parties shall continue to perform
their obligations under this Contract.


6.5                                 Effect
of Transfer


The Transfer of a Party’s Interest shall not release such Party from its liability to pay
any sums of money accrued, due and payable to the other Parties or to discharge
its then-accrued and unfulfilled obligations, including any liability to the JV
Company or the other Parties in respect of any breach of this Contract.


 



 23














 


 


 


7.                                      RESPONSIBILITIES
OF THE PARTIES


7.1                                 General Responsibilities
of Each
Party


Each Party shall:


(a)                                  make its contributions to the
registered capital of the JV Company in accordance with this Contract and other
contracts contemplated herein between the Parties;


(b)                                 enter into or perform, or cause its Affiliates to enter into or perform,
the agreements set forth in the Schedule 5 hereto;


(c)                                  assist the JV Company in obtaining the
Business License and relevant government approval and registration and filing with
the relevant government agencies, such as the foreign exchange, tax, customs
and land administration authorities;


(d)                                 appoint or nominate qualified persons
to be the directors and Senior Management Personnel in accordance with the
terms of this Contract; and


(e)                                  procure the directors appointed by it
to approve the relevant board resolutions in order to ensure that the JV
Company will abide by the terms and conditions of the Sales, Marketing and
Supply Agreement, the Technology Cross License Agreement and the Trademark
License Agreement.


7.2                                 Special
Responsibilities of Each Party


(a)                                  Valin TW shall have special
responsibility to the JV Company as follows:


Valin TW shall permit the JV Company to use
the trade names “华菱” and “Valin” during the Joint Venture Term for free and on
other terms no less favourable than those enjoyed by Valin MPM immediately
prior to the date hereof.



 24
 






 



 


(b)                                 Valin ST shall have special
responsibilities to the JV Company as follows:


Valin ST shall continue to perform its
respective obligations under the Utilities Suply Contracts to continue the
provision of utilities to the JV Company and shall upon the request of JV
Company to extend the term of the Utilities Supply Contracts.


(c)                                  Star China shall have special
responsibilities to the JV Company as follows:


(i)                                     Star China
shall agree that the JV Company may use certain technology and trademarks of
Star China or any of its Affiliates in accordance with the terms and conditions
of the Technology Cross License Agreement and the Trademark License Agreement,
respectively.


(ii)                              Star China
and/or any of its Affiliates shall enter into the Sale, Marketing and Supply
Agreement with the JV Company.


(iii)                           At the
reasonable request of the JV Company, Star China and/or any of its Affiliates
shall provide support to the JV Company for the international purchase of raw
materials, including but not limited to the billets and steel scraps, but in no
event shall such support include more than nominal costs to Star China.


(d)                                 Additional responsibilities of the Chinese
Parties


The Chinese Parties
shall be responsible for ensuring the compliance of the JV Company with the
terms of the MPM Sale, Marketing and Supply Agreement, the Technology Cross
License Agreement and the Trademark License Agreement.


(e)                                  Joint and several liabilities of Valin TW


Valin TW shall be jointly and severally
liable for the performance or fulfilment of any and all of the obligations of
Valin ST under this Contract for a period of five
(5) years from the Effective Date, whereas Valin ST shall only be
liable for the performance or fulfilment of its own obligations under this
Contract.



 25
 






 



7.3                                 Expenses Not
Reimbursable


Except as otherwise expressly
provided for in this Contract, expenses incurred by each Party in fulfilling the aforesaid responsibilities in this Article 7
shall only be borne by the JV Company, provided that each Party shall submit to
the Chief Financial Officer adequate documentation evidencing that such Party’s
expenses are spent on behalf of the JV Company. 
Other financial expenses incurred by the Parties on behalf of the JV
Company shall only be borne by
the JV Company upon approval by the Board.


7.4                                 Other
Investments in China by Star China


The Parties have obligations not to
cause detriment to the economic interest of the JV Company.  At the same time, all Parties also recognize that
Lone Star Technologies, as a publicly-listed company, has an obligation to act
in the best interests of its shareholders and maximize shareholder value.  Accordingly, Star China or its Affiliates
needs flexibility for its investments in the PRC in light of the ongoing global
restructuring or consolidation. With the principles set out above in mind, the
Parties agree that:


(a)                                  From the date of signing of the JV Contract
up to and including the tenth anniversary thereof, Star China or its Affiliates will not make any equity investment in a
Competing Business in Hunan Province, PRC without the consent of the other
Parties to the JV Contract (prior to the establishment of the JV Company) or
the JV Company (following the establishment of the JV Company). The investment
referred herein shall include equity investment, indirect investment through a
nominee or trust, joint venture, ownership through contract management or
purchase of debt.


(b)                                 From the date of signing of the JV Contract
up to and including the 2nd anniversary of the establishment of the JV Company,
Star China or its Affiliates will not make any investment in any Competing
Business in other areas of the PRC outside of Hunan Province without the
consent of the other Parties to the JV Contract (prior to the establishment of
the JV Company) or the JV Company (following the establishment of the JV
Company). The investment referred herein shall include equity investment, 



 26
 






 



                                                indirect investment through a nominee or
trust, joint venture, ownership through contract management or purchase of
debt.


(c)                                  The restrictions provided in 7.4(a) and
7.4(b) shall not be applicable in the following
circumstances (“Permitted Investments”)


(i)                                 the
acquisition by Star China or its Affiliates of not more than 10% of the
outstanding equity interests in any entity whose securities are publicly traded
or listed on any stock exchange; or


(ii)                              any
investment by Star China or its Affiliates in any entity which is not primarily
engaged in a Competing Business in the PRC and with which Star China or its Affiliates
do not cooperate in terms of licensing of technology with respect to Competing
Products or Star China or its Affiliates’ trademarks, or the procurement and
sale of Competing Products, in the PRC. 
For the purpose of this subsection, an entity will be deemed to be
engaged primarily in a Competing Business in the PRC if its revenue (on a
consolidated basis) from the sale of Competitive Products in the PRC is more
than 25% of the total revenue of such entity (on a consolidated basis) in the
most recent fiscal year.


(d)                                 Potential Co-investments


Following the expiry
of the time periods specified in 7.4(a) and (b) and throughout the term of the
Sale, Marketing and Supply Agreement, Star China or it Affiliates will provide
the JV Company with an opportunity to co-invest in equity investments in
entities in the PRC engaged primarily in the Competing Businesses.  In assessing the feasibility of such
investments, Star China would involve the JV Company in the due diligence
process.  Once Star China has decided to
proceed with the investment, it will notify the board of the JV Company of its
intention.  The board of the JV Company
will then decide, pursuant to Section 8.16 below, at the immediately subsequent
special or ordinary board meeting (which must be held no later than 30 days
after the date of notification by Star China of its decision to proceed with
the investment) whether or not to make a co-investment.  If within such 30-day period, the board of
the 



 27
 






 



JV Company for
whatever reason does not decide to make the co-investment with Star China or
its Affiliate, Star China or its Affiliate may proceed with that investment
without the restrictions set forth in this Section 7.


8.                                      BOARD


8.1                                 Establishment


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


8.2                                 Composition
and Term


The Board 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) shall be appointed 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 reappointment by the
original appointing Party.  Any vacancy
created in the Board 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).


8.3                                 Legal
Representative


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


8.4                                 Authority


The Board shall be the highest
authority of the JV Company and shall make decisions on all major and important
matters of the JV Company.  The rules of 



 28
 






 



procedure governing the Board and its
powers and responsibilities are as set forth in this Contract and the Articles
of Association.


8.5                                 Personal
Liability of Directors


A Director, including the Chairman,
shall not have personal liability for action he undertakes on behalf of the JV
Company within the scope of authority of this Contract, the 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 this Contract or the Board resolution;


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


(c)                                  is in breach of the then current PRC
Law.


Any Director, including the Chairman,
breaches this Contract or Board of Directors’ resolutions shall indemnify and
hold harmless the JV Company against all losses caused to or liabilities and
expenses incurred by the JV Company.  The
JV Company shall, to the extent permitted by PRC Law, indemnify any Director
for damages or losses incurred in good faith by such Director in the
performance of his or her obligations.


8.6                                 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 JV Company’s investment
certificates;


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


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



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8.7                                 Unanimous
Approval


Resolutions of the Board 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 the Articles of Association;


(b)                                 increase
or reduction of registered capital;


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


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


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


8.8                                 Other
Decisions of the Board


Except for those matters set forth in
Article 8.7, 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 JV
Company, in whole or in part, which involves an aggregate amount in excess of
five percent (5%) of the net asset value of the JV Company (based on the latest
financial reports of the JV 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
JV Company (based on the latest financial reports of the JV 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
JV Company (based on the latest financial reports of the JV Company);



 30
 






 



 


(c)                                  granting
of a security interest in any assets of the JV 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 JV Company in the aggregate
in any fiscal year (based on the latest financial reports of the JV 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 JV Company in an aggregate amount in excess
of two percent (2%) of the net asset value of the JV Company in any fiscal year
(based on the latest financial reports of the JV Company) or other amount as
may be determined by the Board from time to time;


(f)                                    the
entry by the JV 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 JV Company, which has not been included in the
annual finance budget approved by the 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 Labour Contracts between the JV Company and the Senior Management
Personnel and determination of the compensation of such personnel;



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(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 JV Company’s tax position or treatment;


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


(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 JV Company on the one hand and its Shareholders, Affiliates,
Directors or Senior Management Personnel or their Affiliates on the other hand;


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


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


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


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


(u)                                 approval of any agreements or
understandings regarding regional distribution or exclusive distribution or
agency with respect to the JV Company’s products;


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



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(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.


8.9                                 Ordinary Board
Meetings


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


8.10                           Special Board Meetings


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.


8.11                           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 verifiable 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.


8.12                           Attendance


A Director
may attend a Board meeting in person, by conference call or designate another
person by proxy to vote in his place. 
Such designation shall be in writing, 



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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 act for more than one Director at the same time.


8.13                           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 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.


8.14                           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 8.7 and 8.8, if a quorum is present, a simple
majority of all of the Directors may pass a resolution at a duly convened board
meeting.


8.15                           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.  Where
a resolution of the Board violates any PRC Laws or the Articles
of Association
and causes the JV Company to incur serious loss, those Directors participating
in the adoption of the resolution are liable to the JV 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.


 



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8.16                           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, 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.


8.17                           Written
Resolution


Notwithstanding any other provisions
of this Contract, 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 JV Company and is signed by the number of Directors required
to carry such resolution had a Board meeting been convened.


8.18                           Compensation
and Expenses


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


8.19                           Board
Minutes


Board 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 designee to take minutes during 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 to the Directors documents to be used for
discussion in the Board meeting.  Minutes
of the Board meeting shall be maintained in both Chinese and English by the JV
Company.



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8.20                           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.


8.21                           Establishment
of  Trading Company


Each Party hereto agrees (i) that a trading
company should be established in Cayman Islands by Star China or any of its
Affiliates (including without limitation, Lone Star Technologies) and Valin TW for the purpose of being the importer of record in North America
(Canada, the United States of America and Mexico, which includes any offshore
drilling within the territorial waters of such countries) and (ii) that it is
the parties desire that the products sold such trading company pursuant to the
Sale, Marketing and Supply Agreement shall be sold on terms that will not
subject such sales to any Pricing Adjustments.


8.22                           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.


9.                                      MANAGEMENT
ORGANIZATION


9.1                                 Establishment


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


(b)                                 The management
organization shall be headed by the General Manager and constituted with Senior
Management Personnel and other management personnel. The Initial Organizational Chart setting forth the Senior
Management Personnel is set forth as Schedule 7 hereto.


(c)                                  The General Manager and all of the Deputy General Managers shall be
nominated by Valin TW.  The initial
personnel who shall hold such offices are set forth as Schedule 8
hereto.



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(d)                                 The Chief Financial Officer, the Chief Operating Officer, the
Director of Quality Assurance and Technical Support and the Director of
International Marketing shall be nominated by Star China.  The initial personnel who shall hold such
office are set forth on Schedule 9 attached hereto. The General Manager
shall appoint the Director of Quality Assurance and Technical Support and the
Director of International Marketing nominated by Star China.  The scope of authority of each of these personnel
shall be as set out in Schedule 9.


(e)                                  Each Party
agrees to cause the Directors appointed by it to approve all persons nominated
to Senior Management Personnel positions in accordance with this Section
9.  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.


9.2                                 Employment


Except as otherwise described in this Contract, each Senior
Management Personnel shall be appointed and removed by the Board of the JV
Company. Each Senior Management Personnel (other than the General Manager) and
the mid-level personnel as set forth on the organization chart attached hereto
as Schedule 7 shall receive his assignment from and shall report to
the General Manager.  Each Senior
Management Personnel shall be subject to removal at any time by the Board if he/she
fails to fulfil his/her duties properly and the General Manager 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.


9.3                                 Compensation


Matters such as salaries, wages,
subsidies, benefits, insurance, allowances, rewards and other compensation
matters of the Senior Management Personnel shall be 



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stipulated in the Labour Contract
between the JV Company and such Senior Management Personnel.


9.4                                 Confidentiality
and Non-Competition


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


10.                               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 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).


11.                               LABOUR
MANAGEMENT


11.1                           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 



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the PRC Law concerning the
recruitment, employment, compensation, designation of welfare benefits,
procurement of labour insurance, promotion, discipline and dismissal of Working
Personnel.


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.


11.2                           Employment


On or prior to the Establishment Date, the JV Company will enter into employment agreements in the form as set
forth in Schedule 2 with the existing Working Personnel of Valin MPM who are
necessary to operate the steel production assets.  The Term of the employment agreement shall
comply with the applicable PRC Law and shall be at least of three (3)
years.  The welfare treatment of the
Working Personnel shall be no less favourite than that was set out in the Schedule
10.  The JV
Company will acknowledge the former length of service of such Working Personnel
with HYST Group and the JV Company will offer the Working Personnel employment
benefits based on the aggregate of the former length of service with  HYST Group and the new length of service with
the JV Company of such Working Personnel. During the operation of the JV
Company going forward, issues regarding the labor contract or the employment
relationship with the above Working Personnel shall be settled in accordance
with the then applicable PRC Law.  However, (i) any
compensation, if any, payable to Working
Personnel of
Valin MPM due to the termination of labor contract with such
Working Personnel as a result of the capital contribution to the JV Company by
Star China or the conversion of Valin MPM into the JV Company and (ii) any
liabilities arising from the employees’ employment by HYST Group, Valin MPM,
the JV Company or their respective Affiliates which have not been reflected in
the financial statements as of the Base Date of Evaluation (as defined in the
Capital Increase Agreement) or otherwise disclosed in writing by the Chinese
Parties and agreed by Star China before the Funding Date, shall be borne by the
Chinese Parties only.


The JV Company shall continue to employ appropriate
Working Personnel according to production needs.



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11.3                           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.


12.                               ANNUAL
OPERATING PLANS AND BUDGETS


12.1                           Preparation


The General
Manager shall be responsible for the
preparation of the annual operating plans and budgets of the JV 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 JV Company;


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


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


(d)                                 human resources plans of the JV
Company; and


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


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



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13.                               TAXATION,
THREE FUNDS AND PROFIT DISTRIBUTION


13.1                           Taxation


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


13.2                           Three
Funds


After recovering accumulated losses
in prior years, if any, and payment of taxes in accordance with the relevant
PRC Law, the JV Company shall set aside certain percentage of its annual
after-tax profit for contribution towards the Three Funds.  The amount to be set aside to the Three Funds
shall be decided by the Board on a annual basis in accordance with the
financial performance of the JV Company and applicable PRC Law.


13.3                           Profit
Distribution


After recovering prior years’ losses, paying
taxes in accordance with PRC Law and making contributions to the Three Funds,
the remaining earnings of the JV 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 fiscal yeear
and distribute the profits in accordance with the dividends distribution plan
passed by the Board.  With respect to the
dividends distribution plan passed by the Board, the General Manager shall
recommend a dividend distribution plan to the Board within the first three (3)
months following the end of each fiscal year of the JV Company for the Board’s
consideration and approval or modification. 
In his or her recommendation, the General Manager shall consider whether
the JV Company has sufficient working capital to pay the dividends and meet its
approved capital expenditure budget and working capital requirement for the
current budget year.  The JV 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.



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Dividends shall be distributed to the Parties
in proportion to each Party’s holding of the registered capital of the JV
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 tradable foreign currency
acceptable to Star China.


14.                               FINANCIAL
AFFAIRS AND ACCOUNTING


14.1                           Accounting
Policy


The JV Company shall maintain its accounts in
accordance with officially promulgated PRC Laws and the provisions of this
Contract and the 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 to amend from time to time the accounting system and procedures
for the JV 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.  Financial statements shall be
prepared in accordance with Section 14.5 below and the cost for preparation of
such financial statements shall be borne by the JV Company.  The fiscal year of the JV 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.


14.2                           Books
and Records


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


14.3                           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 JV Company. 
Each Party may make 



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


14.4                           Reporting
Currency


The reporting currency of accounts of
the JV Company shall be in Renminbi.  When foreign currency
denominated 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
foreign currency trading account 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.


14.5                           Financial
Statements


The JV Company shall prepare and
provide to the Parties the followings:


(a)                                  Within thirty (30) days after the last day of each
fiscal year, the audited balance sheet of the JV Company as of the end of such
fiscal year and the related profit and loss statement and statement of cash
flows for the fiscal year then ended, in each case audited by the Auditors in
accordance with PRC GAAP and US GAAP.


(b)                                 Within fifteen
(15) days after the last
day of each fiscal year, the unaudited balance sheet of the JV Company as of
the end of such fiscal year and the related unaudited profit and loss statement
and statement of cash flows for the fiscal year then ended.


(c)                                  Within seven (7) days after the last day of
each financial quarter, the unaudited balance sheet of the JV Company as of the
end of such quarter and the related profit and loss statement (for such quarter
and for the year-to-date), in each case received by the Auditors in accordance
with PRC GAAP.



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(d)                                 Within five (5) days after the last day of
each month, (i) a profit and loss statement for such month; and (ii) a
forecast/outlook for the remainder of the current fiscal quarter, which shall
include, but without limitation to, the number of personnel,
revenue, cash balance and expenses, in each case prepared by the JV Company in
accordance with PRC GAAP.


14.6                           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.


14.7                           Additional
Reports and Provision of Returns


The JV 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 governmental entity in sufficient time prior to
such filing to permit its review by such Party prior to filing.


15.                               BANK
ACCOUNTS AND FOREIGN EXCHANGE


15.1                           Bank
Accounts


The JV Company shall open RMB deposit
accounts and Foreign Exchange deposit accounts in accordance with PRC Law.  The JV 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.


 



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15.2                           Foreign
Exchange Requirements of the JV Company


All of the JV 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
shall have the right to remit outside
China all payments made to it by the JV Company, including amounts paid to it
upon dissolution of the JV Company, in accordance with applicable PRC Laws.


16.                               CONFIDENTIALITY


16.1                           Confidentiality


(a)                                  Each of the
Parties acknowledges and agrees that the discharge of its obligations under
this Contract and the contracts and documents referred to herein to which it is
a party will involve the disclosure of Confidential Information.


(b)                                 The Parties
shall use the Confidential Information only for the purposes of signing and performing this Contract,
the Schedules and the other
contracts and documents contemplated herein and therein to which it is a party,
and shall not disclose any Confidential Information to third parties without
the prior written consent of the Party providing such Confidential Information;
provided, however, that a Party (the “Receiving Party”) may be permitted
to disclose Confidential Information (i) received by it to its Affiliate(s),
auditors, attorneys, investment advisors and lenders when such disclosure is
necessary, either for such Party’s own internal operations or for such Party to
carry out its obligations under this Contract, the Articles of Association or
the other contracts referred to herein, provided, that the Receiving Party
shall ensure that the recipient is made aware of and complies with the
Receiving Party’s obligations of confidentiality under this Contract as if the
recipient was a party to this Contract; (ii) if such Confidential Information
is public, and the Receiving Party has not taken any action in violation of
this Contract which has resulted in such Confidential Information becoming
public; (iii) in response to valid legal process by a Governmental Body having
jurisdiction over the Receiving Party, (iv) received from a third party not
bound by an obligation of confidentiality to the disclosing Party, 



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                                                and (v) as
otherwise required by law applicable to the Receiving Party, including without
limitation, the rules promulgated by China Securities Regulatory Commission, US
Securities and Exchange Commission, the Shenzhen Stock Exchange or the New York
Stock Exchange.


(c)                                  The JV Company,
the Parties and their respective Affiliates that receive Confidential
Information shall make such Confidential Information available only to those of
their directors, auditors, attorneys, investment advisors and lenders, senior management personnel and working personnel whose duties
necessitate familiarity with such Confidential Information and shall cause such
directors, auditors, attorneys, investment advisors and lenders, senior management personnel and working personnel also to  comply with the confidentiality obligations
set forth in Article16.1(b).


(d)                                 The
confidentiality obligations set forth in this Article 16.1 shall be observed and complied with during the
Joint Venture Term and for an additional period of five (5) years after the termination
of this Contract.


17.                               DURATION
OF THE JV COMPANY


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


18.                               TERMINATION


18.1                           Triggering
Events


This Contract may be terminated in the event that any of the conditions
or events set forth below occurs:


(a)                                  Any Party fails to perform any of its obligations under the Contract or the Articles of Association in
connection therewith and this causes the JV Company to be unable to continue
its business.  In such case, any non-breaching Party may give notice of
termination, provided, however, that the Chinese Parties may only give notice
of termination in the event 



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                                                Star China
breaches this Contract or the Articles of Association and not if the other
Chinese Party breaches this Contract under this Article.


(b)                                 The JV Company
sustains serious losses from a natural disaster, war or an Event of Force Majeure and is unable
to continue its business.  In such case, any Party may give notice of
termination.


(c)                                  The Parties
agree to terminate this Contract and agree on the terms for the dissolution of
the JV Company.  In such case, the JV
Company and its assets shall be dealt with in accordance with applicable PRC
Law and the agreements reached by the Parties from time to time.


(d)                                 In the event that there is a material breach under the Sale, Marketing
and Supply Agreement, which results in the termination of the Sale, Marketing
and Supply Agreement.


(e)                                  In the event that the US$/RMB exchange rate fluctuates by more than 10%
as described in Article 2 of the Capital Increase Agreement and the relevant
Party elects to terminate the Capital Increase Agreement.


In the event
18.1(b), (c) and (e) occurs, the Board shall submit the application for dissolution
to the Examination and Approval Authorities for approval; in the event 18.1(a)
or (d) occurs, any non-breaching party may submit such an application for
approval. In the case of 18.1(a) or (d), the Party or Parties in breach shall
compensate the JV Company for the losses thus sustained.


18.2                           Purchase
of the JV Company as a Going Concern


(a)                                  In the event
that (i) one (1) Party is the subject of proceedings for liquidation or
dissolution or ceases to carry on business or (ii) notice of termination is given
by a Party pursuant to Article 18.1(a) or (d), the remaining or non-breaching
Party(ies) may elect to purchase the JV Company as a going concern at Fair
Market Value in accordance with the procedures set forth below.  As used in this Article, the term “EBITDA”
shall mean the JV Company’s earnings on a consolidated basis, before interest,
taxes, depreciation and amortization, all as they are derived from the JV
Company’s relevant audited consolidated financial statements, 



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                                                together with
the JV Company’s interim consolidated financial statements that have been
reviewed by the JV Company’s independent outside auditor.


(i)                                     Determination
of Fair Market Value: each Party shall, at its own cost, engage a reputable,
independent, internationally known and qualified appraiser to appraise the JV
Company, together with its consolidated subsidiaries, as a going concern.  If the average of the two appraisals made by
the appraisers engaged by both Parties does not exceed the lower appraisal by
more than twenty percent (20%), the average shall be adopted as the fair market
value (the “Fair Market Value”); if the average of the two appraisals
(the “Two Appraisals”) made by the appraisers engaged by both Parties
exceeds the lower appraisal for more than twenty percent (20%), the external
auditor of the JV Company shall appoint another appraiser to conduct another
appraisal (the “Third Appraisal”) and the results of the Two Appraisals
which is closer to the Third Appraisal shall be taken as the Fair Market
Value.  If only one Party engages an
appraiser or an appraiser is mutually engaged by both Parties, then the
appraisal given by such sole appraiser shall be taken as the Fair Market Value.


 


(ii)                                  In making an
appraisal, the appraiser shall be required to take into account all relevant
facts, including, without limitation, the going concern value of the JV
Company; the value of comparable companies, as discerned from public records;
multiples of EBITDA and revenues derived from the JV Company’s consolidated
financial statements for the prior three years or such shorter time as the JV
Company has been in operation; and the JV Company’s consolidated projections
for the following fiscal year, all as if the JV Company were being sold to an
independent third-party buyer in an international transaction on an arm’s-length
basis, without regard to any lack of liquidity due to the fact that the JV
Company is not then a public company.


 


(iii)                               The
purchasing Party shall purchase the Interest of the selling Party in the JV
Company for a purchase price equal to the percentage interest that such selling
Party then currently holds in the registered 



 48
 






 



 


                                                capital
of the JV Company multiplied by the Fair Market Value of the JV Company.


(iv)                              After
determination of the purchase price, the Parties shall execute a purchase and
sale agreement and shall use their best efforts to assist and secure, within
thirty (30) days of the execution of such purchase and sale agreement, all
necessary governmental approvals required to give effect to such purchase and
sale agreement.  The closing procedures
of such purchase and sale of equity interests and the payment of purchase price
shall be completed in accordance with the sale and purchase agreement between
the Parties.


(v)                                 After
approval of the purchase and sale agreement has been obtained, the Parties
shall terminate this Contract and the Schedules herein by a writing executed by
the duly authorized representative of each of the Parties.


(b)                                 The Parties shall continue to
perform their obligations under this Contract prior to completion of Article
18.2(a)(v) above.


19.                               LIQUIDATION
AND DISSOLUTION


19.1                           Liquidation


Upon the adoption of a unanimous
Board resolution to terminate this Contract pursuant to Article 18.1 and
approval by the Examination and Approval Authorities to dissolve the JV
Company, the Parties shall cause the Directors appointed by them to adopt a
resolution to liquidate the JV Company and establish a liquidation
committee.  The composition, powers and
functions of the liquidation committee, formulation of liquidation procedures
and payment of liquidation proceeds shall be in
accordance with the applicable PRC Law and
the Articles of Association.


19.2                           Effect
of Dissolution or Sale as a Going Concern


The dissolution of the JV Company or
sale of the JV Company as a going concern shall not release a Party from its
liability to pay any sums of money accrued, due and payable to the other Party
or discharge its then-accrued and unfulfilled 



 49
 






 



 


obligations, including any liability
to the JV Company or the other Party in respect of any breach of this Contract
pursuant to Article 19 hereof.


19.3                           Termination


After the liquidation of the JV
Company is completed and the JV Company has been effectively dissolved, the
Parties shall terminate this Contract, the Articles of Association and the
agreements contemplated herein to which Star China or its Affiliates are a
party (except as otherwise agreed to by the Parties) by written notice signed by the duly authorized representative of each of the Parties.


19.4                           Breach
of Contract


If a Party fails to perform any of
its material obligations under this Contract, or if a representation or
warranty made by a Party under this Contract is untrue or materially
inaccurate, the Party shall be deemed to have breached this Contract.


19.5                           Failure
to Pay Capital Contributions


Provided that the
Parties reach agreement on the increase of registered capital, should one of the Parties fail to pay any portion of its contribution
to the registered capital of the JV Company at the time and in the amounts
stipulated therein, such Party
shall be deemed to be in breach of the Contract and, in addition to any
liability it may incur for such breach, such Party shall pay to the JV Company
a late contribution penalty at a monthly rate equal to two (2) times the then
applicable shortest-term lending rate published by the People’s Bank of China
for Renminbi loans on the
amount of the contribution due and unpaid for as long as such contribution is
due and unpaid.


19.6                           Indemnity
for Breach of Contract


(a)                                  If the JV
Company suffers any cost, expense, liability or loss, including but not limited
to lost profits, as a result of a breach of this Contract by any Party, then
the breaching Party shall indemnify and hold the JV Company harmless in
relation to any such cost, expense, liability or loss up to a maximum aggregate
amount, inclusive of all related losses, costs and fees,  equals to the total net assets value (“NAV”) of the Valin MPM or the JV 



 50
 






 



 


                                                Company as of the time of such breach (as
indicated in the most recent financial statement of Valin MPM or the JV
Company).


(b)                                 If the
non-breaching Party(ies) suffer any cost, expense, liability or loss, including
but not limit to lost profits, as a result of a breach of this Contract by the
breaching Party(ies), the breaching Party shall indemnify and hold the
non-breaching Party(ies) harmless in relation to such cost, expense, liability
or loss incurred by the non-breaching Party up to a maximum aggregate amount,
inclusive of all related losses, costs and fees, equals to the NAV of the Valin MPM or the JV
Company as of the time of such breach (as indicated in the most recent
financial statement of Valin MPM or the JV Company).


19.7                           Continued
Implementation of Contract


During the period of breach, the
Parties shall in all other respects continue their implementation of this
Contract.


20.                               INSURANCE


The JV Company shall, at its own cost
and expense and at all times during the operation of the JV Company, procure
and maintain full and adequate insurance coverage in a manner prudent and
advisable for the JV
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 Sale, Marketing and Supply
Agreement.  If one Party proposes to
purchase an insurance policy not directly related to the business of the JV
Company, such a Party shall be responsible in full for the payment of the
premium.



 51
 






 



 


21.                               FORCE
MAJEURE


21.1                           Performance
of Obligations


If any Party is prevented from performing
any of its obligations due hereunder due to an Event of Force Majeure, the time
for performance of the obligations under this Contract specifically prevented
from performance by such Event of Force Majeure shall be extended by a period
equal to the period of delay caused by such Event of Force Majeure.  A Party claiming inability to perform due to
an Event of Force Majeure shall take appropriate means to minimize or remove
the effects of the Event of Force Majeure and, within the shortest possible
time, attempt to resume performance of the obligation(s) affected by the Event
of Force Majeure.  If an Event of Force
Majeure occurs, no Party shall be responsible for any damage, increased costs
or loss that the other Parties may sustain by reason of such a failure or delay
of performance, and such failure or delay shall not be deemed a breach of this
Contract.  All other obligations under
this Contract and the time for performance thereof shall remain unaffected.


21.2                           Notice


The affected Party shall immediately
notify the other Party of the occurrence of any Event of Force Majeure in
accordance with Article 25.5 and shall provide available evidence thereof.  Should the delay caused by any Event of Force
Majeure continue for more than ninety (90) consecutive days, the Parties shall
settle the issue of further performance of this Contract through friendly
negotiations or in accordance with Article 25.


21.3                           Continued
Implementation of Contract


During the period of an Event of
Force Majeure, the Parties shall in all other respects continue their
implementation of this Contract.


22.                               CONDITIONS
PRECEDENT TO THE EFFECTIVENESS OF CONTRACT


22.1                           After
execution by the Parties, this Contract shall take effect on the day that all
conditions below are fulfilled:


(a)                                  approvals of this Contract by the Provincial
Commission of State-owned Assets Supervision and Administration;



 52
 






 



 


(b)                                 approval of this Contract by the State Commission of
Development and Reform;


(c)                                  approval of this Contract, the Articles of
Association and the Capital Increase Agreement by the PRC Ministry of Commerce;
and


(d)                                 other governmental approvals (including
anti-trust review and approval) as required by Law.


22.2                           Star China’s
obligation to pay its contribution to the registered capital to the JV Company
is conditional upon the satisfaction of the conditions set forth in
Article 22.1 of this Contract and Article 10 of the Capital Increase Agreement.


23.                               APPLICABLE
LAW


The PRC Law that is officially
published and publicly available shall apply to and govern the formation,
validity, interpretation and implementation of this Contract and all the other
contracts, agreements, documents for implementing this Contract.


24.                               DISPUTE
RESOLUTION


24.1                           Arbitration


(a)                                  The Parties
shall make every effort to settle amicably any and all disputes, controversies
and conflicts arising out of or relating to or in connection with this Contract
and the performance or non-performance of the obligations set forth herein
(including any questions regarding its existence, validity or termination) (a “Dispute”).  Disputes or claims, if any, which cannot be
settled amicably among the Parties, within thirty (30) days after written
notice of such Dispute has been given by one Party to the other Parties, shall be referred to the
International Court of Arbitration of the International Chamber of Commerce and
finally resolved by arbitration in Hong Kong under the Rules of Arbitration of
the International Chamber of Commerce (“ICC Rules”) for the time being
in force.  The ICC Rules shall be deemed
to be incorporated by reference into this Article within this Contract.



 53
 






 



 


(b)                                 The Tribunal
shall consist of one (1) arbitrator who shall be appointed by the Chairman of
the International Chamber of Commerce. 
Such arbitrator shall not be a citizen of the United States of America
or China.  The costs of the arbitration,
including administrative and arbitrator’s fees, shall be shared equally by the
Parties.  Each Party shall bear the costs
of its own attorney’s fees and expert witness fees.


(c)                                  The arbitration
proceedings shall be in both English and Chinese and all pleadings and written
evidence shall be in English and Chinese. 
The decision of the arbitrator shall be final, binding and enforceable
upon the Parties and judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.  In the event that the failure of a party to
this Contract to comply with the decision of the arbitrator requires the other
party to apply to any court for enforcement of such award, the non-complying
Party shall be liable to the other Parties for all costs of such litigation,
including attorneys’ fees.  The Parties
may apply to any court of competent jurisdiction in accordance with this
Article 25.1 for temporary or permanent injunctive relief, without breach of
this Article 25.1 or abridgement of the powers of the arbitrator.  Neither Party shall be entitled to commence
or maintain any action in any court upon any matter in dispute until such
matter shall have been submitted to, and finally determined under, the dispute
resolution and arbitration procedures in this Article 25.1, and then only for
the enforcement of any arbitral award. 
Process may be served on any Party in the manner set forth in this
Contract or by such other method authorized by applicable Law.


(d)                                 Each Party
shall cooperate with the other Parties in making full disclosure
of and providing complete access to all information and documents reasonably
requested by the other Parties in connection with such proceedings, subject only to any
confidentiality obligations binding on such Party.


(e)                                  Judgment upon
the award rendered by the arbitration may be entered into any court having
jurisdiction for an order of enforcement thereof.



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24.2                           Continued
Implementation of Contract


During the period when a dispute is
being resolved, the Parties shall in all other respects continue their
implementation of this Contract.


25.                               MISCELLANEOUS


25.1                           Language


This Contract
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 government registration
bodies for approval or registration.


25.2                           Entire
Agreement


This
Contract, the Articles of Association and the other contracts contemplated
herein constitute the entire agreement among all
Parties with respect to the subject matters
set forth herein and therein and supersede all prior discussions, notes,
memoranda, negotiations, understandings and all the documents and agreements
between them relating to the same.  All
documents, agreements, understandings and correspondence between the Parties
with respect to the subject matter hereof prior to the execution of this
Contract shall, with the exception of the Capital Increase Agreement, become
null and void automatically when this Contract is signed by the parties hereto.


25.3                           Amendment


Amendments to this Contract and the
other contracts contemplated herein may be made only by a written agreement in
English and Chinese signed by duly authorized representatives of each of the
Parties and will become effective upon signing thereof or, if prior approval
from the Examination and Approval Authorities is statutorily required, then
upon approval by the Examination and Approval Authorities.  Each of the agreements attached or forms of
which are attached as Schedules to this Contract may be amended or terminated
in accordance with their own terms and shall not require the approval of the
Examination and Approval Authorities.



 55
 






 



 


25.4                           Conflict
or Inconsistency


The rights and obligations of the
Parties established by and under this Contract shall continue to exist
throughout the Joint Venture Term and shall not be prejudiced by the
establishment of the JV Company, the adoption of the Articles of Association or
the execution of any of the contracts contemplated herein.  In the event of any conflict or inconsistency
between the provisions of this Contract on the one hand and the Articles of
Association or other contracts contemplated herein on the other, the provisions
of the Articles of Association and other contracts contemplated herein shall
prevail.


25.5                           Notices


Unless otherwise provided in the Contract, notices or other communications required to be given by any Party or the
JV Company pursuant to this Contract 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).



 56
 






 



 


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


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


Hua Ling Tower, No. 111 Fu Rong Road (M)

Changsha Municipality, Hunan Province

People’s Republic of China

Attention: Head of Securities Department

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


Hengyang Valin Steel Tube Co., Ltd.:

No. 10 Dali New Village, Zhengxiang District

Hengyang, Hunan Province

People’s Republic of 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.



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25.6                           Waiver


Unless otherwise provided for,
failure or delay on the part of any Party to exercise any right or privilege
under this Contract shall not operate as a waiver of such right or privilege
nor shall any partial exercise of any right or privilege preclude any further
exercise thereof.  Any waiver by a Party
of a breach of any term or provision of this Contract shall not be construed as
a waiver by such Party of any subsequent breach, its rights under such term or
provision or any of its other rights hereunder.


25.7                           Headings


The headings contained in this
Contract are for reference only and shall not be deemed to be a part of this
Contract or to affect the meaning or interpretation hereof.



 58
 






 



 


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


	
  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

  	
   

  	
   

  	
   

  



 



 59














 


 


Schedule
1


Articles
of Association



 60
 






 



 


Schedule  2


Form of Labour
Contract



 61
 






 



 


Schedule  3


List of
Utilities Supply Contracts


	
  1

  	
   

  	
  Steam Supply Contract between Valin ST and Valin MPM

  
	
  2

  	
   

  	
  Oxygen Supply Contract between Valin ST and Valin
  MPM

  
	
  3

  	
   

  	
  Water Supply Contract between Valin ST and Valin MPM

  
	
  4

  	
   

  	
  Nitrogen Supply Contract between Valin ST and Valin
  MPM

  
	
  5

  	
   

  	
  Power Supply Contract between Valin ST and Valin MPM

  
	
  6

  	
   

  	
  Compressed Air Supply Contract between Valin ST and
  Valin MPM

  



 



 62
 






 



 


Schedule  4


Star
China and its Affiliates’ Investment Project and Product Sales in China


A potential investment by Star China or its
affiliates as majority equity holder in a joint venture to be established in
Qingdao for the processing and finishing of alloy steel pipes (“Qingdao Project”).  For the avoidance of doubt, Star China or its
affiliates will continue to follow Article 7.4 of this Contract relating to any
investment of other activities under the Qingdao Project.



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Schedule 5


Agreements between Valin
MPM and VST


1.  Utilities Supply Contracts


2.  Lease Agreement for Land
(Certificate No.: Xiang-Guo Yong (2003) 042)


3. 
Trademark Licensing Agreement


4.  Billet
Supply Contract to be entered into between Valin MPM and VST



 64
 






 



 


Schedule 6

Rights, Function and Authority of the Audit Committee


1.               Composition


An Audit Committee shall be established under the Board of
Directors.  The Audit Committee shall
consist of three (3) directors, two (2) of which shall be designated by Lone
Star Technologies, Inc. and one (1) of which shall be designated jointly by the
Chinese Parties.  The Board of Directors
shall designate one of the directors in the Audit Committee to act as the
chairman thereof.


2.               Qualifications


Members of the Audit Committee shall have relevant financial knowledge
and at least one (1) of them shall be an accounting professional.


3.               Term of Office


The term of office of the members of the Audit Committee shall be three
(3) years and may be renewed upon approval by the Board of Directors.


4.               Primary Powers and
Duties


The Audit Committee shall report to the Board of Directors and submit
its proposals to the Board of Directors for review and approval.  Its powers and duties are detailed as
follows:


a)                  to propose
engagement or replacement of external auditors;


b)                 to supervise the
internal auditing system of the Company and the implementation thereof;


c)                  to be
responsible for communication between the internal and external auditors;


d)                 to examine and
verify the financial information of the Company and the disclosure thereof;


e)                  To examine the
internal control system of the Company.


5.               Detailed Work Rules


The Audit Committee shall work out the detailed work rules, which shall
take effect upon submission to and approval by the Board of Directors.



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6.               Performance
Evaluation


The Board of Directors
shall perform an evaluation of each member of the Audit Committee with respect
to his/her work performance by annual vote. 
A member of the Audit Committee may be dismissed and required not to
assume the same position within three years upon the proposal of two members of
the Audit Committee and the approval by the Board of Directors.



 66
 






 



 


Schedule 7 Initial
Organizational Chart


 





 



 67
 






 



 


Schedule 8


Name of General Manager and
All Deputy General Managers


	
  No.

  	
   

  	
  Position

  	
   

  	
  Name

  	
   

  	
  Nominating
  Party

  
	
  1

  	
   

  	
  General Manager

  	
   

  	
  Zhao Jianhui

  	
   

  	
  Valin TW

  
	
  2

  	
   

  	
  Secretary of the Committee of Communist Party

  	
   

  	
  Xu Pingzhong

  	
   

  	
  Valin TW

  
	
  3

  	
   

  	
  Standing Deputy General Manager

  	
   

  	
  Tang Lu

  	
   

  	
  Valin TW

  
	
  4

  	
   

  	
  Deputy General Manager

  	
   

  	
  Tao Fangguo

  	
   

  	
  Valin TW

  
	
  5

  	
   

  	
  Deputy General Manager

  	
   

  	
  Hu Keqin

  	
   

  	
  Valin TW

  
	
  6

  	
   

  	
  Deputy General Manager in Charge of Finance

  	
   

  	
  Xiao Dongtian

  	
   

  	
  Valin TW

  
	
  7

  	
   

  	
  Deputy Secretary of the Committee of Community Party & Deputy
  Secretary of the Discipline Inspection Committee

  	
   

  	
  Zhang Yi

  	
   

  	
  Valin TW

  
	
  8

  	
   

  	
  Deputy General Manager

  	
   

  	
  Ling Zhongqiu

  	
   

  	
  Valin TW

  
	
  9

  	
   

  	
  Assistant to General Manager

  	
   

  	
  Zuo Shaohuai

  	
   

  	
  Valin TW

  
	
  10

  	
   

  	
  Assistant to General Manager

  	
   

  	
  Yin Shiqing

  	
   

  	
  Valin TW

  



 



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Schedule 9


Scope of Authority of COO,
CFO, Director for Quality Control and Director for International Sales


JOB TITLE:  Chief Operating Officer (COO)/Senior Position


REPORTS
TO:  General Manager


BASIC FUNCTION:  Responsible in coordinating with the Vice
General Manager of Operations in the day-to-day management of the company’s
business to ensure operational efficiency and profitability are aligned with
the strategic objectives of the business The primary objective is to ensure
that: there is best-of-class manufacturing with an emphasis on improving
yields, reducing costs, increasing productivity through effective management
and leadership of Officers and employees. 
To accomplish these objectives, he will direct and implement appropriate
procedures in the day to day operations; to protect the shareholders’
investments and provide a maximized return on their investment.


The COO would have free
access to day-to-day activities of the company, including marketing,
accounting, and operations.  The COO will
be a key liaison for the Director of International Marketing, Director of Quality
Assurance and Technical Support, and  CFO
as well the senior executives of Lone Star Technologies.


SUPERVISORY DIMENSIONS:  Responsibility to review of all operations of
the business; ensures implementation and adherence to appropriate policies and
procedures as established by the company’s management.


EXTERNAL CONTACTS:  Direct contract with senior executives at
Lone Star Technologies.


INTERNAL CONTACTS:  Frequent contact with senior management, the
Board of Directors and shareholders of the company and participates on various
Company committees and meetings as required and delegated; regular contact with
general employee population but the direct supervision will be the
responsibility of the Vice General Manager of Operations.


DECISION MAKING RESPONSIBILITIES:  Provides guidance to senior management staff,
coordinates with the Vice General Manager of Operations to plan, develop and
implement business strategies; determine appropriate product mix based on
cyclical changes in the economy that result in; an acceptable return for
investors; develops, communicates, and oversees the implementation of policies
and procedures; establishes working environment that produces a professional
and highly motivated staff.



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KEY ACTIVITIES:  To perform senior management duties that
include:


·                  informing and
advising Lone Star Technologies, Inc. regarding financial results of
operations, status of projects, investments, competition, and new business
development;


·                  making
recommendations to the General Manager on a wide range of subjects including
officer appointments, changes in organization, projects, new or redesigned
services, annual operating budget, salary and benefit administration, training,
and facilities management


·                  overseeing the
implementation of Board-approved operational budgets to ensure budgets conform
to the goals and objectives of the Board of Directors


·                  ensuring the
smooth flow of information and communications to Lone Star Technologies, Inc.;


·                  cooperating with
government regulators during examinations and other reviews


·                  providing
overall direction to development and maintenance of standards for operating
efficiency with comprehensive, specific, and measurable goals and ensuring that
comprehensive procedures are written, revised, and implemented that support the
Board approved policies;


·                  researching,
developing, and implementing new strategies for profitability and operating
efficiency;


·                  constructing and
implementing specific action plans to address the firm’s weaknesses and to take
advantage of the firm’s business opportunities, and evaluating operations to
identify needs and current problems and participating in the resolution of such
problems;


·                  participating
with the senior management of the Company in developing a five year projection
of the firm’s strategic financial goals, including at least a quarterly review
by Lone Star Technologies, Inc. of the firm’s progress on the plan and an
annual update of the entire plan to Lone Star Technologies, Inc.


 



 70














 


 


JOB
TITLE:  Chief Financial
Officer (CFO)/Senior Level Position


REPORTS
TO:  General Manager


BASIC FUNCTION:  Provides proactive financial leadership and
compliance in cooperation with the Vice General Manager of Finance as well as
assisting in addressing a wide range of business issues impacting the
Company.  The CFO will be responsible for
compliance with U.S. financial  and legal
reporting requirements including Sarbanes Oxley, SEC, U.S. GAAP, and NYSE.  The CFO will have authority to change
accounting policies, procedures and controls as appropriate to accomplish these
requirements.  The CFO will also
coordinate with the Vice General Manager of Finance to prepare budgets,
management information reports as well as develop other financial models and
product cost and profitability analysis. 
Compliance with US regulatory requirements is of great importance and
requires a complete access to accounting functions within the company.  However, the Vice General Manager of Finance
has the day to day responsibility of the accounting department as well as the
operational accounting.


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.


EXTERNAL CONTACTS:  Frequent contact with Lone Star Technologies
CFO as well as the company appointed auditors, public accounting firms,
government authorities, eg., tax authorities and finance bureaus, and
attorneys.


INTERNAL CONTACTS:  Frequent contact with board members in the
Joint Venture as well as other members of senior and middle management.


DECISION MAKING RESPONSIBILITIES:  Participates on decisions related to overall
accounting and reporting for the firm.  Participates in the formulation and
implementation of accounting policy.  Insures accuracy of financial statements as
well as the adequacy of internal controls. 
Makes decisions that support the Business Action Plan.



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JOB
TITLE:  Director of
Quality Assurance and Technical Support/Middle  Management Pos.


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 Tubulars and Pipe equipment
performance.


·                  Assists in the
resolution of customer claims and complaints.



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JOB
TITLE:  Director of
International Sales & Marketing/Middle Management Position


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  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 10


Employment Benefits of Valin MPM’s
Employees


	
  Item

  	
   

  	
  Ratio

  
	
  Welfare Fee

  	
   

  	
  14% (including medical insurance 7%)

  
	
   

  	
   

  	
   

  
	
  Maternity Insurance

  	
   

  	
  0.70%

  
	
   

  	
   

  	
   

  
	
  Basic Pension Insurance

  	
   

  	
  20%

  
	
   

  	
   

  	
   

  
	
  Unemployment Insurance

  	
   

  	
  3%

  
	
   

  	
   

  	
   

  
	
  Industrial Injury
  Insurance

  	
   

  	
  2%

  
	
   

  	
   

  	
   

  
	
  Housing Provident Fund

  	
   

  	
  6%

  
	
   

  	
   

  	
   

  
	
  Mutual Subsidy for Major
  Diseases

  	
   

  	
  90 yuan monthly per person

  
	
   

  	
   

  	
   

  
	
  Flexible Regional
  Differential Subsidy

  	
   

  	
  10 yuan monthly per person (for retired employees)

  
	
   

  	
   

  	
   

  
	
  Subsidy for Liquefied
  gas

  	
   

  	
  5 yuan monthly per person∙(for retired employees)

  
	
   

  	
   

  	
   

  
	
  Healthcare Subsidy for
  Female Employees

  	
   

  	
  10 yuan monthly per person

  
	
   

  	
   

  	
   

  
	
  Bathing Expense

  	
   

  	
  10 yuan monthly per person∙(for retired employees)

  



 


 



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