Document:

Exhibit
10.6

August 15, 2006

 

The following agreements have been agreed in form and substance by the
parties thereto as attached and the parties thereto hereby agree to enter into
these agreements after the Trading Company (as defined therein) has been established:

 

以下各方当事人兹确认,已就下述合同以后附的形式及内容达成一致,并将待贸易公司设立后签署正式协议。

 

1.             MPM Sale, Marketing
& Supply Agreement (in English)

 

华菱连轧管销售、营销和供应协议(英文)

 

2.             MPM Sale, Marketing
& Supply Agreement (in Chinese)

    

   华菱连轧管销售、营销和供应协议(中文)

 

3.             VST Sale, Marketing
& Supply Agreement (in English)

    

    华菱钢管销售、营销和供应协议(英文)

 

4.             VST Sale, Marketing
& Supply Agreement (in Chinese)

 

华菱钢管销售、营销和供应协议(中文)

 

 

 

 

	
  

  	
   

  	
  LONE STAR TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Rhys J. Best

  
	
   

  	
   

  	
  Name: 

  	
   

  	
  Rhys J. Best

  
	
   

  	
   

  	
  Title: 

  	
   

  	
  Chairman/CEO

  

 

[Sales & Marketing Agreements
– Cover Page]

 

 

	
  

  	
  HENGYANG VALIN MPM STEEL TUBE CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zhao JianHui

  
	
   

  	
  Name: 

  	
  Zhao JianHui

  
	
   

  	
  Title: 

  	
  Chairman/General Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  HENGYANG VALIN STEEL TUBE CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zhao JianHui

  
	
   

  	
  Name: 

  	
  Zhao JianHui

  
	
   

  	
  Title: 

  	
  Chairman/General Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  HUNAN VALIN STEEL TUBE & WIRE CO., LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cao HuiQuan

  
	
   

  	
  Name: 

  	
  Cao HuiQuan

  
	
   

  	
  Title: 

  	
  Director/General Manager

  

 

[Sales
& Marketing Agreements – Cover Page]

 

 

 

MPM SALE,
MARKETING & SUPPLY AGREEMENT

This MPM SALE, MARKETING &
SUPPLY AGREEMENT (the “Agreement”), dated as of                , 2006, by and among [Trading
Company], a company limited by shares organized and existing under the laws of
the Cayman Islands (“Buyer”), Lone Star Technologies, Inc., a
corporation organized under the laws of the State of Delaware, United States of
America (“LST”), Hengyang Valin MPM Steel Tube Co., Ltd., a Sino-foreign
joint venture company organized under the laws of the PRC (“Supplier”),
and Hunan Valin Steel Tube & Wire Co., Ltd., a joint stock company
organized and existing under the laws of the PRC (“VTW”).

RECITALS:

WHEREAS,
Buyer is a trading company established by Star China Ltd. (“Star China”),
a wholly-owned subsidiary of LST organized and existing under the laws of the
Cayman Islands, or by any of its Affiliates, including without limitation, LST,
and VTW.

WHEREAS,
the parties wish to enter into this Agreement to set forth the terms and
conditions pursuant to which Supplier will manufacture and sell certain
products (as set forth below) to Buyer and Buyer will purchase and resell
certain products from Supplier; and

WHEREAS, the Buyer intends to provide
distribution services, marketing support, technical expertise and other
services in order to increase the sales of Supplier’s products in the
Territory.

NOW,
THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties hereto agree as follows:

1.             Defined
Terms.  The following
terms have the meanings specified in this Section 1 and shall be equally
applicable to both the singular and plural forms.

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

(b)           “Applicable
Margin Split” means the applicable “Cost Plus” (indicated in column (F))
based on the Net Sales Profit, as set forth in Exhibit B.  For the sole purpose of determining the initial
Applicable Margin Split, the Parties agree to use 32% of Net Sales Profit Margin
as the reference.

 

 

(c)           “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.

(d)           “Capital
Increase Agreement” means the capital increase agreement for Supplier dated
August 15, 2006 between VTW, Hengyang Valin Steel Tube Co., Ltd., Star
China and Supplier in respect of Star China’s contribution to the registered
capital of Supplier.

(e)          
“Competing Products” means any Tubular Products which Supplier or its
subsidiary(ies) has the ability and capacity to manufacture at the time Buyer
makes a purchase inquiry.

(f)           
“Coupling” means a tubular section used for the exclusive purpose of
joining two threaded pin ends of pipe or equipment having the same external and
internal diameters and same thread.

(g)          
“Coupling Materials” means seamless pipes from which tubular sections
are prepared for the manufacture of Couplings or Cross-Overs.

(h)          
“Cross-Over” means a tubular section used for the exclusive purpose of
joining two threaded pin ends of pipe having different dimensions or threads.

(i)           
“Effective Date” means the date on which the JV Contract comes into
effect.

(j)            “Funding
Date” means the date on which Star China makes its contribution to the
registered capital of Supplier in accordance with the terms of the Capital
Increase Agreement and the JV Contract.

(k)           “JV
Contract” means the joint venture contract dated August 15, 2006 between
VTW, Hengyang Valin Steel Tube Co., Ltd. and Star China in relation to the
establishment of the Supplier.

(l)           
“Line Pipe” means finished or unfinished line pipe manufactured by
Supplier or its Subsidiaries (if any) based upon, at a minimum, the latest
version of the standards promulgated by the API and/or the ASTM.

(m)         
“Net Sales Profit” means Total Sales less Total Deductions.

(n)           “Net Sales Profit Margin” means Net Sales Profit
divided by Total Sales.

(o)          
“Lone Star” means LST or its Subsidiaries (however, for the purpose of
this Agreement, the Buyer is regarded as a Subsidiary of LST).

(p)          
“Oil Country Tubular Goods” means casing, tubing, drill pipe,
semi-finished and unfinished green tubes, Coupling stock and finished Couplings
manufactured directly or indirectly by Supplier or its Subsidiaries based upon,
at a minimum, the latest version of the standards promulgated by the API and/or
the ASTM.

 2
 

 

 

(q)          
“Persistent Default” as it relates to a Competing Product, means the
failure by Supplier or its subsidiary(ies) to supply Competing Product that
meets Buyer’s requirements as to technical specifications, quantity, quality
and/or delivery time as set forth in Buyer’s inquiry (as accepted by Supplier
or its subsidiary(ies)) and such failure shall have resulted in least three (3)
serious complaints or claims for penalty or damage for payments for any one
type of Competing Product from customers within any 6-month period (for the
avoidance of doubt, a single down-hole failure shall be deemed to be a
Persistent Default); provided, however, that minor deviations from the terms of
the order which are beyond the control of Supplier or its subsidiary(ies) shall
not be deemed to be a default.

(r)            “PRC”
means The People’s Republic of China, for the purposes of this Agreement only,
excluding Hong Kong Special Administrative Region, Macao Special Administrative
Region and Taiwan.

(s)           “Preferred
Return Period” shall have the meaning set forth in the Shareholders
Agreement.

(t)            “Preferential
Supplier Period” is defined in Section 3(a).

(u)           “Price Adjustment” means an adjustment to the price
or imputed price of the Tubular Products sold by Supplier to Buyer that is
required by the Tax Authorities.

(v)           “Prime
Products” mean only the Tubular Products sold to the Buyer meeting the
Buyer’s specific requirements, including API specifications and metallic
chemistries.

(w)          “Shareholders
Agreement” means the shareholders agreement dated                      
by and between the Buyer, LST, VTW and Star China.

(x)            “Specialty
Tubing” means mechanical and pressure tubes, cold drawn and hot finished
tubes, shells for redraw and other boiler tubes manufactured directly or
indirectly by Supplier or its Subsidiaries based upon, at a minimum, the latest
version of the standards promulgated by the API and/or the ASTM.

(y)           “Subsidiaries”
of Supplier or Buyer means a
subsidiary in which Supplier or Buyer owns more than 50% equity interest.

(z)            “Tax Authorities” means the PRC tax authorities
having the power to tax Supplier in accordance with the then applicable PRC tax
laws, rules or practices.

(aa)        
“Term” has the meaning ascribed to it in Section 16.

(bb)        
“Territory” means North America (Canada, the United States of America
and Mexico, which includes any offshore drilling within the territorial waters
of such countries) and any other countries that the parties mutually agree to
add to the Territory.

(cc)        
“Total Deductions” means the costs allocated to the Prime Products
pursuant to Exhibit C, plus all the additional costs incurred by the Buyer in
preparing and delivering the Prime Products to its end customers, including but
not limited to costs relating to administration, financing, further processing
and shipping.

(dd)        
“Total Sales” means the revenue from the sales to its end customers
received by the Buyer.

 3
 

 

 

(ee)        
“Tubular Products” means Line Pipe, Oil Country Tubular Goods, Specialty
Tubing and/or all other tubular products manufactured by Supplier or its
Subsidiaries (if any).

(ff)          
“$” means the lawful currency of the United States of America.

2.             Exclusive
Marketing.

(a)           Unless
otherwise provided herein, as of the Funding Date and so long as Supplier is
the preferred supplier of Lone Star under this Agreement, Supplier hereby
grants LST the exclusive right, without limitation or exclusion, (i) to market
and sell Tubular Products through Buyer to any party located in the Territory
and (ii) for any Tubular Product purchases initiated in the Territory without
regard to the end-use location.  LST
shall conduct marketing and sales of Tubular Products in the Territory through
Buyer.  It is understood that Supplier,
prior to the signing of this Agreement, has distributed Tubular Products in the
Territory to a limited extent.  From the
Funding Date, Buyer shall be responsible for the distribution and sales of all
Tubular Products in the Territory.  Tubular
Products shipped to the Territory but sold to international end-users outside
the Territory through Buyer will constitute sales in the Territory, but such
sales should not conflict with Supplier’s sales in international markets other
than the Territory.

(b)           Supplier
will promptly, and in any event no later than six (6) months from the Funding
Date, cease to directly or indirectly sell Tubular Products to customers in the
Territory (other than to Buyer).

(c)           Supplier
will disclose to Buyer all existing supply contracts it or its Subsidiaries (if
any) have with customers in the Territory with unfulfilled orders, and as from
the Funding Date and subject to such customers’ consent, give Buyer the option
to assume such contracts. In the event that customers of existing contracts
decline to be transferred to the Buyer, Supplier shall continue to perform such
contracts, provided that such contracts shall be terminated or fully performed
before the end of the six (6) month period from the Funding Date.

(d)           Upon
notification supported by reasonable evidence to Supplier by Buyer that a
customer of Supplier located outside the Territory is purchasing Tubular
Products from Supplier for the purpose of selling such Tubular Products into the
Territory, Supplier will immediately cease selling any Tubular Products to such
customer.

(e)           Buyer
has customary operating and credit standards and terms and conditions for its
distribution of Tubular Products.  To the
extent consistent with such standards, terms and conditions, Buyer shall seek
to retain the group of Supplier’s distribution channels set forth on Exhibit A
hereto; provided, however, that Buyer will not be bound by any agreement
previously entered into between Supplier or its Affiliates and such
distributors.

 4
 

 

 

3.             Preferred Supplier

(a)           From
the Funding Date and for so long as Lone Star continues to hold, directly or
indirectly, at least 35% of the equity in the Supplier (the “Preferential
Supplier Period”), Supplier will be the preferred supplier for all
Competing Products that Lone Star purchases in the PRC.

(b)           During
the Preferential Supplier Period, Lone Star
intents to optimize the purchase of the Supplier’s Competing Products and
support Supplier’s desire to become the majority supplier for Lone Star’s
global procurement of Competing Products, to the extent that it is consistent
with the economic interests of Lone Star.

(c)           If
at any time during such Preferential Supplier Period, Lone Star wishes to place
an inquiry for Competing Products to be sourced from the PRC, Buyer will place
such inquiry with Supplier or its Subsidiary(ies), setting forth the
specifications of the product, price, quantity, quality, delivery time and
other applicable terms.  For repeat
inquiries (i.e. inquiries for identical Competing Products), Supplier or its
Subsidiary(ies) with which the inquiry is placed will have the right to accept
or decline the inquiry on such terms within two (2) Business Days of the
inquiry being placed, and for new inquiries, Supplier or its Subsidiary(ies)
with which the inquiry is placed will have the right to accept or decline the
inquiry on such terms within five (5) Business Days of the inquiry being
placed.  If Supplier or its Subsidiary(ies)
with which the inquiry is placed declines to accept the inquiry in whole or in
part or fails to reply within the relevant time period of the inquiry being
placed, Lone Star may order such Competing Product from any other supplier at
substantially the same terms and conditions that have been offered to Supplier.

(d)           If
for whatever reason there is a Persistent Default, Lone Star has the right to
suspend the preferred supplier arrangement with respect to the Competing
Product for which the Persistent Default relates until the cause for the Persistent
Default is resolved to Buyer’s reasonable satisfaction.  During such suspension, Supplier shall use
its best efforts to identify and rectify the causes for the Persistent Default,
and the preferred supplier arrangement shall be resumed as soon as practicable
when the Persistent Default has been fully rectified to Buyer’s reasonable
satisfaction.

4.             Costing, Price and Payment.

(a)           During
the Preferred Return Period, the
price of the Tubular Products shall be the costs allocated to the Prime
Products (as defined in Exhibit C) as determined by the method set forth in
Exhibit C to this Agreement, plus the Applicable Margin Split.  After the Preferred Return Period and during
the Term of this Agreement, as long as Supplier is the preferred supplier for
all Competing Products that Lone Star purchases in the PRC, the price of the
Tubular Products shall be at least the most favorable market price that the
Supplier provides to its customers outside the PRC.  If the Supplier provides to any person (other
than customers in the PRC) more favorable terms for any Tubular Products than
those terms which Buyer is receiving for the same Tubular Products, taking into
account the quantities, product costs, quality requirements, inventory
requirements and delivery time, then: 
(i) Supplier will promptly notify Buyer of such terms and (ii) so long
as Buyer is in material compliance with its payment obligations under this
Agreement (without taking into account disputed invoices), Supplier shall

 5
 

 

 

grant
equally favorable terms to Buyer as those granted to such other customer.  The more favorable terms shall apply
retroactively to all shipments of the affected Tubular Products as of the
effective date of Supplier’s arrangement with its other customer(s) and shall
continue until the earlier of termination of this Agreement and the termination
of such arrangement.

(b)           With
respect to Tubular Products that Buyer purchases from Supplier, Buyer shall
make payment against documents (D/P) (as defined in Incoterms 2000) to Supplier
at sight for each shipment. Within 7 days after the close of accounting book on
a quarterly basis, Buyer shall calculate the amount, if any, representing
customer returns, warranty claims and unresolved disputed invoices relating to
Tubular Products occurring during such quarter, which shall be payable by
Supplier or offset by Buyer’s next payment to Supplier in accordance with
Section 20 below.  If such payment period
ends on a day which is not a Business Day, such period shall be deemed to end
on the next Business Day.  Buyer will be
the importer of record for all products received by it under this
Agreement.  All prices and payments under
this Agreement shall be in U.S. Dollars.  
Buyer shall use its best commercially reasonable efforts to maximize the
price it charges its customers of Tubular Products, while Supplier shall use
its best commercially reasonable efforts to minimize the product costs.

(c)           Supplier
may, upon reasonable notice and during business hours, but not more frequently
than once per quarter, have an independent third party audit the invoices
between Buyer and its customers of Tubular Products solely for the purpose of
reviewing Buyer’s invoices to such customers. 
Information obtained by Supplier, orally or in writing, during such
audit shall be considered confidential information subject to Section 18
hereof, and reports related to such audit shall only be provided to Supplier’s
Chief Financial Officer and Deputy Manager in charge of Finance.

(d)           Buyer
may, upon reasonable notice and during business hours, but not more frequently
than once per quarter, have an independent third party audit the books and
records of Supplier for the purpose of verifying, among other things, whether
the product costs have been allocated to the Prime Products in compliance with
Exhibit C. Information obtained by Buyer,
orally or in writing, during such audit shall be considered confidential
information subject to Section 18 hereof.

(e)           The
Parties agree that the Net Sales Profit shall be distributed to Star China
or its Affiliate (including without limitation, LST, whichever is applicable, and
VTW in accordance with the Applicable Margin Split and the Shareholders
Agreement entered into between Star China (or its Affiliate) and VTW as
shareholders of the Buyer.

(f)            During the Preferential Return Period and following a
Price Adjustment required by the Tax Authorities, the Cost Plus charged by the
Supplier shall be recalculated in accordance with the Price Adjustment as
follows: each percentage amount in the column labeled "Cost Plus (F)"
on Exhibit B hereto shall be revised to add to each percentage amount in such
column a percentage amount equal to (i) the amount of the price increase caused
by such Price Adjustment divided by (ii) Buyer's selling price to its direct
customers in effect immediately prior to the price increase. This adjusted Cost
Plus shall be applied in Exhibit B, and shall result in a recalculation of the
Net Sales Profit Margin Split (as indicated in columns (B), (C), (D), (E) and
(G)); however, the distribution ratio of Net Sales Profit (as indicated in
columns (H), (I), (J) and (K)) shall be the same as before the Price
Adjustment.

(g)           In the event that Supplier is assessed retroactive taxes
as a result of a Price Adjustment (“Additional Price Adjustment Taxes”),
Supplier shall provide timely notice to Buyer of such assessment and Buyer
shall indemnify Supplier against all such Additional Price Adjustment Taxes.

(h)           Supplier shall promptly engage one of the Four Accounting
Firms (as such term is defined in the JV Contract) to advise Supplier with
respect to its communications with the Tax Authority and in conducting any
analyses (including pricing studies) necessary to prepare for such
communications.

5.             Method of Sales.  Buyer will purchase the Tubular Products in
accordance with method consistent with Incoterms 2000.

6.             Product Acceptance from Major Tubular Customers.  Buyer shall use reasonable efforts to work
with Supplier to obtain product acceptance and approvals from major Tubular
Product customers in the Territory and elsewhere.  The trademarks to be used on all purchased
Tubular Products for sale in the Territory shall be as specified in Exhibit D
to this Agreement.

 6
 

 

 

7.             Market and Production Information.

(a)           Buyer
shall, from time to time, invite Supplier to participate in visits to customers
in order to maximize market exposure and awareness on the part of
Supplier.  Supplier shall, from time to
time, as requested by Buyer, allow Buyer and customers to visit Supplier’s
production facilities in Hengyang, Hunan, People Republic of China.  Buyer shall also provide Supplier, on a
monthly basis, with market information and sales reports in respect of the
Tubular Products acquired by Buyer from Supplier.

(b)           The
parties acknowledge that prior to the signing of this Agreement, Supplier has
been responsible for its marketing activities and distribution channels in the
Territory.  Subject to Article 2, any
changes to the choice of or management of Supplier’s existing distribution
channels shall be at Buyer’s discretion pursuant to the exclusive marketing
arrangement in the Territory.

8.             Volume Obligations.  Supplier shall supply not less than
100,000 metric tons of Tubular Products annually for purchase by Buyer unless
Buyer requests a smaller amount, and shall, together with the Tubular Products
purchased by Buyer from Valin Steel Tube Co., Ltd., supply not less than
200,000 metric tons of Tubular Products annually for purchase by Buyer unless
Buyer requests a smaller amount.  Buyer
shall use its best efforts to achieve target sales of not less than 200,000
metric tons of Tubular Products annually from Supplier and Valin Steel Tube
Co., Ltd. and shall have consideration for Supplier’s and Valin Steel Tube Co.,
Ltd.’s mill operating capacity in placing orders for Tubular Products.

9.             Exclusive
Sales.  During the
Preferential Supplier Period, if Lone Star wishes to sell Tubular Products
directly into the PRC, such sale shall only be made through Supplier.  

10.           Product Quality and Claims.  

(a)           Supplier
represents and warrants to Buyer as follows: 
Supplier will deliver to Buyer title to all Tubular Products free and
clear of all security interests, liens, charges, restrictions or encumbrances
of any kind, nature or description; all Tubular Products shall be free from
defects in material and/or workmanship, unless otherwise specified in the
purchase order; all Tubular Products shall be new and not used or
reconditioned; all Tubular Products will conform to Buyer’s specifications and
technical standards set forth in each purchase order. All Tubular Products
shall in all respects be suitable for the particular purpose for which they are
purchased and all Tubular Products shall be merchantable in accordance with the
purchase orders.  All Tubular Products
shall be packaged, labeled and shipped in accordance with applicable laws and
regulations, including without limitation state and federal environmental and
hazardous substance laws and regulations, and in accordance with the purchase
orders.  

(b)           In
the event that there is any product quality issue (whether through a
customer-initiated complaint or otherwise), Buyer shall be responsible for
investigating it, interfacing with the customer as well as Supplier, but
Supplier shall be solely responsible for any defect contained in the Tubular
Products upon delivery to Buyer and any damages caused 

 7
 

 

 

thereby.  In connection with the handling of such
product quality issues, (i) Buyer will discuss with Supplier the proposed
settlement offer with a customer prior to extending such offer to the customer;
(ii) Supplier will use its best efforts to conform to Buyer’s 30-day customary
time framework for handling of product quality issues; and (iii) Supplier shall
be responsible for all settlement costs, including any direct or indirect
legal, special or consequential damages; provided, however, that Supplier shall
not be responsible for any settlement effected by Buyer without Supplier’s
prior consent, which shall not be unreasonably withheld, conditioned or
delayed.  If Supplier shall not have
responded within 30 days, Supplier shall be deemed to have agreed to the
settlement suggested by Buyer.

11.           Product Mix and Volume.  Buyer and Supplier shall work closely
together in developing an annual supply plan, which shall be completed 90 days
before the beginning of each calendar year. Buyer shall use its best
commercially reasonable efforts to prepare a reasonably accurate forecast for
the demand of the Tubular Products in such annual supply plan so as to enable
Supplier to efficiently allocate its production resources, while Supplier shall
use its best  commercially reasonable
efforts to prepare a reasonably accurate forecast for the product costs in such
annual supply plan so as to enable Buyer to better market and sell of Tubular
Products.  Buyer shall advise Supplier of
the anticipated volume and product mix of Tubular Products that Supplier will
manufacture for purchase by Buyer on a quarterly basis, such forecast to be
delivered 60 days prior to the beginning of each quarter.  Buyer may make specific line item changes at
any time on or before 45 days prior to commencement of production.  Supplier shall confirm with Buyer that it
will produce the Tubular Products requested in such forecast within five days
of receipt of Buyer’s advice of its needs. 
Buyers shall place purchase orders in reasonable advance time prior to
delivery consistent with market practice.

12.           Remedies.  In the event of Supplier’s breach of this
contract and subject to Section 3 herein, Buyer may take any or all of the
following actions, without prejudice to any other rights or remedies available
to Buyer under this Agreement or by law: (i) require Supplier to repair or
replace such Tubular Products, and upon Supplier’s failure or refusal to do so,
repair or replace the same at Supplier’s expense, (ii) reject any shipment or
delivery containing defective or non-conforming Tubular Products and return or
replacement of such Tubular Products at Buyer’s option, said return to be made
at Supplier’s cost and risk, or (iii) cancel any outstanding deliveries
hereunder, and treat such breach by Supplier as Supplier’s repudiation of the
purchase order(s) relating to such deliveries. 
In the event of Buyer’s breach of this contract, unless otherwise proved
by Supplier the existence of actual damages, Supplier’s remedy shall be
Supplier’s recovery of the Tubular Products or the purchase price payable for
Tubular Products shipped prior to such breach.

13.           Product Liability Insurance.  Throughout the Term of this Agreement and for
a period of two years thereafter, Supplier will maintain in effect sufficient
and proper product liability insurance through an internationally recognized
insurance company with insurance coverage required by LST consistent with
insurance coverage requirements applicable to similar products sold in the
Territory.

 8
 

 

 

14.           Prompt Delivery.  Time of delivery is of the essence of each
purchase order of Tubular Products. Buyer and Supplier shall work closely to
ensure timely delivery required by the purchase orders.

15.           Inspection and Audit Rights; Priority.  Upon Buyer providing Supplier no less than 30
days’ prior notice, Buyer shall have the right to inspect, or have a third
party inspect, any or all of the Tubular Products prior to loading at the port
of origin or upon Buyer’s receipt, at Buyer’s election, which right shall be
exercisable notwithstanding Buyer’s having paid for the goods prior to
inspection.  Any product that according
to any such inspection does not meet the agreed upon specifications as set forth
in Section 10 may be rejected by Buyer. 
Supplier agrees that production and shipments of Tubular Products to
Buyer will have priority over all other conflicting orders received by Supplier
from any person, and Supplier shall implement and maintain effective
controlling measures to ensure the priority on production and shipments of
Tubular Products to Buyer will at all times be effectively carried out. Buyer’s
inspection of Tubular Products shall have no effect on Supplier’s product
warranty or liability for any direct or indirect damages, costs or losses
caused by Tubular Products under Section 10.  Buyer, by reason of its failure to inspect
the goods, shall not be deemed to have accepted any defective Tubular Products
or Tubular Products which do not conform to the specifications thereof, or to
have waived any of Buyer’s rights or remedies arising by virtue of such defects
or nonconformance.  If any of the
delivered Tubular Products are in a defective or nonconforming condition,
efforts of Buyer to correct such defect or nonconformance shall not constitute
an acceptance, and Buyer may reject such Tubular Products where the attempt to
repair has proved unsuccessful.  Buyer
shall have no obligation to attempt to repair or correct such defect or
nonconformance.

16.           Term.  The term of this Agreement (“Term”)
shall commence from the Effective Date until terminated in accordance with the
provisions of Sections 16 or 17. 
This Agreement will terminate automatically on the termination of the
Joint Venture Contract unless it is otherwise agreed in writing by the Parties.

17.           Termination of Agreement.

(a)           Termination by Agreement.  This Agreement may be terminated upon the
mutual written agreement of the parties.

(b)           Termination for Bankruptcy.  Any party upon written notice to the other
Party may terminate this Agreement at any time in the event any other party
shall make an assignment for the benefit of its creditors, or shall file a
voluntary petition under the bankruptcy, reorganization, insolvency or similar laws
of any jurisdiction to which it is subject, or shall suffer an involuntary
petition under such laws to be filed against it, or shall be adjudicated
bankrupt or insolvent, or have an order for relief in bankruptcy entered
concerning it, under the laws of any jurisdiction to which it is subject.

(c)           Effect of Termination.  If this Agreement shall be terminated
pursuant to this Section, all further obligations of the parties under this
Agreement (other than Sections 10, 12, 13, 18, 20, 21, 23, 26, 27, 29) shall
be terminated without further liability of any party to the

 9
 

 

 

other; provided, however,
that nothing herein shall relieve any party from liability for its breach of
this Agreement prior to its termination.

18.           Confidentiality
Obligations.  Each party shall use its best efforts to
prevent any of the other party’s proprietary and confidential information that
it receives under the scope of this Agreement from being (a) used for any
purpose other than the fulfillment of the receiving party’s obligations under
this Agreement or (b) disclosed to any third party (other than the receiving
party’s counsel, auditors or other advisors), in each case without the prior
written consent of the other party.  The
provisions of this Section shall not apply and the receiving party shall have
no obligation with respect to any information that the receiving party can
show:  (i) is or becomes public
knowledge through no wrongful act of the receiving party; (ii) is already known
to the receiving party, which knowledge can be documented from written records;
(iii) is rightfully obtained by the receiving party from any third party
without similar restriction and without breach of any obligation owed to the
disclosing party; or (iv) is independently developed by the receiving party’s
employees who have not had access to the applicable confidential
information.  In addition, a receiving
party may disclose confidential information of the other party if it becomes
compelled to do so by applicable law, regulation or legal process; provided,
however, that before doing so it gives the other party reasonable notice of its
intended disclosure sufficient for the other party to seek a protective order.

19.           Force
Majeure.  If any party is
prevented from or delayed in complying, either totally or in part, with any of
the terms or provisions of this Agreement by reason of (a) fire, flood or storm
that inflicts damage to Supplier’s facilities, or (b) other causes beyond the
reasonable control of Buyer or Supplier that, in the case of either (a) or (b),
cause Supplier’s facilities to become inoperable, then upon notice to the other
party, the affected provisions shall be suspended during the period of such
disability and such party shall have no liability in connection therewith.  Supplier will use its best efforts to remedy
any disability caused by a Force Majeure event.

20.           Invoices;
Right of Set-Off.  Supplier
shall render one copy of each purchase order invoice submitted under this
Agreement and shall send all purchase documents to the Buyer in accordance with
method consistent with Incoterms 2000 (to the extent applicable).  To
the extent permitted under applicable PRC Customs, foreign exchange and
taxation laws and regulations, Buyer shall have the rights of set-off, netting,
offset, recoupment, and similar rights relating to any payments to be made by
Buyer to Supplier or any Subsidiary of Supplier pursuant to any order for
Tubular Products or otherwise.

21.           Environmental.
Supplier warrants that it will, and shall
cause all of its Affiliates, officers, directors, managers, independent
contractors, and employees, to perform all services and furnish all Tubular
Products with due care and in compliance with all applicable federal, state,
regional, and local safety and environmental laws, rules, regulations,
including, without limitation, laws, rules, and regulations pertaining to
notification, permitting, waste management and unauthorized releases.  Supplier further agrees to indemnify, defend
and hold Buyer harmless from any and all claims, demands, judgments, causes of
action, damages, penalties, fines, costs, liabilities or losses, including, but
not limited to, personal injury or death and property damage which arise as a
result of activities related to performance of this

 10
 

 

 

Agreement or
any breach of any provision of this Agreement. 
This indemnity shall survive completion or termination of this
Agreement.

22.           Clerical Errors.  Stenographic and clerical
errors, whether in mathematical computation or otherwise, made by Buyer on a
purchase order or any other forms delivered to Supplier shall be subject to
correction by Buyer.  If Supplier finds
any clerical errors on such documents, it shall inform Buyer accordingly.

23.           Joint
Liability. 
Both Supplier and Buyer hereby agree to cause its respective Affiliates and any of its or its
Affiliates’ officers, directors, managers, independent contractors, or
employees to honor the covenants contained in this Agreement.  Both Supplier
and Buyer shall be liable for
any breaches of such covenants by its respective Affiliates and its or its
Affiliates’ officers, directors, managers, independent contractors, or
employees.

24.           Entire
Agreement; Amendment.  This Agreement
constitutes the entire agreement
between Buyer and Supplier with
respect to the subject matter hereof.  This Agreement may not be amended except
by an instrument in writing executed by both Buyer and Supplier.

25.           Applicable Law.  This Agreement
will be governed by, and construed in accordance with, the laws of Hong Kong,
SAR.

26.           Successors and Permitted Assigns. 
This Agreement will be binding upon, and will inure to the benefit of,
each party and their respective successors and assigns; provided, however, none
of the parties may assign this Agreement without the prior written consent to
the assignment by the other parties hereto except that Buyer may serve as
Supplier’s exclusive sales agent either directly or through a wholly owned
subsidiary, provided that Buyer remains fully liable to Supplier under this
Agreement.

27.           Arbitration and Attorney Fees.  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 Agreement, 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 between the
parties, within thirty (30) days after written notice of such Dispute has been
given by one party to the other party, shall be referred to 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 Section within this Agreement.  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 the People’s Republic of
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.  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

 11
 

 

 

court having
jurisdiction thereof.  In the event that
the failure of a party to this Agreement 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 for all cost
of such litigation including attorneys’ fees. 
The parties may apply to any court of competent jurisdiction in
accordance with this clause (ii), for temporary or permanent injunctive relief,
without breach of this clause (ii) or abridgement of the powers of the
arbitrator.  None of the parties shall be
entitled to commence or maintain any action in any court of law 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
clause (ii), and then only for the enforcement of any arbitral award.  Process may be served on any party in the
manner set forth in this Agreement by such other method authorized by
applicable law or court rule.  During the
settlement process of disputes, each party shall continue to perform its
obligations unrelated to the relevant disputes under this Agreement.

28.           Notice
Provision.  All required or permitted notices and other
communications shall be in
writing and, unless otherwise provided in this Agreement, shall be deemed effective when transmitted to the addresses set forth below (i) on the second
Business Day following delivery to the
courier service if sent by international air courier, fastest method, where the
recipient is required to sign for such package, (ii) upon receipt by the sender
of a confirmation of receipt by the recipient’s fax machine designated below if
sent by fax or (iii) upon delivery to a responsible person at the office
specified if by manual delivery:

If to Supplier:

Hengyang Valin MPM Steel Tube Co., Ltd.

Attention: 
General Manager

[Address]

If
to VTW:

Hunan Valin Steel Tube & Wire Co., Ltd.

Attention:

Address: Valin Plaza, No. 111 Section of Fu Rong
Zhong Lu, Changsha, 

Hunan
Province, PRC

If
to Buyer:

[Trading Company]

Attention: 
Chief Executive Officer

15660 N. Dallas Pkwy., Ste. 500, 

Dallas, TX 75248, U.S.A.

Fax:         +1-972-770-6474

 12
 

 

 

with
a copy to (which shall not constitute notice):

Weil, Gotshal & Manges LLP

200 Crescent Court, Suite 300

Dallas, Texas 75201, U.S.A.

Attention: 
Mary R. Korby

Fax:  +1-214-746-7777

If
to LST:

Lone Star Technologies, Inc.

Attention: 
General Counsel

15660 N. Dallas Pkwy., Ste. 500

Dallas, TX 75248, U.S.A.

Fax:         +1-972-770-6474

with
a copy to (which shall not constitute notice):

Weil, Gotshal & Manges LLP

200 Crescent Court, Suite 300

Dallas, Texas 75201, U.S.A.

Attention: 
Mary R. Korby

Fax:  +1-214-746-7777

or to such other address or
addresses as any such party may from time to time designate for itself in
writing.

29.           No Third Party Beneficiaries.  Nothing in this Agreement shall be construed
to create any rights in any third party against any party.

30.           Compliance with Laws.  Each party agrees to comply with all applicable
laws and regulations relating to its performance hereunder.  Each Party shall ensure that it obtains and
maintains at its own cost all necessary permits and/or licenses necessary for
it to perform its obligations hereunder.

31.           No Waiver.  The performance of or compliance with a party’s
obligation hereunder may be waived, but only in writing signed by an authorized
representative of the other party.  A
waiver of compliance with any provision of this Agreement shall not constitute
a waiver of any subsequent lack of compliance with such provision or of any
other provision of this Agreement. 
Failure of any party to enforce at any time any provision of this
Agreement shall not be construed as a waiver thereof.

32.           Relationship of Parties.     Nothing in this Agreement shall create, or
be deemed to create, a partnership, joint venture or legal relationship of any
kind between the parties that would impose liability upon one party for the
acts or failure to act of the other party, or authorize any party to act as
agent for the other.  Save where
expressly stated in this Agreement, none of the parties shall have the
authority to make representations, act in the name or on behalf of or otherwise
bind the other.

 

 13

 

 

33.           Execution.             This Agreement may be executed in
any number of counterparts and by the parties on separate counterparts, each of
which, when executed, shall be an original, but all counterparts shall together
constitute on and the same instrument.

34.           Further Assurance.            LST shall execute or procure the
execution of all necessary service contracts between Buyer on the one hand and
LST or other third-party service providers on the other hand as may from time
to time be necessary to give support to Buyer in performing its distribution
and sale responsibility hereunder.

35.           Language.             This Agreement is written in
English and Chinese.  Both languages
shall be of equal effect.

 

IT WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first written above.

	
  

  	
   

  	
  [TRADING
  COMPANY]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LONE
  STAR TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HENGYANG VALIN MPM STEEL

  TUBE
  CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 14
 

 

 

	
  

  	
   

  	
  HUNAN
  VALIN STEEL TUBE & WIRE

  CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 15
 

 

 

I hereby certify that,
this Agreement has been approved by the board of directors of Hengyang Valin
MPM Steel Tube Co., Ltd. on                           .

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:Legal Representative

  	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  	
  Company Seal:

  	
   

  
				

 

 16
 

 

 

Exhibit A

Supplier’s
Distributors in the Territory and Summary of Major Distribution Terms

 17
 

 

 

Exhibit B

Margin
Split for the North America Market

 

	
  Net

  Sales

  Profit

  Margin

  (A)

  	
   

  	
  Net

  Sales

  Profit

  Margin

  Split

  to

  Buyer

  (B)

  	
   

  	
  Percentage

  of

  Buyer's

  Net

  Sales

  Profit

  Split to

  VTW (C)

  	
   

  	
  Percentage

  of

  Buyer's

  Net

  Sales

  Profit

  Split to

  LST (D)

  	
   

  	
  Net

  Sales

  Profit

  Margin to

  VTW

  Through

  Buyer (E)

  	
   

  	
  Cost Plus

  (Net

  Sales

  Profit

  Margin

  Split to

  Supplier)

  (F)

  	
   

  	
  Net

  Sales

  Profit

  Margin

  to

  LST

  Through

  Buyer(G)

  	
   

  	
  Net

  Sales

  Profit

  Margin

  to

  VTW

  Through

  Supplier

  and

  Buyer (H)

  	
   

  	
  Net

  Sales

  Profit

  Margin

  to

  LST

  Through

  Supplier

  and

  Buyer (I)

  	
   

  	
  All In

  LST (J)

  	
   

  	
  All In

  VTW (K)

  	
   

  
	
  5

  	
  %

  	
  5.00

  	
  %

  	
  32.61

  	
  %

  	
  67.39

  	
  %

  	
  1.63

  	
  %

  	
  0.00

  	
  %

  	
  3.37

  	
  %

  	
  1.63

  	
  %

  	
  3.37

  	
  %

  	
  67.39

  	
  %

  	
  32.61

  	
  %

  
	
  8

  	
  %

  	
  7.95

  	
  %

  	
  32.42

  	
  %

  	
  67.58

  	
  %

  	
  2.58

  	
  %

  	
  0.05

  	
  %

  	
  5.37

  	
  %

  	
  2.60

  	
  %

  	
  5.40

  	
  %

  	
  67.46

  	
  %

  	
  32.54

  	
  %

  
	
  11

  	
  %

  	
  10.74

  	
  %

  	
  32.22

  	
  %

  	
  67.78

  	
  %

  	
  3.46

  	
  %

  	
  0.26

  	
  %

  	
  7.28

  	
  %

  	
  3.60

  	
  %

  	
  7.40

  	
  %

  	
  67.28

  	
  %

  	
  32.72

  	
  %

  
	
  14

  	
  %

  	
  13.41

  	
  %

  	
  32.03

  	
  %

  	
  67.97

  	
  %

  	
  4.30

  	
  %

  	
  0.59

  	
  %

  	
  9.12

  	
  %

  	
  4.61

  	
  %

  	
  9.39

  	
  %

  	
  67.09

  	
  %

  	
  32.91

  	
  %

  
	
  17

  	
  %

  	
  15.98

  	
  %

  	
  31.84

  	
  %

  	
  68.16

  	
  %

  	
  5.09

  	
  %

  	
  1.02

  	
  %

  	
  10.89

  	
  %

  	
  5.63

  	
  %

  	
  11.37

  	
  %

  	
  66.89

  	
  %

  	
  33.11

  	
  %

  
	
  20

  	
  %

  	
  18.44

  	
  %

  	
  31.65

  	
  %

  	
  68.35

  	
  %

  	
  5.84

  	
  %

  	
  1.56

  	
  %

  	
  12.60

  	
  %

  	
  6.66

  	
  %

  	
  13.34

  	
  %

  	
  66.69

  	
  %

  	
  33.31

  	
  %

  
	
  23

  	
  %

  	
  20.79

  	
  %

  	
  31.46

  	
  %

  	
  68.54

  	
  %

  	
  6.54

  	
  %

  	
  2.21

  	
  %

  	
  14.25

  	
  %

  	
  7.71

  	
  %

  	
  15.29

  	
  %

  	
  66.48

  	
  %

  	
  33.52

  	
  %

  
	
  26

  	
  %

  	
  23.04

  	
  %

  	
  31.26

  	
  %

  	
  68.74

  	
  %

  	
  7.20

  	
  %

  	
  2.96

  	
  %

  	
  15.83

  	
  %

  	
  8.77

  	
  %

  	
  17.23

  	
  %

  	
  66.26

  	
  %

  	
  33.74

  	
  %

  
	
  29

  	
  %

  	
  25.17

  	
  %

  	
  31.07

  	
  %

  	
  68.93

  	
  %

  	
  7.82

  	
  %

  	
  3.83

  	
  %

  	
  17.35

  	
  %

  	
  9.85

  	
  %

  	
  19.15

  	
  %

  	
  66.03

  	
  %

  	
  33.97

  	
  %

  
	
  32

  	
  %

  	
  27.20

  	
  %

  	
  30.88

  	
  %

  	
  69.12

  	
  %

  	
  8.40

  	
  %

  	
  4.80

  	
  %

  	
  18.80

  	
  %

  	
  10.94

  	
  %

  	
  21.06

  	
  %

  	
  65.80

  	
  %

  	
  34.20

  	
  %

  
	
  35

  	
  %

  	
  29.90

  	
  %

  	
  31.24

  	
  %

  	
  68.76

  	
  %

  	
  9.34

  	
  %

  	
  5.10

  	
  %

  	
  20.56

  	
  %

  	
  12.04

  	
  %

  	
  22.96

  	
  %

  	
  65.59

  	
  %

  	
  34.41

  	
  %

  
	
  38

  	
  %

  	
  32.60

  	
  %

  	
  31.61

  	
  %

  	
  68.39

  	
  %

  	
  10.30

  	
  %

  	
  5.40

  	
  %

  	
  22.30

  	
  %

  	
  13.17

  	
  %

  	
  24.83

  	
  %

  	
  65.35

  	
  %

  	
  34.65

  	
  %

  
	
  41

  	
  %

  	
  35.30

  	
  %

  	
  31.97

  	
  %

  	
  68.03

  	
  %

  	
  11.29

  	
  %

  	
  5.70

  	
  %

  	
  24.01

  	
  %

  	
  14.31

  	
  %

  	
  26.69

  	
  %

  	
  65.10

  	
  %

  	
  34.90

  	
  %

  
	
  43

  	
  %

  	
  37.10

  	
  %

  	
  32.34

  	
  %

  	
  67.66

  	
  %

  	
  12.00

  	
  %

  	
  5.90

  	
  %

  	
  25.10

  	
  %

  	
  15.12

  	
  %

  	
  27.88

  	
  %

  	
  64.83

  	
  %

  	
  35.17

  	
  %

  
	
  44

  	
  %

  	
  38.00

  	
  %

  	
  32.70

  	
  %

  	
  67.30

  	
  %

  	
  12.43

  	
  %

  	
  6.00

  	
  %

  	
  25.57

  	
  %

  	
  15.61

  	
  %

  	
  28.39

  	
  %

  	
  64.53

  	
  %

  	
  35.47

  	
  %

  
	
  45

  	
  %

  	
  38.90

  	
  %

  	
  33.06

  	
  %

  	
  66.94

  	
  %

  	
  12.86

  	
  %

  	
  6.10

  	
  %

  	
  26.04

  	
  %

  	
  16.09

  	
  %

  	
  28.91

  	
  %

  	
  64.23

  	
  %

  	
  35.77

  	
  %

  
	
  46

  	
  %

  	
  39.80

  	
  %

  	
  33.43

  	
  %

  	
  66.57

  	
  %

  	
  13.30

  	
  %

  	
  6.20

  	
  %

  	
  26.50

  	
  %

  	
  16.59

  	
  %

  	
  29.41

  	
  %

  	
  63.93

  	
  %

  	
  36.07

  	
  %

  
	
  47

  	
  %

  	
  40.70

  	
  %

  	
  33.79

  	
  %

  	
  66.21

  	
  %

  	
  13.75

  	
  %

  	
  6.30

  	
  %

  	
  26.95

  	
  %

  	
  17.09

  	
  %

  	
  29.91

  	
  %

  	
  63.63

  	
  %

  	
  36.37

  	
  %

  
	
  48

  	
  %

  	
  41.60

  	
  %

  	
  34.16

  	
  %

  	
  65.84

  	
  %

  	
  14.21

  	
  %

  	
  6.40

  	
  %

  	
  27.39

  	
  %

  	
  17.60

  	
  %

  	
  30.40

  	
  %

  	
  63.33

  	
  %

  	
  36.67

  	
  %

  
	
  49

  	
  %

  	
  42.50

  	
  %

  	
  34.52

  	
  %

  	
  65.48

  	
  %

  	
  14.67

  	
  %

  	
  6.50

  	
  %

  	
  27.83

  	
  %

  	
  18.12

  	
  %

  	
  30.88

  	
  %

  	
  63.03

  	
  %

  	
  36.97

  	
  %

  
	
  50

  	
  %

  	
  43.40

  	
  %

  	
  34.88

  	
  %

  	
  65.12

  	
  %

  	
  15.14

  	
  %

  	
  6.60

  	
  %

  	
  28.26

  	
  %

  	
  18.64

  	
  %

  	
  31.36

  	
  %

  	
  62.72

  	
  %

  	
  37.28

  	
  %

  
	
  51

  	
  %

  	
  44.30

  	
  %

  	
  35.25

  	
  %

  	
  64.75

  	
  %

  	
  15.61

  	
  %

  	
  6.70

  	
  %

  	
  28.69

  	
  %

  	
  19.17

  	
  %

  	
  31.83

  	
  %

  	
  62.42

  	
  %

  	
  37.58

  	
  %

  
	
  52

  	
  %

  	
  45.20

  	
  %

  	
  35.61

  	
  %

  	
  64.39

  	
  %

  	
  16.10

  	
  %

  	
  6.80

  	
  %

  	
  29.10

  	
  %

  	
  19.70

  	
  %

  	
  32.30

  	
  %

  	
  62.11

  	
  %

  	
  37.89

  	
  %

  
	
  53

  	
  %

  	
  46.10

  	
  %

  	
  35.98

  	
  %

  	
  64.02

  	
  %

  	
  16.58

  	
  %

  	
  6.90

  	
  %

  	
  29.52

  	
  %

  	
  20.24

  	
  %

  	
  32.76

  	
  %

  	
  61.81

  	
  %

  	
  38.19

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  First Allocation to JV

  	
   

  	
  0.60

  	
  %

  	
  0.75

  	
   

  	
  Average

  	
   

  	
  65.00

  	
  %

  	
  35.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 18
 

 

 

Exhibit C

Product
Cost

“Prime Tonnage”
means the tonnage of Prime Products.

The costs of Prime
Products shall be the aggregate of the following costs calculated per
production line, per product type and on a per month basis:

(1)          Raw Material Cost:
means the actual cost of billet (sourced from third-party billet suppliers),
scrap steel, virgin iron units and metallic additives used in the manufacture
of the Prime Products.

(2)          Conversion Costs

(a)      (Self-Produced)
Billet Conversion Cost: in the event billets used for the production of
Prime Products are produced by the Supplier, billet conversion cost means the
actual cost of converting scrap steel, pig iron units and metallic additives
into steel billets allocated on a prorate basis of tonnage of billets used in
Prime Products to total billet production tonnage.

(b)         Green
Tube Conversion Cost: means the actual cost of converting steel billets
into green tubes allocated on a prorata basis of tonnage of green tubes used in
Prime Products to total green tube production tonnage.

(c)          Finishing
Cost of Oil Country Tubular Goods (OCTG): means (1) the total actual costs
of operating of the heat treating facilities allocated on a prorata basis of
Prime Tonnage to total actual production tonnage of heat treating facilities
plus (2) the total actual costs of operating of the threading facilities
allocated on a prorata basis of Prime Tonnage to total actual production
tonnage of threading facilities.

(3)                  General,
Administrative and Finance Expenses: means the total general,
administrative and finance expenses incurred by the Supplier in a calendar
month, allocated on a prorata basis of Prime Tonnage to total actual production
tonnage of the Supplier.

(4)                  Selling
Expenses: means (1) the sales and marketing (including export) expenses
that directly relate to the sale of the Prime Products plus (2) undividable
export expenses allocated on a prorata basis of Prime Tonnage to total export
tonnage of the Supplier.

(5)                  VAT
and Add-on Fees: means the actual VAT and add-on fees directly relate to
the Prime Products.

 19
 

 

 

Exhibit D

Form of Co-Branding

Tubular Products manufactured for sale in the
Territory will have the names “Lone Star/HYST” or “Lone Star/HYST Seamless” as
appropriate.   Such products will also
have the appropriate Lone Star mark and Valin Mark and the product tab attached
hereto.

 

 20

 

VST SALE,
MARKETING & SUPPLY AGREEMENT

This VST SALE, MARKETING & SUPPLY AGREEMENT (the “Agreement”),
dated as of              ,
2006, by and among [Trading Company], a company limited by shares organized and
existing under the laws of the Cayman Islands (“Buyer”), Lone Star
Technologies, Inc., a corporation organized under the laws of the State of
Delaware, United States of America (“LST”), Hengyang Valin Steel Tube
Co., Ltd., a limited liability company organized under the laws of the PRC (“Supplier”),
and Hunan Valin Steel Tube & Wire Co., Ltd., a joint stock company
organized and existing under the laws of the PRC (“VTW”).

RECITALS:

WHEREAS,
Buyer is a trading company established by Star China Ltd. (“Star China”),
a wholly-owned subsidiary of LST organized and existing under the laws of the
Cayman Islands, or by any of its Affiliates, including without limitation, LST,
and VTW.

WHEREAS,
the parties wish to enter into this Agreement to set forth the terms and
conditions pursuant to which Supplier will manufacture and sell certain
products (as set forth below) to Buyer and Buyer will purchase and resell
certain products from Supplier; and

WHEREAS, the Buyer intends to provide
distribution services, marketing support, technical expertise and other
services in order to increase the sales of Supplier’s products in the
Territory.

NOW,
THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties hereto agree as follows:

1.             Defined
Terms.  The following
terms have the meanings specified in this Section 1 and shall be equally
applicable to both the singular and plural forms.

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

(b)           “Billet
Supply Agreement” means the Steel Billet Supply Agreement dated August 15,
2006 by and between the Supplier and Hengyang Valin MPM Steel Tube Co., Ltd.

(c)           “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.

(d)           “Capital
Increase Agreement” means the capital increase agreement for Supplier dated
on or about August 15, 2006 between VTW, Hengyang Valin Steel Tube Co.,

 

 

Ltd., Star China and
Supplier in respect of Star China’s contribution to the registered capital of
Supplier.

(e)           “Competing
Products” means any Tubular Products which Supplier or its subsidiary(ies)
has the ability and capacity to manufacture at the time Buyer makes a purchase
inquiry.

(f)            “Coupling”
means a tubular section used for the exclusive purpose of joining two threaded
pin ends of pipe or equipment having the same external and internal diameters
and same thread.

(g)           “Coupling
Materials” means seamless pipes from which tubular sections are prepared
for the manufacture of Couplings or Cross-Overs.

(h)           “Cross-Over”
means a tubular section used for the exclusive purpose of joining two threaded
pin ends of pipe having different dimensions or threads.

(i)            “JV
Company” means Hunan Valin Hengyang Steel Tube Co., Ltd., a Sino-foreign
equity joint venture enterprise.

(j)            “Lone
Star” means LST or subsidiaries in which LST owns at least 50% equity
interest.

(k)           “Line
Pipe” means finished or unfinished line pipe manufactured directly or
indirectly by Supplier or its Subsidiaries (if any) based upon, at a minimum,
the latest version of the standards promulgated by the API and/or the ASTM.

(l)            “Oil
Country Tubular Goods” means casing, tubing, drill pipe, semi-finished and
unfinished green tubes, Coupling stock and finished Couplings manufactured by
Supplier or its Subsidiaries based upon, at a minimum, the latest version of
the standards promulgated by the API and/or the ASTM.

(m)          “Persistent
Default” as it relates to a Competing Product, means the failure by
Supplier or its subsidiary(ies) to supply Competing Product that meets Buyer’s
requirements as to technical specifications, quantity, quality and/or delivery
time as set forth in Buyer’s inquiry (as accepted by Supplier or its
subsidiary(ies)) and such failure shall have resulted in least three (3)
serious complaints or claims for penalty or damage for payments for any one
type of Competing Product from customers within any 6-month period (for the
avoidance of doubt, a single down-hole failure shall be deemed to be a
Persistent Default); provided, however, that minor deviations from the terms of
the order which are beyond the control of Supplier or its subsidiary(ies) shall
not be deemed to be a default.

(n)           “PRC”
means The People’s Republic of China, for the purposes of this Agreement only,
excluding Hong Kong Special Administrative Region, Macao Special Administrative
Region and Taiwan.

 2
 

 

 

(o)           “Specialty
Tubing” means mechanical and pressure tubes, cold drawn and hot finished
tubes, shells for redraw and other boiler tubes manufactured directly or
indirectly by Supplier or its Subsidiaries based upon, at a minimum, the latest
version of the standards promulgated by the API and/or the ASTM.

(p)           “Subsidiaries”
of Supplier or Buyer means a
subsidiary in which Supplier or Buyer owns more than 50% equity interest.

(q)           “Term”
has the meaning ascribed to it in Section 14.

(r)            “Territory”
means North America (Canada, the United States of America and Mexico, which
includes any offshore drilling within the territorial waters of such countries)
and any other countries that the parties mutually agree to add to the
Territory.

(s)           “Tubular
Products” means Line Pipe, Oil Country Tubular Goods, Specialty Tubing
and/or all other tubular products manufactured by Supplier or its Subsidiaries
(if any).

(t)            “$”
means the lawful currency of the United States of America.

2.             Exclusive
Marketing.

(a)           Unless
otherwise provided herein, during the Term, Supplier hereby grants LST the
exclusive right, without limitation or exclusion, (i) to market and sell
Tubular Products through Buyer to any party located in the Territory and, (ii)
for any Tubular Product purchases initiated in the Territory without regard to
the end-use location. LST shall conduct marketing and sales of Tubular Products
in the Territory through Buyer.  It is
understood that Supplier, prior to the signing of this Agreement, has
distributed Tubular Products in the Territory to a limited extent.  From the date hereof, Buyer shall be
responsible for the distribution and sales of all Tubular Products in the
Territory.  Tubular Products shipped to the
Territory but sold to international end-users outside the Territory through
Buyer will constitute sales in the Territory, but such sales should not
conflict with Supplier’s sales in international markets other than the
Territory.

(b)           Supplier
will promptly, and in any event no later than six (6) months from the date
hereof, cease to directly or indirectly sell Tubular Products to customers in
the Territory (other than to Buyer).

(c)           Supplier
will disclose to Buyer all existing supply contracts it or its Subsidiaries (if
any) have with customers in the Territory with unfulfilled orders, and as from
the date hereof and subject to such customers’ consent, give Buyer the option
to assume such contracts. In the event that customers of existing contracts
decline to be transferred to the Buyer, Supplier shall continue to perform such
contracts, provided that such contracts shall be terminated or fully performed
before the end of the six (6) month period from the date hereof.

 3
 

 

 

(d)           Upon
notification supported by reasonable evidence to Supplier by Buyer that a
customer of Supplier located outside the Territory is purchasing Tubular
Products from Supplier for the purpose of selling such Tubular Products into
the Territory, Supplier will immediately cease selling any Tubular Products to
such customer.

(e)           Buyer
has customary operating and credit standards and terms and conditions for its
distribution of Tubular Products.  To the
extent consistent with such standards, terms and conditions, Buyer shall seek
to retain the group of Supplier’s distribution channels set forth on Exhibit A
hereto; provided, however, that Buyer will not be bound by any agreement
previously entered into between Supplier or its Affiliates and such
distributors.

3.             Preferred Supplier

(a)           During
the Term, Supplier will be the preferred supplier for all Competing Products
that Lone Star purchases in the PRC.

(b)           During
the Term, Lone Star intents to
optimize the purchase of the JV Company’s Competing Products and support JV
Company’s desire to become the majority supplier for Lone Star’s
global procurement of Competing Products, to the extent that it is consistent
with the economic interests of Lone Star.

(c)           If
at any time during the Term, Lone Star wishes to place an inquiry for Competing
Products to be sourced from the PRC, Buyer will place such inquiry with
Supplier or its Subsidiary(ies), setting forth the specifications of the
product, price, quantity, quality, delivery time and other applicable
terms.  For repeat inquiries (i.e.
inquiries for identical Competing Products), Supplier or its Subsidiary(ies)
with which the inquiry is placed will have the right to accept or decline the
inquiry on such terms within two (2) Business Days of the inquiry being placed,
and for new inquiries, Supplier or its Subsidiary(ies) with which the inquiry
is placed will have the right to accept or decline the inquiry on such terms
within five (5) Business Days of the inquiry being placed.  If Supplier or its Subsidiary(ies) with which
the inquiry is placed declines to accept the inquiry in whole or in part or
fails to reply within the relevant time period of the inquiry being placed,
Lone Star may order such Competing Product from any other supplier at
substantially the same terms and conditions that have been offered to Supplier.

(d)           If
for whatever reason there is a Persistent Default, Lone Star has the right to
suspend the preferred supplier arrangement with respect to the Competing
Product for which the Persistent Default relates until the cause for the
Persistent Default is resolved to Buyer’s reasonable satisfaction.  During such suspension, Supplier shall use
its best efforts to identify and rectify the causes for the Persistent Default,
and the preferred supplier arrangement shall be resumed as soon as practicable
when the Persistent Default has been fully rectified to Buyer’s reasonable
satisfaction.

 4
 

 

 

4.             Costing, Price and Payment.

(a)           During
the Term, the price of the Tubular Products shall be at least the most
favorable market price that the Supplier provides to its customers outside the
PRC.  If the Supplier provides to any
person (other than customers in the PRC) more favorable terms for any Tubular
Products than those terms which Buyer is receiving for the same Tubular
Products, taking into account the quantities, product costs, quality
requirements, inventory requirements and delivery time, then:  (i) Supplier will promptly notify Buyer of
such terms and (ii) so long as Buyer is in material compliance with its payment
obligations under this Agreement (without taking into account disputed
invoices), Supplier shall grant equally favorable terms to Buyer as those
granted to such other customer.  The more
favorable terms shall apply retroactively to all shipments of the affected
Tubular Products as of the effective date of Supplier’s arrangement with its
other customer(s) and shall continue until the termination of this Agreement.

(b)           With
respect to Tubular Products that Buyer purchases from Supplier, Buyer shall
make payment against documents (D/P) (as defined in Incoterms 2000) to Supplier
at sight for each shipment. Within 7 days after the close of accounting book on
a quarterly basis, Buyer shall calculate the amount, if any, representing
customer returns, warranty claims and unresolved disputed invoices relating to
Tubular Products occurring during such quarter, which shall be payable by
Supplier or offset by Buyer’s next payment to Supplier in accordance with
Section 19 below.  If such payment period
ends on a day which is not a Business Day, such period shall be deemed to end
on the next Business Day.  Buyer will be
the importer of record for all products received by it under this
Agreement.  All prices and payments under
this Agreement shall be in U.S. Dollars.  
Buyer shall use its best commercially reasonable efforts to maximize the
price it charges its customers of Tubular Products, while Supplier shall use
its best commercially reasonable efforts to minimize the product costs.

(c)           Supplier
may, upon reasonable notice and during business hours, but not more frequently
than once per quarter, have an independent third party audit the invoices
between Buyer and its customers of Tubular Products solely for the purpose of
reviewing Buyer’s invoices to such customers. 
Information obtained by Supplier, orally or in writing, during such
audit shall be considered confidential information subject to Section 17
hereof.

(d)           Buyer
may, upon reasonable notice and during business hours, but not more frequently
than once per quarter, have an independent third party audit the books and
records of Supplier for the purpose of verifying the product costs. Information
obtained by Buyer, orally or in writing, during such audit
shall be considered confidential information subject to Section 17 hereof.

5.             Method of Sales.  Buyer will purchase the Tubular Products in
accordance with method consistent with Incoterms 2000.

6.             Product Acceptance from Major Tubular Customers.  Buyer shall use reasonable efforts to work
with Supplier to obtain product acceptance and approvals from major Tubular
Product customers in the Territory and elsewhere.

 5
 

 

 

7.             Market and Production Information.

(a)           Buyer
shall, from time to time, invite Supplier to participate in visits to customers
in order to maximize market exposure and awareness on the part of
Supplier.  Supplier shall, from time to
time, as requested by Buyer, allow Buyer and customers to visit Supplier’s
production facilities in Hengyang, Hunan, People Republic of China.  Buyer shall also provide Supplier, on a
monthly basis, with market information and sales reports in respect of the
Tubular Products acquired by Buyer from Supplier.

(b)           The
parties acknowledge that prior to the signing of this Agreement, Supplier has
been responsible for its marketing activities and distribution channels in the
Territory.  Subject to Article 2, any
changes to the choice of or management of Supplier’s existing distribution
channels shall be at Buyer’s discretion pursuant to the exclusive marketing
arrangement in the Territory.

8.             Volume Obligations.  During the Term, Supplier shall supply not
less than 100,000 metric tons of Tubular Products annually for purchase by
Buyer unless Buyer requests a smaller amount, and shall, together with the
Tubular Products purchased by Buyer from Valin MPM Steel Tube Co., Ltd., supply
not less than 200,000 metric tons of Tubular Products annually for purchase by
Buyer unless Buyer requests a smaller amount. 
Buyer shall use its best efforts to achieve target sales of not less
than 200,000 metric tons of Tubular Products annually from Supplier and Valin
MPM Steel Tube Co., Ltd. and shall have consideration for Supplier’s and Valin
MPM Steel Tube Co., Ltd.’s mill operating capacity in placing orders for
Tubular Products.

9.             Product Quality and Claims.  

(a)           Supplier
represents and warrants to Buyer as follows: 
Supplier will deliver to Buyer title to all Tubular Products free and
clear of all security interests, liens, charges, restrictions or encumbrances
of any kind, nature or description; all Tubular Products shall be free from
defects in material and/or workmanship, unless otherwise specified in the
purchase order; all Tubular Products shall be new and not used or
reconditioned; all Tubular Products will conform to Buyer’s specifications and
technical standards set forth in each purchase order. All Tubular Products
shall in all respects be suitable for the particular purpose for which they are
purchased and all Tubular Products shall be merchantable in accordance with the
purchase orders.  All Tubular Products
shall be packaged, labeled and shipped in accordance with applicable laws and
regulations, including without limitation state and federal environmental and
hazardous substance laws and regulations, and in accordance with the purchase
orders.  

(b)           In
the event that there is any product quality issue contained in the Tubular
Products upon delivery to Buyer (whether through a customer-initiated complaint
or otherwise), Buyer shall be responsible for investigating it, interfacing
with the customer as well as Supplier, but Supplier shall be solely responsible
for any defective Tubular Products and any damages caused thereby.  In connection with the handling of such
product quality issues, (i) Buyer will discuss with Supplier the proposed
settlement offer with a customer prior to extending such offer to the customer;
(ii) Supplier will use its best efforts to conform to Buyer’s 30-day customary
time framework for handling of product quality issues; and (iii) Supplier shall
be responsible for all settlement costs, including any direct or indirect
legal, special or consequential damages;

 6
 

 

 

provided,
however, that Supplier shall not be responsible for any settlement effected by
Buyer without Supplier’s prior consent, which shall not be unreasonably
withheld, conditioned or delayed.  If
Supplier shall not have responded within 30 days, Supplier shall be deemed to
have agreed to the settlement suggested by Buyer.

10.           Product Mix and Volume.  Buyer and Supplier shall work closely
together in developing an annual supply plan, which shall be completed 90 days
before the beginning of each calendar year. Buyer shall use its best
commercially reasonable efforts to prepare a reasonably accurate forecast for
the demand of the Tubular Products in such annual supply plan so as to enable
Supplier to efficiently allocate its production resources, while Supplier shall
use its best commercially reasonable efforts to prepare a reasonably accurate
forecast for the product costs in such annual supply plan so as to enable Buyer
to better market and sell of Tubular Products. 
Buyer shall advise Supplier of the anticipated volume and product mix of
Tubular Products that Supplier will manufacture for purchase by Buyer on a
quarterly basis, such forecast to be delivered 60 days prior to the beginning
of each quarter.  Buyer may make specific
line item changes at any time on or before 45 days prior to commencement of
production.  Supplier shall confirm with
Buyer that it will produce the Tubular Products requested in such forecast
within five days of receipt of Buyer’s advice of its needs.  Buyers shall place purchase orders in reasonable
advance time prior to delivery consistent with market practice.

11.           Remedies.  In the event of Supplier’s breach of this
contract and subject to Section 3 herein, Buyer may take any or all of the
following actions, without prejudice to any other rights or remedies available
to Buyer under this Agreement or by law: (i) require Supplier to repair or
replace such Tubular Products, and upon Supplier’s failure or refusal to do so,
repair or replace the same at Supplier’s expense, (ii) reject any shipment or
delivery containing defective or non-conforming Tubular Products and return or
replacement of such Tubular Products at Buyer’s option, said return to be made
at Supplier’s cost and risk, or (iii) cancel any outstanding deliveries
hereunder, and treat such breach by Supplier as Supplier’s repudiation of the
purchase order(s) relating to such deliveries. 
In the event of Buyer’s breach of this contract, unless otherwise proved
by Supplier the existence of actual damages, Supplier’s remedy shall be Supplier’s
recovery of the Tubular Products or the purchase price payable for Tubular
Products shipped prior to such breach.

12.           Product Liability Insurance.  Throughout the Term of this Agreement and for
a period of two years thereafter, Supplier will maintain in effect sufficient
and proper product liability insurance through an internationally recognized
insurance company with insurance coverage required by LST consistent with
insurance coverage requirements applicable to similar products sold in the
Territory.

13.           Prompt Delivery.  Time of delivery is of the essence of each
purchase order of Tubular Products. Buyer and Supplier shall work closely to
ensure timely delivery required by the purchase orders.

14.           Inspection and Audit Rights; Priority.  Upon Buyer providing Supplier no less than 30
days’ prior notice, Buyer shall have the right to inspect, or have a third
party

 7
 

 

 

inspect, any or
all of the Tubular Products prior to loading at the port of origin or upon
Buyer’s receipt, at Buyer’s election, which right shall be exercisable
notwithstanding Buyer’s having paid for the goods prior to inspection.  Any product that according to any such
inspection does not meet the agreed upon specifications as set forth in Section
8 may be rejected by Buyer.  Supplier
agrees that production and shipments of Tubular Products to Buyer will have
priority over all other conflicting orders received by Supplier from any
person, and Supplier shall implement and maintain effective controlling
measures to ensure the priority on production and shipments of Tubular Products
to Buyer will at all times be effectively carried out. Buyer’s inspection of
Tubular Products shall have no effect on Supplier’s product warranty or
liability for any direct or indirect damages, costs or losses caused by Tubular
Products under Section 9.  Buyer,
by reason of its failure to inspect the goods, shall not be deemed to have
accepted any defective Tubular Products or Tubular Products which do not
conform to the specifications thereof, or to have waived any of Buyer’s rights
or remedies arising by virtue of such defects or nonconformance.  If any of the delivered Tubular Products are
in a defective or nonconforming condition, efforts of Buyer to correct such
defect or nonconformance shall not constitute an acceptance, and Buyer may
reject such Tubular Products where the attempt to repair has proved
unsuccessful.  Buyer shall have no
obligation to attempt to repair or correct such defect or nonconformance.

15.           Term.  The term of this Agreement (“Term”)
shall commence from the date hereof until terminated in accordance with the
provisions of Sections 15 or 16. 
This Agreement will terminate automatically upon (1) the completion of
the merger of Supplier into JV Company, or (2) the termination of the Billet
Supply Agreement, unless it is otherwise agreed in writing by the Parties.

16.           Termination of Agreement.

(a)           Terms.  This
Agreement shall have a term of five (5) years unless early terminated in
accordance with Section 15 or this Section 16.

(b)           Termination by Agreement.  This Agreement may be terminated upon the
mutual written agreement of the parties.

(c)           Termination for Bankruptcy.  Any party upon written notice to the other
Party may terminate this Agreement at any time in the event any other party
shall make an assignment for the benefit of its creditors, or shall file a
voluntary petition under the bankruptcy, reorganization, insolvency or similar
laws of any jurisdiction to which it is subject, or shall suffer an involuntary
petition under such laws to be filed against it, or shall be adjudicated
bankrupt or insolvent, or have an order for relief in bankruptcy entered
concerning it, under the laws of any jurisdiction to which it is subject.

(d)           Effect of Termination.  If this Agreement shall be terminated
pursuant to this Section, all further obligations of the parties under this
Agreement (other than Sections 9, 11, 12, 17, 19, 20, 22, 25, 26, 28)
shall be terminated without further liability of any party to the other;
provided, however, that nothing herein shall relieve any party from liability
for its breach of this Agreement prior to its termination.

 8
 

 

 

17.           Confidentiality
Obligations.  Each party shall use its best efforts to
prevent any of the other party’s proprietary and confidential information that
it receives under the scope of this Agreement from being (a) used for any
purpose other than the fulfillment of the receiving party’s obligations under
this Agreement or (b) disclosed to any third party (other than the receiving
party’s counsel, auditors or other advisors), in each case without the prior
written consent of the other party.  The
provisions of this Section shall not apply and the receiving party shall have
no obligation with respect to any information that the receiving party can
show:  (i) is or becomes public
knowledge through no wrongful act of the receiving party; (ii) is already known
to the receiving party, which knowledge can be documented from written records;
(iii) is rightfully obtained by the receiving party from any third party
without similar restriction and without breach of any obligation owed to the
disclosing party; or (iv) is independently developed by the receiving party’s
employees who have not had access to the applicable confidential
information.  In addition, a receiving
party may disclose confidential information of the other party if it becomes
compelled to do so by applicable law, regulation or legal process; provided,
however, that before doing so it gives the other party reasonable notice of its
intended disclosure sufficient for the other party to seek a protective order.

18.           Force
Majeure.  If any party is
prevented from or delayed in complying, either totally or in part, with any of
the terms or provisions of this Agreement by reason of (a) fire, flood or storm
that inflicts damage to Supplier’s facilities, or (b) other causes beyond the
reasonable control of Buyer or Supplier that, in the case of either (a) or (b),
cause Supplier’s facilities to become inoperable, then upon notice to the other
party, the affected provisions shall be suspended during the period of such
disability and such party shall have no liability in connection therewith.  Supplier will use its best efforts to remedy
any disability caused by a Force Majeure event.

19.           Invoices;
Right of Set-Off.  Supplier
shall render one copy of each purchase order invoice submitted under this
Agreement and shall send all purchase documents to the Buyer in accordance with
method consistent with Incoterms 2000 (to the extent applicable).  To
the extent permitted under applicable PRC Customs, foreign exchange and
taxation laws and regulations, Buyer shall have the rights of set-off, netting,
offset, recoupment, and similar rights relating to any payments to be made by
Buyer to Supplier or any Subsidiary of Supplier pursuant to any order for
Tubular Products or otherwise.

20.           Environmental.
Supplier warrants that it will, and shall cause all of its Affiliates,
officers, directors, managers, independent contractors, and employees, to
perform all services and furnish all Tubular Products with due care and in
compliance with all applicable federal, state, regional, and local safety and
environmental laws, rules, regulations, including, without limitation, laws,
rules, and regulations pertaining to notification, permitting, waste management
and unauthorized releases.  Supplier
further agrees to indemnify, defend and hold Buyer harmless from any and all
claims, demands, judgments, causes of action, damages, penalties, fines, costs,
liabilities or losses, including, but not limited to, personal injury or death
and property damage which arise as a result of activities related to
performance of this Agreement or any breach of any provision of this
Agreement.  This indemnity shall survive
completion or termination of this Agreement.

 9

 

 

21.           Clerical Errors.  Stenographic and clerical
errors, whether in mathematical computation or otherwise, made by Buyer on a
purchase order or any other forms delivered to Supplier shall be subject to
correction by Buyer.  If Supplier finds
any clerical errors on such documents, it shall inform Buyer accordingly.

22.           Joint
Liability. 
Both Supplier and Buyer hereby agree to cause its respective Affiliates and any of its or its
Affiliates’ officers, directors, managers, independent contractors, or
employees to honor the covenants contained in this Agreement.  Both Supplier
and Buyer shall be liable for
any breaches of such covenants by its respective Affiliates and its or its
Affiliates’ officers, directors, managers, independent contractors, or
employees.

23.           Entire
Agreement; Amendment.  This Agreement
constitutes the entire agreement
between Buyer and Supplier with
respect to the subject matter hereof.  This Agreement may not be amended except
by an instrument in writing executed by both Buyer and Supplier.

24.           Applicable Law.  This Agreement
will be governed by, and construed in accordance with, the laws of Hong Kong,
SAR.

25.           Successors and Permitted Assigns. 
This Agreement will be binding upon, and will inure to the benefit of,
each party and their respective successors and assigns; provided, however, none
of the parties may assign this Agreement without the prior written consent to
the assignment by the other parties hereto except that Buyer may serve as
Supplier’s exclusive sales agent either directly or through a wholly owned
subsidiary, provided that Buyer remains fully liable to Supplier under this
Agreement.

26.           Arbitration and Attorney Fees.  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 Agreement, 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 between the
parties, within thirty (30) days after written notice of such Dispute has been
given by one party to the other party, shall be referred to 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 Section within this Agreement.  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 the People’s Republic of 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.  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 Agreement 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
for all cost of

 10
 

 

 

such litigation
including attorneys’ fees.  The parties
may apply to any court of competent jurisdiction in accordance with this clause
(ii), for temporary or permanent injunctive relief, without breach of this
clause (ii) or abridgement of the powers of the arbitrator.  None of the parties shall be entitled to
commence or maintain any action in any court of law 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 clause (ii), and then
only for the enforcement of any arbitral award. 
Process may be served on any party in the manner set forth in this
Agreement by such other method authorized by applicable law or court rule.  During the settlement process of disputes,
each party shall continue to perform its obligations unrelated to the relevant
disputes under this Agreement.

27.           Notice
Provision.  All required or permitted notices and other
communications shall be in
writing and, unless otherwise provided in this Agreement, shall be deemed effective when transmitted to the addresses set forth below (i) on the second
Business Day following delivery to the
courier service if sent by international air courier, fastest method, where the
recipient is required to sign for such package, (ii) upon receipt by the sender
of a confirmation of receipt by the recipient’s fax machine designated below if
sent by fax or (iii) upon delivery to a responsible person at the office
specified if by manual delivery:

	
  If to Supplier:

  	
   

  
	
   

  	
   

  
	
  Hengyang Valin
  Steel Tube Co., Ltd.

  	
   

  
	
  Attention:
  General Manager

  	
   

  
	
  [Address]

  	
   

  
	
   

  	
   

  
	
  If to VTW:

  	
   

  
	
   

  	
   

  
	
  Hunan Valin
  Steel Tube & Wire Co., Ltd.

  	
   

  
	
  Attention:

  	
   

  
	
  Address: Valin Plaza, No. 111 Section of Fu Rong
  Zhong Lu, Changsha,

  Hunan Province, PRC

  	
   

  
	
   

  	
   

  
	
  If to Buyer:

  	
   

  
	
   

  	
   

  
	
  [Trading
  Company]

  	
   

  
	
  Attention:    Chief
  Executive Officer

  	
   

  
	
  15660 N. Dallas
  Pkwy., Ste. 500,

  	
   

  
	
  Dallas, TX
  75248, U.S.A.

  	
   

  
	
  Fax:    +1-972-770-6474

  	
   

  
	
   

  	
   

  
	
  with a copy to
  (which shall not constitute notice):

  	
   

  
	
   

  	
   

  
	
  Weil, Gotshal
  & Manges LLP

  	
   

  
	
  200 Crescent
  Court, Suite 300

  	
   

  
	
  Dallas, Texas
  75201, U.S.A.

  	
   

  
	
  Attention:    Mary
  R. Korby

  	
   

  
	
  Fax:    +1-214-746-7777

  	
   

  

 

 11
 

 

 

	
  If to LST:

  	
   

  
	
   

  	
   

  
	
  Lone Star
  Technologies, Inc.

  	
   

  
	
  Attention:    General
  Counsel

  	
   

  
	
  15660 N. Dallas
  Pkwy., Ste. 500

  	
   

  
	
  Dallas, TX
  75248, U.S.A.

  	
   

  
	
  Fax:    +1-972-770-6474

  	
   

  
	
   

  	
   

  
	
  with a copy to
  (which shall not constitute notice):

  	
   

  
	
   

  	
   

  
	
  Weil, Gotshal
  & Manges LLP

  	
   

  
	
  200 Crescent
  Court, Suite 300

  	
   

  
	
  Dallas, Texas
  75201, U.S.A.

  	
   

  
	
  Attention:    Mary
  R. Korby

  	
   

  
	
  Fax:   
  +1-214-746-7777

  	
   

  

 

or to such other address or
addresses as any such party may from time to time designate for itself in
writing.

28.           No Third Party Beneficiaries.  Nothing in this Agreement shall be construed
to create any rights in any third party against any party.

29.           Compliance with Laws.  Each party agrees to comply with all
applicable laws and regulations relating to its performance hereunder.  Each Party shall ensure that it obtains and
maintains at its own cost all necessary permits and/or licenses necessary for
it to perform its obligations hereunder.

30.           No Waiver.  The performance of or compliance with a party’s
obligation hereunder may be waived, but only in writing signed by an authorized
representative of the other party.  A
waiver of compliance with any provision of this Agreement shall not constitute
a waiver of any subsequent lack of compliance with such provision or of any
other provision of this Agreement. 
Failure of any party to enforce at any time any provision of this
Agreement shall not be construed as a waiver thereof.

31.           Relationship of Parties.  Nothing
in this Agreement shall create, or be deemed to create, a partnership, joint
venture or legal relationship of any kind between the parties that would impose
liability upon one party for the acts or failure to act of the other party, or
authorize any party to act as agent for the other.  Save where expressly stated in this
Agreement, none of the parties shall have the authority to make representations,
act in the name or on behalf of or otherwise bind the other.

32.           Execution.  This
Agreement may be executed in any number of counterparts and by the parties on
separate counterparts, each of which, when executed, shall be an original, but
all counterparts shall together constitute on and the same instrument.

 12
 

 

 

33.           Further Assurance.  LST
shall execute or procure the execution of all necessary service contracts
between Buyer on the one hand and LST or other third-party service providers on
the other hand as may from time to time be necessary to give support to Buyer
in performing its distribution and sale responsibility hereunder.

34.           Language.  This Agreement
is written in English and Chinese.  Both
languages shall be of equal effect.

IT
WITNESS WHEREOF, the
parties hereto have entered into this Agreement as of the date first written
above.

	
   

  	
   

  	
  [TRADING COMPANY]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LONE
  STAR TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HENGYANG
  VALIN STEEL TUBE CO.,

  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HUNAN
  VALIN STEEL TUBE &

  WIRE CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 13
 

 

 

I hereby certify that,
this Agreement has been approved by the board of directors of Hengyang Valin
Steel Tube Co., Ltd. on            .

	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name :

  	
   

  
	
   

  	
  Title : Legal Representative

  	
   

  
	
   

  	
  Date :

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Company Seal :

  

 

 14
 

 

 

Exhibit A

Supplier’s
Distributors in the Territory and Distribution Terms

 15Exhibit 10.7

Technology Cross License Agreement

between

Lone Star Technologies, Inc.

And

Hengyang Valin MPM Steel Tube Co., Ltd.

 

 

Table of Contents

 

	
  

  	
   

  	
  PAGE NO.

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Technical
  Assistance

  	
  2

  
	
   

  	
   

  	
   

  
	
  2.

  	
  License Rights

  	
  3

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Intellectual Property Ownership

  	
  4

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Intellectual Property Protection for Jointly Developed
  Intellectual Property

  	
  5

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Intellectual Property Enforcement

  	
  5

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Confidentiality and Limited Use

  	
  6

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Non-Solicitation

  	
  7

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Fees, Expenses and Payment

  	
  7

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Representations and Warranties

  	
  8

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Indemnification

  	
  9

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Limitation of Liability

  	
  9

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Term,
  Termination

  	
  10

  
	
   

  	
   

  	
   

  
	
  13.

  	
  General

  	
  12

  

 

 

TECHNOLOGY
CROSS LICENSE AGREEMENT

BETWEEN

LONE STAR TECHNOLOGIES, INC. 

AND

HENGYANG VALIN MPM STEEL TUBE CO., LTD.

This TECHNOLOGY
CROSS LICENSE AGREEMENT (this “Agreement”) is
entered into effective on August 15, 2006 by and between Lone Star Technologies, Inc., a corporation organized under
the laws of the state of Delaware, with offices at 5660 N. Dallas Parkway,
Suite 500, Dallas, TX 75248 (“Lone Star”) and
Hengyang Valin MPM  Steel Tube
Co., Ltd., a company organized under the laws of the People’s
Republic of China, with offices at No. 10 Dali New Village, Zhengxiang District, Hengyang, Hunan, China
(“Valin MPM”).  Each of Lone Star and Valin MPM may be
referred to individually as a (“Party”) or
together (the “Parties”).

WHEREAS,

1.                                       Star
China Ltd. (“Star China”, an Affiliate of Lone
Star), Valin MPM, Hunan Valin
Tube & Wire Joint Stock Co. Ltd. (“Valin TW”) and
Hengyang Valin Steel Tube Co. Ltd. (“Valin ST”)
entered into a Capital Increase Agreement on August 15, 2006 (the “Capital Increase Agreement”), and Star China, Valin TW and
Valin ST entered into a Joint Venture Contract on August 15, 2006 (the “JV Contract”) (the “Capital Increase Agreement”
and the “JV Contract” are collectively referred  to as the “JV
Agreements” hereinafter).

2.                                       To
promote the success of the joint venture, Lone Star desires to license Valin
MPM to use Lone Star Technology as listed on Schedule
A, as well as any improvements or derivative works thereto
created during the Term (the “Lone Star Technology”)
and to make available to Valin MPM, Lone Star
Expertise as listed on Schedule B
in development of: (a) manufacturing facilities and manufacturing procedures
associated with cold drawn seamless carbon steel and alloy tubing; (b) heat
treat facilities and tube finishing facilities to provide desired mechanical
properties, strength to weight ratios, dimensional tolerances and surface
finishes appropriate for a wide variety of applications; (c) laboratory testing
facilities to confirm compliance with required mechanical properties and
specifications for a wide range of tubular products, including all sizes and
types of oil country tubular goods, line pipe and hot finished tubes; (d)
facilities and methods for optimizing inventory control and shipping of tubular
products; (e) tube

 1
 

 

reduction mills and facilities for forming hot rolled steel coils; and
(f) manufacturing facilities and manufacturing procedures associated with
welded extended surface tubing for the heat transfer industry.  From time to time Lone Star may share its
expertise with Valin MPM subject to the terms and conditions of this Agreement.

3.                                       Lone
Star desires to grant Valin MPM a limited non-exclusive license to use the Lone
Star Technology (as defined below) at its manufacturing locations in mainland
China and Valin MPM desires to obtain such license.

4.                                       Valin
MPM desires to grant Lone Star a limited non-exclusive license to use any Valin
MPM Improvements (as defined in Sections 2.1 and 2.2) related to such Lone Star
Technology at designated locations in the United States of America and Lone
Star desires to obtain such license.

NOW THEREFORE,
Valin MPM and Lone Star hereby agree to the following terms and conditions.

1.                Technical Assistance.

From time to time Valin MPM may request Lone Star’s assistance with
development of facilities owned and operated by Valin MPM and/or training on
certain Lone Star processes or products listed on Schedule
B and with obtaining API and other certifications listed on Schedule B for Valin MPM products
and processes.  Upon receipt of such
request, the Parties will work with each other in a mutually cooperative manner
to identify related Lone Star Technology and Confidential Information.  The Parties will also determine the manner in
which assistance and/or training will be provided, including any associated
service fees.  The Parties acknowledge
that providing manuals, documentation, specifications or diagrams to Valin MPM may be not sufficient and Valin MPM may submit
questions to Lone Star regarding Areas of Potential Training as listed on Schedule B.  The Parties may choose to hold conference
calls to discuss the questions raised by Valin MPM so that Lone Star is able to
provide technical assistance within a reasonable time.  Upon mutual agreement by the Parties, Lone
Star may make certain personnel available to assist Valin MPM
at its facilities in China subject to payment of reasonable costs and expenses
by Valin MPM.  Within three (3) months of the Effective
Date, the Parties shall work out a five (5)-year plan for Lone Star to provide
certain personnel of Valin MPM with training on Lonestar Technology.  Lone Star is responsible for providing such
training at the rates and under the terms and conditions, including, without
limitation, daily allowance and schedules to be agreed in writing among the
Parties.

 2
 

 

2.                License Rights.

2.1                                 Lone Star Technology.  In consideration for the rights granted and
payments made under the JV Agreements and the other covenants herein, Lone Star
hereby grants Valin MPM a
non-exclusive, nontransferable and revocable (at termination of this Agreement)
right and license in China during the Term to allow Valin MPM to use the
Lonestar Technologies as set forth in Schedule A and the improvements of such
Lonestar Technologies by Lone Star from time to time, to make and globally sell
products using the Lone Star Technology at locations in mainland China where
Valin MPM operates steel and/or tubular goods manufacturing facilities that are
identified in the JV Agreements or as otherwise mutually agreed and to improve,
enhance and make derivative works of the Lone Star Technology (the “Valin MPM  Improvements”).  This Agreement does not grant Valin MPM any
right to permit any third party to use Lone Star Technology.  Any Lone Star Technology licensed to Valin
MPM must be listed on Schedule A.  During the Term, the Parties anticipate
several additions and modifications to Schedule
A.  Each addition or
modification to Schedule A
shall be incorporated into and become a part of this Agreement when signed by
both Parties.  Lone Star shall deliver to
Valin MPM documents or other information which may be reasonably required by
Valin MPM to carry out the license granted in this Section 2.1 no later than
ninety (90) days after being requested by Valin MPM.  All rights
related to Lone Star Technology and not expressly granted herein are reserved
by Lone Star.  Any license granted by
this Agreement to Valin MPM shall not include the right to grant
sublicenses.  Lone Star grants purchasers
of products produced by Valin MPM, the production of which has involved
Lonestar Technologies, a non-exclusive, nontransferable right and license to
use such products in their intended manner.

2.2                                 Valin MPM Improvements.  In consideration of the rights granted and
payments made under the JV Agreements and other covenants herein, Valin MPM
hereby grants Lone Star and its affiliates a limited, non-exclusive,
nontransferable (except in connection with the sale of substantially all of the
assets or stock of Lone Star or other change of control transaction) and
irrevocable right and license to make and sell products using Valin MPM
Improvements as listed on Schedule C
at the locations in the United States of America where Lone Star or any
affiliate operates steel and/or tubular goods manufacturing facilities.  During the Term, the Parties anticipate
several additions and modifications to Schedule
C.  Each addition or
modification to Schedule C
shall be incorporated into and become a part of this Agreement when signed by
both Parties.  Valin MPM shall deliver to
Lone Star documents or other information which may be reasonably required by
Lone Star to carry out the license granted in this Section 2.2 no later than
ninety (90)

 3
 

 

days after
being requested by Lone Star.  All rights
related to Valin MPM Improvements
and not expressly granted herein are reserved by Valin MPM.  The license granted herein does not include
the right to grant sublicenses.

2.3                                 Software.  The Parties agree that they intend only to
license software owned solely by Lone Star related to the Lonestar Technology
under this Agreement.  To the extent Lone
Star has any software that it solely owns related to the Lonestar Technology,
it will grant Valin MPM a non-exclusive, non-transferable, right and license
under its intellectual property rights to use the object code of such software
where Valin MPM operates steel and/or tubular goods manufacturing facilities
that are identified in the JV Agreements or as otherwise mutually agreed.  No implied license may arise hereunder.  Lone Star agrees to assist Valin MPM, at
Valin MPM’s cost, in obtaining, subject to prohibitions in any third party
license agreements, rights to use any software used by Lone Star as of the
Effective Date related to the Lonestar Technology that is not owned solely by
Lone Star.

3.                Intellectual Property Ownership.

3.1                                 Lone Star Intellectual Property.  As between the Parties, Lone Star shall be
the sole and exclusive owner of (i) all intellectual property owned by Lone
Star prior to the Effective Date, including, without limitation, the Lone Star
Technology licensed for use by Valin MPM under this Agreement, and (ii) all
intellectual property developed and/or otherwise obtained by Lone Star on or
after the Effective Date as well as improvements, enhancements or derivative
works made by Lone Star (except for Jointly Developed Intellectual Property as
defined in Section 3.3).  Lone Star may,
in its sole discretion, choose to obtain protection of Lone Star Intellectual
Property under any intellectual property laws of any jurisdiction.

3.2                                 Valin MPM Intellectual Property.  As between the Parties, Valin MPM shall be
the sole and exclusive owner of (i) all intellectual property owned by Valin
MPM prior to the Effective Date and (ii) all intellectual property developed
and/or otherwise obtained by Valin MPM on or after the Effective Date as well
as Valin MPM Improvements (except for Jointly Developed Intellectual Property
as defined in Section 3.3).  Valin MPM
may, in its sole discretion, choose to obtain protection for Valin MPM
Intellectual Property under any intellectual property laws of any jurisdiction.

3.3                                 Jointly Developed Intellectual Property.  Subject to Section 3.1 and Section 3.2, to
the extent that collaboration between agents or employees of the Parties
results in any new or improved designs, methods, processes or inventions,
whether patentable or not,

 4
 

 

the Parties
shall have joint ownership thereof including confidential information and/or
trade secrets.

4.                Intellectual Property Protection for Jointly Developed
Intellectual Property.

Valin MPM shall obtain protection for
and/or register any jointly developed intellectual property, including, for
example, registering copyrights and/or applying for patents, at its own cost in
the People’s Republic of China and Lone Star shall obtain protection for and/or
register jointly developed intellectual property at its own cost in the United
States of America.  The Parties shall
equally share the cost of obtaining patent protection and/or registering any
jointly developed intellectual property in any other jurisdiction.  With respect to any jointly developed
intellectual property, the Parties will mutually decide which jurisdictions in
addition to the Peoples Republic of China and the United States of America to
apply for patent, trade secret and/or copyright protection.  In the event a Party discontinues payment of
legal fees and other costs for jointly developed intellectual property as
required by this Article 4, the discontinuing Party shall cease to have any
rights in such jointly developed intellectual property and the discontinuing
Party shall promptly assign to the other Party all rights in such jointly
developed intellectual property including any related patent application,
patent or copyright associated with the jointly developed intellectual
property.

5.                Intellectual Property Enforcement.

In the event that either Lone Star or Valin MPM becomes aware of any
infringement by third parties of the other Party’s intellectual property or any
Jointly Developed Intellectual Property, it shall immediately provide the other
Party with written notice thereof.  The
Party owning the intellectual property may, in its sole discretion, decide
whether any infringement suit shall be instituted.  With respect to Jointly Developed
Intellectual Property, either Party may individually elect to institute an
infringement suit after affording the other Party an opportunity to participate
in such action.  The Party or Parties
pursuing such action shall have the right to compromise and settle any such
suit upon such terms as it may deem reasonable. 
All costs, including attorney’s fees incurred as a result of any such
suit shall be borne by the Party bringing such suit and any proceeds received
from such suit shall be retained
in proportion to the expense incurred by each of the Parties in bringing such
suit unless such arrangement contravenes the mandatory allocation of cost
and/or proceeds by the relevant judgment or award.  Each Party agrees to cooperate and aid the
other Party, at the other Party’s cost, in any such suit pursuant to all
reasonable requests, including appearing as a named party as required.

 5
 

 

6.                Confidentiality and Limited Use.

6.1                                 Valin MPM Obligations.  Valin MPM agrees not to disclose any and all
know-how, trade secrets, inventions, drawings, specifications, software
applications, engineering data, processes, and other information or materials
related to Lone Star Technology (the “Lone
Star Confidential Information”) furnished by Lone Star to Valin MPM
pursuant to this Agreement that was disclosed in writing or electronically marked “confidential”
and/or its Chinese equivalent or if disclosed orally, summarized in writing
marked “confidential” and/or its Chinese equivalent sent within ten days of the
initial oral disclosure to Valin MPM, except with the prior written consent of
Lone Star or on an as needed basis to its employees who have agreed to protect
the Lone Star Confidential Information
as required by this Agreement.  Valin MPM
further agrees to use the same care that Valin MPM uses to protect the
confidentiality of its own Confidential Information of a similar nature (and in
no event less than reasonable care) from unauthorized use or disclosure.  Valin MPM agrees to use Lone Star Confidential Information solely and exclusively in the
manufacture, use, or sale of oil country tubular goods and other products or
services in accordance with the JV Agreements. 
Valin MPM shall provide consideration to the extent required by
applicable law to its employees in exchange for their agreement to protect Lone
Star Technology and Lone Star Confidential Information.

6.2                                 Lone Star Obligations.  Lone Star agrees not to disclose any and
all know-how, trade secrets, inventions, drawings, specifications, software
applications, engineering data, processes, and other information or materials
(the “Valin Confidential Information”)
furnished by Valin MPM to Lone Star pursuant to this Agreement that was
disclosed in writing or electronically and marked “confidential” and/or its
Chinese equivalent or was disclosed orally and summarized in a writing marked “confidential”
and/or its Chinese equivalent sent within ten days of the initial oral
disclosure to Lone Star, except with the prior written consent of Valin MPM or
on an as needed basis to its employees who have agreed to protect the Valin MPM
Confidential Information as required by this Agreement.  Lone Star further agrees to use the same care
that Lone Star uses to protect the confidentiality of its own Confidential
Information of a similar nature (and in no event less than reasonable care)
from unauthorized use or disclosure. 
Lone Star agrees to use Valin MPM Confidential Information solely and
exclusively in the manufacture, use, or sale of oil country tubular goods and
other products and services in accordance with the JV Agreements.  Lone Star shall provide consideration as may
be required by applicable law to its employees in exchange for their agreement
to protect Valin MPM Confidential Information.

 6
 

 

7.                Non-Solicitation.

During the term of this Agreement and for a period of three (3) years
thereafter, each Party agrees not to solicit, engage, or hire any employee or
former employee of the other Party, without obtaining the other Party’s prior
written consent except
to the extent that with reasonable and prudent care, a Party is not
aware of such employee’s previous working experience with the other Party.

8.                Fees,
Expenses and Payment.

8.1                                 Royalty.  Except as provided in Section 8.2 (fees
payable by Valin MPM to Lone Star
on a time and materials basis for services provided hereunder and for
reasonable travel expenses incurred by Lone Star in connection with this
Agreement), no fees shall be payable for the rights and licenses granted
herein.

8.2                                 Fees and Payment.  Prior to the performance of services
hereunder, the Parties shall mutually agree on the daily rate for any third
party personnel expected to perform such services.  Such fees shall be invoiced monthly as
incurred and paid within thirty days. 
Travel time is billable.  All
out-of-pocket expenses, including reasonable, actual travel expenses and a
daily allowance, incurred by Lone Star or a third party on Lone Star’s behalf
in connection with the performance of this Agreement shall be reimbursed by Valin
MPM and paid within thirty days of receipt of the applicable invoice.  All amounts shall be invoiced and paid in
U.S. dollars.  Valin MPM is responsible
for any levies, duties, taxes, or withholding and any other fees to be charged
by the Chinese government or banks that are associated with or incurred in
connection with Valin MPM’s compliance with this Section 8.2.

8.3                                 Taxes. 
Valin MPM shall be responsible for any applicable sales, service,
value-added, lease, withholding, stamp, use, personal property, excise,
consumption, and other taxes and duties associated with this Agreement and/or
all products manufactured and sold or leased by Valin MPM under the license
granted in this Agreement and all services provided by Valin MPM under the
license granted in this Agreement, unless the applicable laws provides
otherwise compulsorily.  To the extent
permitted by applicable law, Valin MPM shall be responsible for any taxes
assessed by any tax authority against either Party on the provision of the
services as a whole, or on any particular service received by Valin MPM from
Lone Star except Lone Star shall remain responsible for any taxes on Lone Star’s net income.

 

 7
 

 

9.                Representations and Warranties.

9.1                                 Mutual Representations and Warranties.  Each Party represents to the other Party
that:  (a) as of the date hereof, the
representing Party is duly organized, validly existing and in good standing
under the laws of the jurisdiction of formation and has all requisite corporate
power and authority to execute and deliver this Agreement and to perform all
obligations required by this Agreement; (b) the execution, delivery and
performance of this Agreement has not resulted and will not result (i) in any
violation of or conflict with, or constitute a default under the representing
Party’s organizational or formation documents, or (ii) in any violation of or
conflict with, or constitute a material default under, any lease, license,
agreement,  instrument, judgment, order
or law to which the representing Party is a party or otherwise subject; or (c)
the execution and delivery of this Agreement and the transactions contemplated
hereby have been duly authorized by all necessary action by the representing
Party.  Each Party represents to the
other Party that this Agreement constitutes a legal, valid and binding
agreement, enforceable against the representing Party in accordance with the
terms of this Agreement (except insofar as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors’ rights generally, or by principles governing the
availability of equitable remedies).

9.2                                 Disclaimer.  EXCEPT SOLELY AS PROVIDED IN THIS ARTICLE 9,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY DISCLAIMS AND EXCLUDES
ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS, WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO WARRANTIES OR CONDITIONS OF TITLE,
NON-INFRINGEMENT, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.

9.3                                 Valin MPM Representations.  Valin MPM represents and warrants that it
will import the Lone Star Technology in accordance with the laws of the People’s
Republic of China.  Valin MPM further
agrees to record this Agreement with the Examination and Approval Authority (“Examination
and Approved Authorities” shall have the meaning given in the JV
Agreements.).  To the extent Valin MPM
uses any technology and/or intellectual property other than Lone Star
Technology licensed to Valin MPM under this Agreement, Valin MPM represents and
warrants that it has the necessary right, title and/or license to use such
technology and related intellectual property in connection with the JV
Agreements and use of such technology and intellectual property will not
conflict with any applicable law or any agreement between Valin MPM and any
third party.  Valin MPM shall hold Lone
Star harmless from any loss, damages or claims resulting from breach of the
above representations.

 8
 

 

9.4                                 Lone Star Representations.  Lone Star represents and warrants that it
will export Lone Star Technology according to laws of the United States of the
America. Lone Star represents and warrants that it has the necessary right,
title and/or license to grant Valin MPM a license to use Long Star Technology
and related Intellectual Property in accordance with the terms and conditions
of this Agreement and such license will not conflict with any applicable law or
any agreement between Lone Star and any third party.  Lone Star shall
hold Valin MPM harmless from any loss, damages or claims resulting from breach
of the above representations.

10.                                 Indemnification.

10.1                           By Valin MPM.  Valin MPM shall defend, indemnify and hold
harmless Lone Star,  its affiliates
(other than Valin MPM), and their officers, employees, directors and agents,
(including paying reasonable attorneys’ fees, expenses, costs and
disbursements) from and against:  (a) any
third party claim based on breach of warranty, strict liability, or products
liability associated with any products manufactured or sold by Valin MPM
(including products manufactured for Lone Star) that relate in any way to or
were manufactured using any Lone Star information or technology disclosed
hereunder, whether or not based on insufficient workmanship or disregard of or
departure from design recommendations; or (b) any claim for bodily injury or
damage to tangible personal property caused by Valin MPM (including any claim by an employee of Lone Star).

10.2                           By Lone Star.  Lone Star shall defend, indemnify and hold
harmless Valin MPM,  its affiliates, and
their officers, employees, directors and agents, (including paying reasonable
attorneys’ fees, expenses, costs and disbursements) from and against:  (a) any third party claim based on breach of
warranty, strict liability, or products liability associated with any products
manufactured or sold by Lone Star (other than products manufactured for Lone Star by Valin MPM) that relate in any way
or were manufactured using any Valin MPM information or technology disclosed
hereunder, whether or not based on insufficient workmanship or disregard of or
departure from design recommendations; (b) any claim for bodily injury or
damage to tangible personal property caused by Lone Star (including any claim
by an employee of Valin MPM).

11.                                 Limitation of
Liability.

11.1                           Disclaimer.  Subject to the exclusions set forth in
Section 11.2 below,  whatever the legal
basis for a Party’s claims, the aggregate amount of damages recoverable against
the liable Party with respect to any and all breaches, performance,
nonperformance, acts or

 9

 

omissions hereunder will not exceed an amount equal to the charges and
expenses for services payable by Valin MPM to Lone Star during the 12-months
immediately preceding the most recent situation for which a Party has a right
to claim damages or seek payment from the other Party (or if such situation
occurs in the first 12 months of the Term, 12 times the amount payable in the
month in which the claim arises). 
Subject to the exclusions set forth in Section 11.2 below, in no event
will the measure of damages payable by either Party include, nor will either
Party be liable for, any consequential, indirect, incidental, exemplary or
punitive damages (including, without limitation, damages due to business
interruption or lost profits, savings, competitive advantage or goodwill)
arising from or related to this Agreement, regardless of the type of claim,
whether in contract, tort, negligence, strict liability or other legal or
equitable theory, whether or not foreseeable, and regardless of the cause of
such damages even if the Party has been advised of the possibility of such
damages in advance.

11.2                           Exclusions.  The limitation and exclusion set forth in
Section 11.1 do not apply to either Party’s liability for (i) breach of the
confidentiality obligations under Article 6, (ii) obligations under Article 9
to indemnify for third-party claims, or (iii) obligations of Valin MPM to pay
fees or reimburse expenses.

12.                                 Term,
Termination.

12.1                           Term. 
This Agreement shall become effective on the Funding Date as defined
under the Capital Increase Agreement (the “Effective
Date”) and shall continue to be effective during the Joint Venture
Term as defined under the JV Contract (the “Term”)
thereafter unless sooner terminated in accordance with Section 12.2.

12.2                           Termination.  Either Party may terminate this Agreement and
the licenses granted herein if: (i) the other Party breaches any material term
or condition of this Agreement and fails to cure such breach within forty-five
(45) days after receipt of written notice of the same except with respect to a
breach of obligations under Article 6, which breach if curable, must be cured
within fifteen (15) days; or (ii) the other Party becomes bankrupt or is the
subject of proceedings for liquidation or dissolution, or ceases to carry on
business or becomes unable to pay its debt as they become due or upon the
winding-up sale, consolidation, merger or any sequestration by government
authority.  In addition, this Agreement
shall terminate upon termination of any of the JV Agreements.

 10
 

 

12.3                           Rights and Obligations Upon Termination.

(a)                                  Upon
termination or expiration of this Agreement, all Confidential Information
received from the disclosing Party shall be returned or destroyed by the
receiving Party within 30 days at the written request of the disclosing Party
including, but not limited to, all secret and confidential technical
information and know-how received under this Agreement in written or in other
tangible form such as CD’s, DVD’s, computer tapes and disks, including all
copies thereof and all other tangible property received on loan from the other
Party.   An officer of the receiving
Party shall provide written confirmation to the disclosing Party that all
Confidential Information has been returned to destroyed in accordance with
Section 12.3 of this Agreement.  To the
extent required by a specific law or regulation, each Party may retain one copy
of any Confidential Information received from the other Party for archival
purposes only.  The Party retaining any
Confidential Information must advise the disclosing Party as to the specific
statute or regulation which requires retention of the Confidential
Information.  Such retained Confidential
Information must be stored at a location having limited access and will not be
stored on any type of computer network.

(b)                                 Upon
termination or expiration of this Agreement, neither Party shall have any right
to use for its benefit any Confidential Information received from the other
Party and all rights and licenses granted under this Agreement will terminate
except for:

i.                                          The rights
that both Parties have under this Agreement with respect to Jointly Developed
Intellectual Property; and

ii.                                       Valin MPM will
retain ownership of Valin MPM Improvements and Lone Star will continue to have
a limited, non-exclusive, nontransferable and irrevocable right and license to
use Valin MPM Improvements.

12.4                           Survival.  The following sections shall survive
termination or expiration of this Agreement: Articles 3, 4, 5, 6 10, 11 and 13
and Sections 2.2, 8.3, 9.2 and 9.3 and any obligation to pay fees or expenses
arising prior to termination or expiration.

 

 11
 

 

13.                                 General.

13.1                           Injunctive Relief.  Each Party acknowledges that any breach by
the other Party of obligations of confidentiality or rights in intellectual
property may cause the other Party irreparable harm not compensable with money
damages, and that in the event of such breach, the non-breaching Party shall be
entitled to seek injunctive relief, without bond, from any court of competent
jurisdiction.

13.2                           Assignment.  Neither Party shall assign or transfer its
rights, duties or obligations under this Agreement, whether by contract,
operation of law, merger, reorganization or sale of assets, without the prior
written consent of the other Party.  Any
purported assignment or transfer of this Agreement without the prior written
consent of the other Party shall be null and void.

13.3                           Notices.  Unless otherwise provided in the Agreement,
notices or other communications required to be given by any Party pursuant to
this Agreement may be delivered personally, sent by registered airmail (postage
prepaid) by a recognized courier service, sent by facsimile transmission, or
sent by e-mail transmission to the address of the other Party set forth below
or such other address notified in lieu thereof. 
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 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.

Hengyang Valin MPM 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

 12
 

 

Lone Star Technologies, Inc.

5660 N. Dallas Parkway 

Suite 500 

Dallas, TX 75248

Attention: General
Counsel

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

13.4                           Third Party Beneficiaries.  Except as expressly provided herein, this
Agreement is entered into solely between, and may be enforced only by Valin MPM
and Lone Star.  This Agreement shall not
be deemed to create any rights or causes of action in or on behalf of any third
parties, including without limitation, employees, suppliers and customers of a
Party, or to create any obligations of a Party to any such third parties.

13.5                           Severability.  If any provision of this Agreement is held
invalid or otherwise unenforceable, the enforceability of the remaining
provisions shall not be impaired thereby and the illegal provision will be
replaced with a legal provision that encapsulates the original intent of the
Parties.

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

13.7                           Export. 
The Parties warrant that they will comply with the Foreign Corrupt
Practices Act and U.S. export control laws and regulations.  The Parties acknowledge that certain
technical data to be provided hereunder may be subject to export controls under
the laws and regulations of the United States, the European Union, the United
Nations and other jurisdictions.  No
Party shall export or re-export any such items or any direct product thereof or
undertake any transaction or service in violation of any such laws or
regulations.  Without limiting the
generality of the foregoing, the Parties expressly acknowledge that each
transfer of service and technical data (including but not limited to LSS
Technology) may be subject to U.S. export control laws and regulations,
including but not limited to the U.S. Export Administration Regulations, 15
C.F.R. Parts 730

 13
 

 

through 774
(administered by the Department of Commerce, Bureau of Industry and Security)
and the economic sanctions promulgated from time to time by means of statute,
executive order, or regulation (administered by the United States Department of
the Treasury, Office of Foreign Assets Control), including but not limited to
those economic sanctions programs enumerated at 31 C.F.R. Parts 500 through
598.

13.8                           Independent Contractor.  The relationship of the Parties under this
Agreement shall not constitute a partnership or joint venture for any
purpose.  Neither Party is an agent of
the other Party and neither Party has right, power or authority, expressly or
impliedly, to represent or bind the other Party.

13.9                           Applicable Law.  The laws or regulations of Hong Kong which
are officially published and publicly available shall apply to and govern the
formation, validity, interpretation and implementation of this Agreement and
all other contracts, agreements, documents for implementing this Agreement.

13.10                     Amendment.  Amendments to this Agreement 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, unless prior approval from the Examination and Approval
Authorities is statutorily required, will become effective as soon as the
amendments are filed with the Examination and Approval Authorities for record.

13.11                     Language.  This Agreement is written and executed in
English and Chinese in ten (10) original counterparts in each language.  Each Party shall keep one copy and the
remaining copies will be submitted to the Examination and Approval Authorities
as well as the government registration bodies for approval or registration.

13.12                     Publicity.  Neither Party shall use the other Party’s
name or mark or refer to the other Party directly or indirectly in any media
release, public announcement, or public disclosure relating to this Agreement,
including in any promotional or marketing materials, customer lists or business
presentations without the prior written consent of the other Party prior to each
such use or release.  Neither Party shall
make any public statements about this Agreement or its relationship with the
other Party without the other Party’s prior approval.

13.13                     Dispute Resolution.

(a)                                  Arbitration

 14
 

 

i.                                          The
Parties shall make every effort to settle amicably any and all disputes,
controversies and conflicts arising of or relating to or in connection with
this Agreement 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 between the Parties, within
thirty (30) days after written notice of such Dispute has been given by one
Party to the other Party, shall be referred to 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 section within this Agreement.

ii.                                       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 the PRC.  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.

iii.                                    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 Agreement 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 for all cost of such litigation including
attorneys’ fees.  The Parties may apply
to any court of competent jurisdiction in accordance with this Section 13.13,
for temporary or permanent injunctive relief, without breach of this Section
13.13 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 Section 13.13, and then only for
the enforcement of any arbitral award. 
Process may be served on any Party in the manner set

 15
 

 

forth in this
Agreement by such other method authorized by applicable Law or court rule.

iv.                                   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.

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

(b)                                 Continued
Implementation of Agreement

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

(c)                                  This
Section 13.13 shall not restrict Lone Star’s rights under Section 13.1 to bring
legal action in any court having appropriate jurisdiction, including courts in
the State of Texas to enforce Lone Star’s rights in its intellectual property
and/or Confidential Information.

This Section 13.13 shall not restrict Valin
MPM’s right under Section 13.1 to bring legal action in any court having
appropriate jurisdiction, including courts in China to enforce Valin MPM’s
rights in its intellectual property and/or Confidential Information.

13.14                     Waiver. 
Unless otherwise provided for, failure or delay on the part of any Party
to exercise any right or privilege under this Agreement 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 Agreement 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.

13.15                     Force Majeure.  Neither Party shall be liable for any loss,
damages or penalty (other than the obligation to pay money) resulting from a
delay in delivery of information or services, as applicable when such delay is
due to the Event of Force Majeure (defined in JV Contract).

(a)                                  The
Party encountering Force Majeure shall promptly inform the other Party in
writing and shall furnish appropriate proof of the occurrence and duration of
each

 16
 

 

Force Majeure.  The Party
encountering Force Majeure shall also use all reasonable endeavors to terminate
the Force Majeure.

(b)                                 In
the event of Force Majeure, the Parties shall immediately consult with each
other in order to find an equitable solution and shall use all reasonable
endeavors to minimize the consequences of such Force Majeure.

13.16                     Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, and such counterparts
together shall constitute one and the same instrument.  Execution may be effected by delivery of
facsimiles of signature pages, which shall be deemed originals in all respects.

13.17                     Entire Agreement.  This Agreement 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 prior to the execution of this Agreement
shall, with the exception of any non-disclosure/confidentiality undertakings, become
null and void automatically when this Agreement enters into effect.

[This
space intentionally left blank.]

 17
 

 

IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the day and year noted below.

 

	
  LONE STAR TECHNOLOGIES, INC.

  	
  HENGYANG VALIN MPM STEEL

  
	
   

  	
  TUBE
  CO., LTD

  
	
   

  	
   

  
	
  By:

  	
  /s/ Rhys J. Best

  	
   

  	
  By:

  	
  /s/ Zhao JianHui

  	
   

  
	
  Name: Rhys J.
  Best

  	
  Name: Zhao JianHui

  
	
  Title: Chairman/CEO

  	
  Title: Chairman/General Manager

  
						

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page of Technology Cross Licensing
Agreement]

 

 18

 

Schedule
A

Lone Star
Technology

Intellectual
Property and Technology related to Oil Country Tubular Goods (OCTG) and welded
extended surface tubing and high frequency resistance welded finned tubes.

	
  I.

  	
  Proprietary OCTG and Line Pipe Products and Services

  
	
   

  	
  A.

  	
  High collapse and high strength OCTG

  
	
   

  	
  B.

  	
  Enhanced properties with wall control

  
	
   

  	
  C.

  	
  Sour service grades

  
	
   

  	
  D.

  	
  Artic service grates

  
	
   

  	
  E.

  	
  Special clearance drift diameters

  
	
   

  	
  F.

  	
  Non-API casing sizes for unique well conditions

  
	
   

  	
  G.

  	
  High impact line pipe

  
	
   

  	
  H.

  	
  Lone Star Steel Technical Date Book

  
	
   

  	
   

  	
   

  
	
  II.

  	
  Premium and Special Purpose Connections

  
	
   

  	
  A.

  	
  Threading: API

  
	
   

  	
  B.

  	
  Star Seal – couplings for drilling with casing

  
	
   

  	
  C.

  	
  Star Seal – flush joint connection for tight
  clearance horizontal drilling

  
	
   

  	
  D.

  	
  Star Seal – integral joint for combined loads

  
	
   

  	
   

  	
   

  
	
  IV.

  	
  Other Important Lone Star Oilfield Product
  Applications

  
	
   

  	
  A.

  	
  Subsea pipelines

  
	
   

  	
  B.

  	
  Riser wear sleeves

  
	
   

  	
  C.

  	
  Drilling templates

  
	
   

  	
  D.

  	
  Liner hangers

  
	
   

  	
  E.

  	
  Sand screens

  
	
   

  	
  F.

  	
  Perforating guns

  
	
   

  	
  G.

  	
  Meter run tubing

  
	
   

  	
  H.

  	
  Crane hydraulic cylinders

  
	
   

  	
  I.

  	
  Seal-ring gaskets

  
	
   

  	
  J.

  	
  Jack-up leg chords

  
	
   

  	
  K.

  	
  Rig mast chord

  
	
   

  	
  L.

  	
  Rig mast lacing

  
	
   

  	
  M.

  	
  Blast joints

  

 A-1
 

 

 

	
   

  	
  N.

  	
  DH pump barrels

  
	
   

  	
  O.

  	
  DH pump parts

  
	
   

  	
  P.

  	
  Mud pump parts

  
	
   

  	
  Q.

  	
  Motor housings

  
	
   

  	
  R.

  	
  Top drive components

  
	
   

  	
   

  	
   

  
	
  IV.

  	
  Mechanical Tubing Products and Processes

  
	
   

  	
  A.

  	
  Drawn over mandrel production technologies

  
	
   

  	
  B.

  	
  QDOM high strength precision mechanical tubing

  
	
   

  	
  C.

  	
  Push bench and other methods of drawing small
  diameter tubing

  
	
   

  	
  D.

  	
  ISO-TS 16949 Quality Management Systems for
  Automotive

  

 

The Parties agree
to establish procedures to record the transfer by Lone Star and receipt by
Valin MPM of all Confidential Information, whether in written or electronic
format, related to Lone Star Technology.

The Parties will
prepare an addendum to this Agreement that will be presented to appropriate
Chinese government authorities as part of obtaining approval for this
transaction.  The Parties agree that such
addendum will not amend this Agreement including Schedule
A  and Schedule B.

 A-2
 

 

PATENTS
AND PENDING APPLICATIONS

	
  TITLE

  	
   

  	
  COUNTRY

  	
   

  	
  App No./Pat No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AEROCURVE FIN SEGMENT

  M120.010

  	
   

  	
  USA

  	
   

  	
  Pat No. 6,234,245

  Issued on 5/22/2001

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PROCESS FOR MAKING A STRIP FROM A ROD

  M120.006

  	
   

  	
  USA

  	
   

  	
  Pat. No. 5,638,714

  Issued on 6/17/1997

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TEXTURIZED FIN

  M120.021

  	
   

  	
  USA

  	
   

  	
  Pat. No. 5,377,746

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AERO CURVE FIN SEGMENT

  M120.107.2

  	
   

  	
  Japan

  	
   

  	
  Appln. No. 2001-540314

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AERO CURVE FIN SEGMENT

  M120.017.3

  	
   

  	
  Korea

  	
   

  	
  Appln. No. 2002-7006273

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUBULAR MEMBERS AND THREADED CONNECTIONS FOR CASING
  DRILLING AND METHOD

  	
   

  	
  USA

  	
   

  	
  Pat. No. 6817633

  November 16, 2004

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUBULAR GOODS WITH EXPANDABLE THREADED
  CONNECTIONS

  	
   

  	
  USA

  	
   

  	
  Pub. No. 2004/174017

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  STRETCH REDUCTION MILL

  	
   

  	
  USA

  	
   

  	
  Pat. No. 6128934

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUBULAR GOODS WITH THREADED INTEGRAL JOINT CONNECTIONS

  	
   

  	
  USA

  	
   

  	
  Appl. No. 11/227,399

  Filed 9/15/05

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SYSTEM AND METHOD FOR PRODUCING BIMETALLIC LINE
  PIPE

  	
   

  	
  USA

  	
   

  	
  Appl. No. 11/072,352

  Filed 3/4/05

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PUSH BENCH AND METHOD OF MANUFACTURING SMALL
  DIAMETER TUBING

  	
   

  	
  USA

  	
   

  	
  Appl. No. 11/038,807

  Filed 1/19/05

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TUBULAR GOODS WITH THREADED INTEGRAL JOINT
  CONNECTIONS

  	
   

  	
  CHINA

  	
   

  	
  CN 200510119937.1

  Filed 9/16/05

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SYSTEM AND METHOD FOR PRODUCING BIMETALLIC LINE
  PIPE

  	
   

  	
  CHINA

  	
   

  	
  CN 200510106723.0

  Filed 9/16/05

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PUSH BENCH AND METHOD OF MANUFACTURING SMALL
  DIAMETER TUBING

  	
   

  	
  CHINA

  	
   

  	
  CN 200510113245.6

  Filed 9/16/05

  

 

 A-3
 

 

 

IN WITNESS
WHEREOF, the Parties have executed this Schedule A
as of the day and year noted below.

	
  LONE STAR TECHNOLOGIES, INC.

  	
  HENGYANG VALIN MPM STEEL

  
	
   

  	
  TUBE CO., LTD

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  (SIGNATURE)

  	
  (SIGNATURE)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (PRINT NAME)

  	
  (PRINT NAME)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (TITLE)

  	
  (TITLE)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (DATE)

  	
  (DATE)

  

 

 A-4

 

Schedule
B

Areas of
Potential Training

	
  I.

  	
  Proprietary OCTG and Line Pipe Products and Services

  
	
   

  	
  A.

  	
  High collapse and high strength OCTG

  
	
   

  	
  B.

  	
  Enhanced properties with wall control

  
	
   

  	
  C.

  	
  Sour service grades

  
	
   

  	
  D.

  	
  Artic service grates

  
	
   

  	
  E.

  	
  Special clearance drift diameters

  
	
   

  	
  F.

  	
  Non-API casing sizes for unique well conditions

  
	
   

  	
  G.

  	
  High impact line pipe

  
	
   

  	
  H.

  	
  Lone Star Steel Technical Date Book

  
	
   

  	
   

  	
   

  
	
  II.

  	
  Oilfield Products Processing Certifications and
  Technologies

  
	
   

  	
  A.

  	
  American Petroleum Institute

  
	
   

  	
   

  	
  1.

  	
  API Q1: Specification for Quality

  
	
   

  	
   

  	
   

  	
  a.

  	
  API 5CT Certificate Casing and Tubing

  
	
   

  	
   

  	
   

  	
  b.

  	
  APT 5L Certificate Line Pipe

  
	
   

  	
   

  	
   

  	
  c.

  	
  API 5LD Certificate CRA Clad or Lined Steel Pipe

  
	
   

  	
  B.

  	
  American Association for Laboratory Accreditation

  
	
   

  	
   

  	
  1.

  	
  A2LA Certificate

  
	
   

  	
  C.

  	
  ISO 9001: 2000 Quality Management Systems

  
	
   

  	
   

  	
  1.

  	
  ISO 9001 Certificate

  
	
   

  	
  D.

  	
  ISO/IEC 17025 A2LA Accreditation Chemical and
  Physical Testing Labs

  
	
   

  	
  E.

  	
  American Bureau of Shipping: Certificate for Quality
  Assurance Program

  
	
   

  	
   

  	
  1.

  	
  ABS Certificate

  
	
   

  	
  F.

  	
  QS9000

  
	
   

  	
   

  	
  1.

  	
  QS9000 Certificate

  
	
   

  	
  G.

  	
  ISO 14001: Environmental Management Systems

  
	
   

  	
   

  	
  1.

  	
  ISO 14001 Certificate

  
	
   

  	
   

  
	
  III.

  	
  Premium and Special Purpose Connections

  
	
   

  	
  A.

  	
  Threading: API

  
	
   

  	
  B.

  	
  Star Seal – couplings for drilling with casing

  
	
   

  	
  C.

  	
  Star Seal – flush joint connection for tight
  clearance horizontal drilling

  
	
   

  	
  D.

  	
  Star Seal – integral joint for combined loads

  

 

 B-1
 

 

 

	
  IV.

  	
  Other Important Lone Star Oilfield Product
  Applications

  
	
   

  	
  A.

  	
  Subsea pipelines

  
	
   

  	
  B.

  	
  Riser wear sleeves

  
	
   

  	
  C.

  	
  Drilling templates

  
	
   

  	
  D.

  	
  Liner hangers

  
	
   

  	
  E.

  	
  Sand screens

  
	
   

  	
  F.

  	
  Perforating guns

  
	
   

  	
  G.

  	
  Meter run tubing

  
	
   

  	
  H.

  	
  Crane hydraulic cylinders

  
	
   

  	
  I

  	
  Seal-ring gaskets

  
	
   

  	
  J.

  	
  Jack-up leg chords

  
	
   

  	
  K.

  	
  Rig mast chord

  
	
   

  	
  L.

  	
  Rig mast lacing

  
	
   

  	
  M.

  	
  Blast joints

  
	
   

  	
  N.

  	
  DH pump barrels

  
	
   

  	
  O.

  	
  DH pump parts

  
	
   

  	
  P.

  	
  Mud pump parts

  
	
   

  	
  Q.

  	
  Motor housings

  
	
   

  	
  R.

  	
  Top drive components

  
	
   

  	
   

  	
   

  
	
  V.

  	
  Mechanical Tubing Products and Processes

  
	
   

  	
  A.

  	
  Drawn over mandrel production technologies

  
	
   

  	
  B.

  	
  QDOM high strength precision mechanical tubing

  
	
   

  	
  C.

  	
  Push bench and other methods of drawing small
  diameter tubing

  
	
   

  	
  D.

  	
  ISO-TS 16949 Quality Management Systems for
  Automotive

  

 

 B-2

 

Schedule
C

Valin MPM
Improvements

The Parties agree
to establish procedures to record the transfer by Valin MPM and receipt by Lone
Star of all Confidential Information, whether in writing or electronic format,
related to Valin MPM Improvements.

 

Addendum to
SCHEDULE A and SCHEDULE B

Lone Star
Oilfield Technology Know How, Training and Support

This Addendum has
been jointly prepared by Lone Star and Valin to provide a summary of the Lone
Star Technology including know how which is presently expected to be licensed
toHengyang Valin MPM Steel Tube Co., Ltd. (the “Valin MPM”) under the
Technology Cross License Agreement (TCLA). 
This Addendum also includes a summary of training which will be made
available to the Valin MPM as provided in the TCLA.  This Addendum will be added to Schedules A
and B of the TCLA.  However, this
Addendum does not modify, revise or in any way change the terms and conditions
of the TCLA or Schedules A and B.

Lone Star will
license the Valin MPM to use Lone Star technical know how associated with the
manufacture and sale of Lone Star Oil Country Tubular Goods (OCTG) and Line
Pipe as further defined in the TCLA. 
Such know how will be protected by the Valin MPM as Lone Star
Confidential Information in accordance with the TCLA.  Access to Lone Star know how will be provided
through knowledge integration programs, personnel development through exchange
and cross training and the sharing of technical papers.  Valin will pay the cost of such training as further
defined in the TCLA.

Some of the areas
in which Lone Star has developed proprietary technology are listed below.  Some of the proprietary technology and
associated know how has been developed under agreements with one or more third
parties.  LONE STAR WILL NOT MAKE
AVAILABLE TO THE VALIN MPM ANY LONE STAR TECHNOLOGY OR ASSOCIATED KNOW HOW
WHICH IS SUBJECT TO VARIOUS RESTRICTIONS AND LIMITATIONS UNDER AGREEMENTS
BETWEEN LONE STAR AND THIRD PARTY LICENSORS.

Lone Star has
pioneered many of the high-strength OCTG grades used today.  Many of these proprietary technologies have
resulted from work with industry standard associations, from developing applied
technology with leading energy companies and other OEM’s to influence design
specifications, and from long and extensive experience with downhole casing
string design and installation.  Some of
the products in which Lone Star has developed proprietary technical knowledge
include:

OCTG and Line Pipe
Products and Services

1.                                       High-Collapse
OCTG

1.1                                 High-Collapse
OCTG are proprietary grade casings designed for oil and gas wells where high
external pressures are anticipated. 
High-Collapse grades are

 

available in Specified Minimum Yield
Strengths (SMYS) from 55 to 125 ksi (380 to 862 MPa).  Certain process routings may vary by SMYS to
minimize production costs.  Processing
for High-Collapse OCTG is based on advanced compressive stress technology. The
design and fabrication of the High-Collapse grades is based on the development
of carbon low alloy steels, as well as a tight control process from steelmaking
to the rolling and heat treatment.

1.2                                 Licensed Know How
includes techniques to provide:

(a)                                              Excellent
Hardenabilty for Quenched and Tempered grades.

(b)                                             Low
residual stresses.

(c)                                              Fully
Tempered Martensitic structure for Quenched and Tempered grades.

(d)                                             High
Tempering temperature for Quenched and Tempered grades.

(e)                                              Through-wall
microstructural homogeneity.

(f)                                                Fine
grain structure.

(g)                                             High-impact
toughness.

(h)                                             Low
wall thickness variation (eccentricity).

(i)                                                 Low
ovality.

1.3                                 Advanced
compressive stress technology

(a)                                              A
library of approximately fifty (50) published papers, covering the production
of High-Collapse strength casing by controlling certain product attributes
including: circumferential compressive yield strength, residual stress. Processes
include radial compression (proprietary), alleviation of the Baussinger Effect
from rotary straightening, and dimensional control.

(b)                                             Certain
unpublished research, covering the production of High-Collapse strength casing
by controlling certain process routes including: radial compression, tube
straightening, relieving, annealing and quenching methods.

2.                                       High-Collapse Sour-Service OCTG

2.1                                 High-Collapse
sour-service OCTG are proprietary grade casings designed for oil and gas wells
where high external pressures and hydrogen sulfide are anticipated.  High-Collapse sour-service grades are
available in SMYS from 80 to 95 ksi (552 to 655 MPa).  The design and fabrication of the High-Collapse
sour-service is based on the development of carbon low-alloy steels, as well as
a tight control process from steelmaking to the rolling and heat treatment.

2.2                                 Licensed Know How
includes techniques to provide:

(a)                                              Clean
steel.

(b)                                             Deep
desulfurization.

(c)                                              Low
residual-elements contents  (this will
require modification of MPM’s scrap sourcing practices).

 

(d)                                             Tight
control of chemical composition range.

(e)                                              Low
residual stresses.

(f)                                                Excellent
Hardenabilty.

(g)                                             Fully
Tempered Martensitic structure.

(h)                                             Through-wall
microstructural homogeneity.

(i)                                                  Fine
grain structure.

(j)                                                 High-impact
toughness (CVN).

(k)                                              Low wall
thickness variation (eccentricity).

(l)                                                 Low
ovality.

3.                                       High-Strength OCTG

3.1                                 High-strength
OCTG are designed for deep wells service where high strength with good
ductility and fracture toughness are required.   These specialized products have strengths
ranging from SMYS 110 to 150 ksi (758 to 1034 MPa).  The increase of the yield strength reduces
steel ductility and fracture toughness. Lone Star has developed grades that
optimize this trade-off, and ensure high yield strength as well as good
ductility and fracture toughness.  The
toughness of steel can usually be traced back directly to its microstructure.
The design and fabrication of the High-Strength grades is based on the
development of Cr-Mo steels, as well as a tight control process from
steelmaking to the rolling and heat treatment.

3.2                                 Licensed Know How
includes techniques to provide:

(a)                                              Excellent
Hardenabilty.

(b)                                             Fully
Tempered Martensitic structure.

(c)                                              Through-wall
microstructural homogeneity.

(d)                                             Fine grain
structure.

(e)                                              High-impact
toughness (CVN and KIC).

(f)                                                Low
wall thickness variation (eccentricity).

(g)                                             Low
ovality.

4.                                       Green Tube manufacture and pipe finishing

4.1                                 “Green
Tube” is a United States Department of Commerce nomenclature for a pipe sold
for quenching and tempering and finishing into OCTG.   Green tubes are a subset of High-Collapse,
High-Collapse sour-service and high-strength OCTG. The design and fabrication
of the green tubes is based on the development of carbon low alloy and Cr-Mo
steels, as well as a tight control process from steelmaking to the rolling.

4.2                                 Licensed Know How
includes techniques to provide:

(a)                                              Proper
chemistry selection.

(b)                                             Clean
steel.

(c)                                              Deep
desulfurization.

 

 

(d)                                             Low
residual-elements contents  (this will require
modification of MPM’s scrap sourcing practices).

(e)                                              Tight
control of chemical composition range.

(f)                                                Control
of pipe Outside Diameter (OD).

(g)                                             Low
wall thickness variation (eccentricity).

(h)                                             Low
ovality.

5.                                       Arctic
Service Grade OCTG

5.1                                 Arctic Service OCTG is
designed to used in cold environments that need good low temperature toughness
to avoid brittle failure. Lone Star ́s Low temperature series have been designed
to cope with arctic environments and permafrost problems. These specialized
products have yield strengths ranging from SMYS 55 to 125 ksi (380 to 862 Mpa).
In frigid zones - due to cold embrittlement - high notch toughness at low
temperature for casing and tubing is required in order to withstand shock
during handling - storage, makeup and running. This technology covers two
separate processing routes:

(a)                                              Controlled
rolling for lower strength seamless tubulars.

(b)                                             Quenching
and tempering for higher strength tubulars.

(c)                                              Lone
Star thinks that controlled-rolling technology for skelp for ERW tubulars can
be adapted to hot rolling for seamless tubulars to eliminate the quenching and
tempering seamless mill usually require even for low-strength arctic-service
tubulars SMYS 55-65 ksi (380-483 MPa).

5.2                                 Licensed Know How
includes techniques to provide:

(a)                                              Formulation
of toughness targets.

(b)                                             Chemistry
selection.

(c)                                              Clean
steel.

(d)                                             Deep
desulfurization.

(e)                                              Low
residual-elements contents  (this will
require modification of Valin’s scrap sourcing practices).

(f)                                                Tight
control of chemical composition range.

(g)                                             Rolling
Temperatures and Reduction (SMYS 55 - 65 ksi (380 - 483 MPa).

(h)                                             Excellent
Hardenabilty (SMYS 80 - 125 ksi (552 - 862 MPa).

(i)                                                 Fully
Tempered Martensitic structure (SMYS 80 - 125 ksi (552 - 862 MPa).

(j)                                                 Through-wall
microstructural homogeneity (SMYS 80 - 125 ksi (552 - 862 MPa).

(k)                                              Fine
grain structure.

(l)                                                 High-impact
toughness (CVN).

(m)                                           Low wall
thickness variation (eccentricity).

(n)                                             Low
ovality.

 

6.             Critical Service (CO2) Grade OCTG

6.1                                 Lone
Star ́s Critical Service tubulars have been designed to face certain CO2 corrosive environments at a relatively low
cost. These specialized products have yield strengths ranging from SMYS 55 to
75 ksi (380 to 517 MPa).

6.2                                 Carbon
dioxide (CO2) is a weakly
acidic gas, which becomes corrosive when it dissolves in water. Corrosion of
carbon steel takes two forms.: 1) Localized Corrosion (pitting, mesa type, flow
induced corrosion) and 2) General Corrosion. 
The CO2 corrosion -
sweet corrosion - can be handled using CRAs (Corrosion Resistant Alloys).
However, for certain CO2 environments and production conditions, CRA
should not be economically justified. Based on specific applications: Lone Star
has developed 3 grades for this critical service: 13% Cr, 4% Cr and 1%Cr steel.

6.3                                 Licensed Know How for
these grades includes:

(a)                                              Chemistry
selection.

(b)                                             Clean
steel.

(c)                                              Deep
desulfurization.

(d)                                             Low
residual-elements contents (this will require modification of MPM’s scrap
sourcing practices).

(e)                                              Tight
control of chemical composition range.

(f)                                                Quenching
and tempering practices for the 13 Cr Grade.

(g)                                             Quenching
and tempering practices for the 4 and 1% Cr grade if required.

(h)                                             Low wall
thickness variation (eccentricity).

(i)                                                 Low
ovality.

7.                                       Special Clearance Drift Diameter OCTG

7.1                                 The
drift diameter is the inside diameter (ID) that the pipe manufacturer
guarantees per specifications. Note that the nominal inside diameter is not the
same as the drift diameter but is always slightly larger. The drift diameter is
used by the well planner to determine what size tools or casing strings can
later be run through the casing, whereas the nominal inside diameter is used
for fluid volume calculations such as mud circulating times and cement slurry
placement calculations.

7.2                                 Over-size
drift diameters permit the use of larger, more efficient drill bit sizes for
well construction.  The larger hole also
provides more room for fishing operations.

7.3                                 Over-size
drifts require better-than-API control of dimensions. Lone Star was the first
pipe manufacturer in the world to offer over-size drift casing, and has
continued process refinements to broaden the range of tube OD/wall combinations
that allow oversize drifts.  Lone Star
advanced processing techniques for the manufacture and processing of ERW OCTG
for oversize drift.  Lone Star thinks

 

portions of
these processes are applicable to the manufactures and heat treatment of
seamless OCTG.

7.4                                 Licensed Know How for
these grades includes:

(a)                                              Dimensional
control during rolling and heat treatment.

8.                                       Non-API Size OCTG for Unique Well Conditions

8.1                                 As stated above, drift diameter is the inside
diameter (ID) that the pipe manufacturer guarantees per specifications. A
subset of over-size drift diameters are Non-API Outside Diameter (OD) size OCTG
that permit the use of larger, more efficient drill bit sizes for well
construction.  The larger hole also
provides more room for fishing operations.

8.2                                 Beyond
pipe dimensional control for Non-API OD size OCTG products, special attention
must be paid to connection design and manufacture to allow interchangeability
with API or proprietary connections while maintaining the burst integrity of
the Non-API OD pipe.

8.3                                 Licensed Know How for
this product includes:

(a)                                              Dimensional
control during rolling and heat treatment.

(b)                                             Threaded connection
design.

(c)                                              Threading
practice.

9.                                       OCTG for Steam Assisted Gravity Drainage (SAGD)
applications.

9.1                                 Steam
Assisted Gravity Drainage (SAGD) is a 
thermal production method for heavy oil, and bituminous sands, that
pairs a high-angle injection well with a nearby production well drilled along a
parallel trajectory. The pair of high-angle wells is drilled with a vertical
separation of about 5 m [16 ft]. Steam is injected into the reservoir through
the upper well. As the steam rises and expands, it heats up the heavy oil,
reducing its viscosity. Gravity forces the oil to drain into the lower well
where it is produced. Bituminous sands are expected to be a major future source
of oil for the Americas, and it is estimated that 80% of these sands will be accessable
only by SAGD.  Purpose-made and processed
tubulars are better for this application that API commodity grade tubulars.

9.2                                 Casing
and connection reqiurements include resistance to combined high compression and
bending loads, with fluctating temperatures. SAGD grades are available in SMYS
from 55 and 80 ksi (380 and 552 MPa).

9.3                                 Licensed Know How for
this product includes:

(a)                                              Chemistry
selection.

(b)                                             Heat
Treating practice.

(c)                                              Connection
design and threading practice.

10.                                 Enhanced-Burst OCTG

10.1                           Manufacturing
methods to produce enhanced properties with better than API 5CT wall
control.  This is an extrapolation of
processes used to manufacture ERW tubulars and may not be applicable to MPM.

 

10.2                           Licensed
Know How for this product includes:

(a)                                              Pipe
hot rolling practice.

(b)                                             92.5%
Minimum Remaining Body Wall (RBW).

(c)                                              95%
Minimum RBW.

(d)                                             Non-Destructive Testing (NDT) testing
procedures.

11.                                 Expandable Tubulars

11.1                           Expandable
tubulars are used in oil and gas drilling to maintain favorable wellbore sizes
in wells requiring multiple, or possibly unforeseen, casing strings.  The final manufacturing step is performed
downhole after the casing string has been cemented in place, but before the
cement has set.  Expansion after running
allows better hydraulics for cementing. 
Lone Star is currently limited by existing agreements from licensing any
third party to use Lone Star Technology and know how related to Lone Star’s
current expandable tubular product line. 
Lone Star will work with MPM to develop an expandable casing product
consistent with the forthcoming specification API 5SET (Solid Expandable
Tubulars) and subject to the limitations of Lone Star’s existing agreements.

11.2                           Licensed Know How includes
techniques to provide:

(a)                                              Chemistry
selection consistent with API 5SET.

(b)                                             Clean
steel.

(c)                                              Deep
desulfurization.

(d)                                             Low
residual-elements contents (this will require modification of MPM’s scrap
sourcing practices).

(e)                                              Control
of pipe Outside Diameter (OD).

(f)                                                Low
wall thickness variation (eccentricity).

12.                                 High-Toughness Line Pipe

12.1                           Formulation
of toughness targets.

12.2                           Carbon
Equivalent and Toughness Targets.

12.3                           Advanced
Technical Industry Papers.

(a)                                              A
library of approximately forty (40) published papers, covering the production
of high toughness line pipe from Grades X-42 to X-120.  Note that grades above X-80 will not be
needed by Valin MPM as Grades above X-80 occur in pipe ODs larger than Valin
MPM intends to produce.

(b)                                             Certain
unpublished research, covering the production of high-toughness line pipe using
accelerated cooling of pipe.

13.                                 Manufacturing and Technical Applications of API
(5CT) and ISO (11960) Product Standards.

13.1                         In
addition to being knowledgeable in API and ISO Standards, certain Lone Star
employees occupy several key positions in oil industry tubular standardization
organizations:

 

(a)                                              Chair of
API Manufacturers Advisory Group.

(b)                                             Co-Chair
of API SC5.

(c)                                              API
representative to ISO-TC175 Liaison.

(d)                                             Lone
Star knowledge of API 5CT subtleties has already resulted in a more efficient
layout of MPM’s large OD OCTG finishing floor.

14.                                 Non-Destructive Testing

14.1                           Data
Collection/Use for Load Resistance Factor Design (LRFD) casing design.

14.2                           Expertise
in ISO requirements for Global Standardization.

15.                                 Proprietary down hole casing string design
software.

15.1                         Lone Star uses three casing
string design methods coded into software and is developing a fourth and
proposes a fifth.  The proposed program
would reside on a soft-key accessible website for use by Valin MPM partners.

(a)                                              Industry
Common Design Practice             (LSS
Casing II).

(b)                                             Maximum
Load
                                 (LSS
Casing III).

(c)                                              Equivalent
Triaxial Stress
                 (LSS
Casing IV).

(d)                                             Load
Resistance Factor Design          (LSS
Casing V under development).

(e)                                              Load
Resistance Factor Design II      (LSS Casing VI
proposed).

15.2                         Casings
II-V are restricted access by previous license agreements.  Lone Star will develop Casing VI for use by
Valin MPM subject to any limitations in Lone Star’s existing agreements.

15.3                         LRFD-II for high-pressure
high-temperature (HP-HT) wells (LSS Casing VI)

(a)                                              LSS Casing VI is proposed new
program.  It is not intended for license
or sale.  Although Casing VI will
incorporate all of the capabilities of LSS Casing II-IV, it will add Load
Resistances Factor Design (LRFD) methodology 
based on ISO TR-10400.

(b)                                             LRFD
II would combine ISO TR-10400 constitutive equations and other proprietary
limit state functions with performance parameters to quantify the resistance.  Statistical analysis and manufacturing
process knowledge are then applied to determining the stochastic performance of
the population.  Lot performance would
evaluated statistically and is understood by considering the manufacturing
process.

16.                                 Product Information

16.1                           Lone Star Steel Technical
Data Books

(a)                                              Lone
Star Steel Technical Data Books are the defacto industry standards for all API,
OCTG and Line Pipe.

16.2                           Databased Tailored product
information templates and packets

(a)                                              A
Excel-based proprietary software application to generate for product
information sheets, an item frequently requested tubular distributors and
end-users.

 

17.           Improved threading of API
Connections

17.1                         API
SR22

Users and manufacturers
can meet API requirements for connection tolerances and still potentially have
connections with very limited leak resistance. 
This deficiency and API 8-Round connections is now addressed by API SR22
to provide a reliable performance-based connection that is fit for
purpose.  Gauging methods are changed,
leak resistance ratings incorporate the effect of tension, makeup criteria
include both torque and position aspects, and connection tolerances are
improved.

17.2                         SR22 Specifications address
dimensions, gauging, coupling surface treatment, thread form, makeup, and
optional ID bore provisions.  The key API
LTC performance parameters are:

(a)                                              turns
makeup,

(b)                                             thread
taper,

(c)                                              coupling
OD and

(d)                                             thread
form.

17.3                         The number of turns of makeup
required varies depending on diameter and grade.  Important makeup parameters are:

(a)                                              thread
compound and

(b)                                             surface
finish to avoid galling (tin plating or phosphating, for example)

(c)                                              and
seal clearances in the thread form.

17.4                         Tin
plating is required on C90 and higher grades for improved leak resistance.

17.5                         Advantages of SR22 include:

(a)                                              Quantifiable
performance-based rating;

(b)                                             Root Cause
Failure Analysis;

(c)                                              Improved
accuracy and repeatability of pitch diameter (PD) measurement.

17.6                         Licensed Know How includes:

(a)                                              Tooling
Specifications.

(b)                                             Software
programming for Okuma NC threaders.

(c)                                              Gauging
Practice.

18.                                 Star Seal Proprietary Premium and Semi-Premium
connections

18.1                         Star Seal-CDC (Casing Drilling
Connection) (Semi-Premium)

(a)                                              Casing
Drilling is a process that uses standard oilfield casing to drill the well and
then leaves it in place to case the well. This process makes it possible to
speed up drilling 20 to 30 percent or more, by eliminating drill-string
tripping and the problems associated with it. Drill bits and other downhole
tools are lowered and retrieved via wireline inside the casing and latched to
the bottom-most joint of casing. Casing Drilling is used for surface casings
string for certain offshore wells in around the Pacific Rim and several niche
drilling applications in North America.

 

(b)                                             Star
Seal-CDC is field-proven connection specifically designed balance the higher
torque requirement of casing drilling with the economics required casing
drilling string in the North American market.

(c)                                              Lone
Star conducted connection evaluation and supplied the casing string for the
first well drilled from a dedicated casing drilling rig.

18.2                           Star
Seal - FJ: flush joint connection for slim
hole and horizontal wells. (Premium)

(a)                                              Star
Seal-Flush Joint (SS-FJTM) is a true-flush OD integral joint connection designed
for moderate internal pressure applications where tension, compression or
bending loads and annular clearance are significant concerns.  SS-FJTM is available in outside diameters from
4-1/2 through 8-5/8 inches in walls from .250 to .500 inches.  Thread features are:

(b)                                             Close-tolerance
hooked threads virtually eliminate thread pullout.

(c)                                              Rugged
thread seal (5 threads per inch).

(d)                                             Shallow
stab flank angles to increase the connection’s compressive capacity.

(e)                                              Connection
inside diameter and pipe body are flush to provide a smooth transition area.

(f)                                                Axial
metal-to-metal seal.

(g)                                             15-degree
radial torque shoulder to strictly control make-up position.

(h)                                             Qualification
testing for SS-FJ to Cal-II of ISO-36789 is underway.  SS-FJ has been in production for over three
(3) years and several million feet have been shipped and run successfully.

18.3                           Star
Seal – IJ: integral joint for combined loads. 
(Premium)

(a)                                              Star
Seal-Integral Joint (SS-IJTM) is a near-flush OD integral joint connection
designed for moderate to high internal pressure applications where tension,
compression or bending loads and annular clearance are significant
concerns.  SS-IJTM is available in outside diameters from 4-1/2 through 8-5/8
inches in walls from .250 to .500 inches.

(b)                                             SS-IJTM
takes advantage of the additional wall thickness made possible by forming the
pipe end to increase tensile efficiency. Close-tolerance hooked threads
virtually eliminate thread pullout.

(c)                                              Rugged
thread seal (5 threads per inch).

(d)                                             Shallow
stab flank angles to increase the connection’s compressive capacity.

(e)                                              Connection
inside diameter and pipe body are flush to provide a smooth transition area.

(f)                                                Axial
metal-to-metal seal.

(g)                                             15-degree
radial torque shoulder to strictly control make-up position.

 

18.4                           Star
Seal-TC: Coupled connection for high-pressure high-temperature (HP-HT) wells.
(Semi-Premium)

(a)                                              Star
Seal-TC (Threaded and Coupled) uses a near perfect buttress thread designed for
wells where moderate to high internal pressure and high-tension loads are
concerns.  Star Seal-TC is available in
outside diameters from 4-1/2 through 9-5/8 inches in walls from .250 to .500
inches.

(b)                                             Joint
strength is equal to API buttress, and burst rating is equal to 100 % of pipe
body.  Star Seal-TC takes advantage of
its superior sealing ability made possible by the reduced clearances between
threads and the use of tin coated couplings to make a virtually leak proof
connection. Improved thread tolerances reduce thread-to-thread clearances.
Thread features are:

(c)                                              Rugged,
field-proven buttress-type thread provides durability and high tension
strength.

(d)                                             Restricted,
favorable tolerances ensure sealing at end of pin.

(e)                                              Ductile
plating on coupling to improve sealing, reduce torque and inhibit galling.

(f)                                                Compatibility
with API buttress threads and running equipment.

(g)                                             Joint
strengths and internal yield ratings equal those of the corresponding size and
grade API Buttress connection.

(h)                                             Coupling
extension to stiffen and reduce hoop stress.

18.5                           Star
Seal –HW (Heavy Wall) for thick-wall high-pressure casing high-pressure
high-temperature (HP-HT) wells. 
(Premium)

(a)                                              SS-HW
has been run successfully in strings to set to over 24,000 ft (7,300 m). SS-HW
uses a near perfect buttress thread designed for wells where moderate to high
internal pressure and high-tension loads are concerns.  SS-HW is available in outside diameters from
5-1/2 through 14 inches in walls from .500 to .800 inches.  

(b)                                             Joint
strength and burst rating are equal to 100 % of pipe body.  Star Seal-HW takes advantage of its superior
sealing ability made possible by the reduced clearances between threads and the
use of tin coated couplings to make a virtually leak proof connection.

19.                                 Other Important Lone Star Oilfield Product
Application solutions developed from field work with customers and technical
expertise and know how for several niche products include:

19.1                           Subsea
pipelines – A subset of pipelines for offshore use usually made to customer
proprietary specifications instead of API standards.

19.2                           Riser
wear sleeves - Sacrificial wear resistant steel tube inserts to protect for
offshore well drilling risers.

 

19.3                         Drilling
templates – Pipe for fabricated frames anchored to the seafloor to which an
offshore platform may be attached.

19.4                         Liner
hanger tube - Tube from which to construct a mechanical device to anchor a “liner”.  A liner is a casing string that does not
extend to the top of the wellbore, but instead is anchored or suspended from
inside the bottom of the previous casing string.

19.5                         Sand
screens tubes – Tubes upon which to assemble sand screens.  Sand screens are a metal filter assemblies
used to support and retain wellbore formation sand or the sand placed during
gravel pack operations.

19.6                         Jack-up
leg chords – High-strength structural pipe for structural members for “jack-up
rig” legs.  A jack-up rig is a self-contained combination drilling rig and
floating barge, fitted with long support legs that can be raised or lowered
independently of each other.

19.7                         Rig mast
chord - Mild steel structural pipe for the main structural members for drilling rig “masts” – the structure used to
support the crown blocks and the drillstring. 
A land rig mast must have very good stiffness, because it will be laid
down when the rig is moved.

19.8                         Rig mast
lacing - Mild steel structural pipe for the structural members for drilling rig “masts” – the structure used to
support the crown blocks and the drill string. 
A land rig mast must have very good stiffness, because it will be laid
down when the rig is moved.

19.9                         Blast
joints – Thick-walled and/or
carbide-covered tubes which are run with OCTG tubing
strings opposite perforations in dual completions or directly below the tubing
hanger in sand frac situations, to minimize the effect of external erosive
action.

19.10                   DH pump barrels
– Tubes for downhole (DH) pump
barrels.  DH pumps are part of an artificial-lift system that uses
electrically driven submersible centrifugal pump specifically configured to
suit the production and wellbore characteristics of a given application.

19.11                   DH pump parts -
Tubes for downhole (DH) pump parts.  DH
pumps are part of an artificial-lift
system that uses electrically driven submersible centrifugal pump specifically
configured to suit the production and wellbore characteristics of a given
application.

19.12                   Mud pump parts
- Tubes for parts for oil and gas well drilling fluid (mud) pumps.

19.13                   Top drive
components – Tubes for a
topdrive, the device that turns the
drillstring. Topdrives consist of one or more motors (electric or hydraulic)
connected with appropriate gearing to a short section of pipe called a quill,
that in turn may be screwed into a saver sub or the drillstring itself. The
topdrive is suspended from the hook, so the rotary mechanism is free to travel
up and down the derrick. This is radically different from the more conventional
rotary table and kelly method of turning the drillstring because it enables
drilling to be done with three joint stands

 

instead of single joints of
pipe. Modern topdrives are a major improvement to drilling rig technology and
are a large contributor to the ability to drill more difficult extended-reach
wellbores.

19.14                   Note that the above products described include
tubes made the by the drawn over mandrel (DOM) process and pipe.  Also, that MPM’s equipment limitations may
exclude certain of these products.

20.                                 Mechanical Tubing Products and Processes

20.1                           Drawn
Over Mandrel (DOM) production technologies.

(a)                                              Cold
Drawn Over Mandrel (DOM) - Tubing is pulled both through a die and over a
mandrel to accurately and precisely size the tube’s OD, Wall and/or ID
dimensions. Tubes produced by the DOM process results in closer tolerances,
smoother surfaces, and greater strength. In addition to round tubes, shapes
such as squares, hexagons, ovals, and rectangles can be produced.

(b)                                             QDOM
– Quenched and Tempered high-strength DOM tubing for applications  that require very high strength and high
toughness (CVN).

20.2                           Pushbench
and other methods of drawing small diameter tubing.

(a)                                              A
“pushbench”, for the purposes of Valin MPM, is a compact replicatable draw shop
for the cold finishing short and medium length 10 ft (3m) tubes.

(b)                                             The
pushbench functions similar to a machining cell.

(c)                                              Beyond
general manufacturing pushbenchs may offer particular advantage  for finishing automotive tubulars for
suspension, transmission and steer applications and possibly door intrusion
beams.

(d)                                             DOM
niche products include:

(e)                                              Perforating
Gun Tubes – Tubes for a device used to perforate oil and gas wells in
preparation for production. The “guns” are shaped explosive charges mounted in
the tube housing for easy deployment.

(f)                                                Meter
Run Tubes – Tubes with calibrated inside diameters to allow accurate  flow rate measurement of liquid or gases into
pipelines.

(g)                                             Seal-Ring
Gasket Tubes – Tubes used to make seal rings for process plant piping and to
make metal-jacketed gaskets. 
Metal-jacketed gaskets, consist of a metallic outer shell with either a
metallic or non-metallic asbestos free filler. The filler material gives the
gasket resilience, while the metal jacket protects the filler and resists
pressures, temperatures and corrosion. Metal-jacketed gaskets are used for heat
exchangers, pumps and valves.

21.                                 Fintube Technology

21.1                         Finned
tubes are used primarily for heat recovery steam generation in coal and natural
gas fired power plants. Steel strip, with dimensions determined by plant

 

fuel are
electric resistance welded to the OD surface of steel tubulars, effectively
increasing their surface area relative to their volume, thus increasing heat
conduction efficiency.  Lone Star
Technologies’ Fintube subsidiary is a recognized world leader in finning
technology.

21.2                         Fin
design and fintube manufacture are covered by several patents licensed to the
joint venture, among which are:

(a)                                              Aerocurve
Fin Segment, USA Pat No. 6,234,245.

(b)                                             Process
for Making Strip from Rod, USA Pat. No.5,638,714.

(c)                                              Texturized
Fin, USA Pat. No. 5,377,746.

21.3                         Licensed
Know How includes:

(a)                                              Equipment
specifications and operation.

 

Some
Definitions

API                                                                                                                    American
Petroleum Institute.  A standardization
organization composed of manufacturers, users and other interested
parties.  API publishes product standards
for the oil and gas industry that are used worldwide.  API standards are consensus standards.  Consensus standards are those for which a
consensus can be reached on solutions that meet both the requirements of
business and the broader needs of society, such as the needs of stakeholder
groups like consumers and users.

Burst
                                                                                                             The
pressure at which pipe ruptures.

Internal
Yield                                                                      The
pressure which generates at stress equal to the specified minimum yield
strength (SMYS) of the steel on the inside diameter of the tube wall pipe or
tube.

ISO                                                                                                                     “ISO”
standards are published by the International Organization for Standardization
(ISO). ISO is a network of the national standards institutes of 156 countries,
operating on the basis of one member per country.  A Central Secretariat in Geneva, Switzerland
coordinates the system.  ISO standards
are consensus standards, and cover products and services beyond the oil and gas
industry. “Iso” is Greek for “equal”. 
ISO is used the name for the organization, instead of International
Organization for Standardization, to keep from having different abbreviations
in different languages.

Pipe
                                                                                                                   Tubulars
that are finished products: Casing, Tubing, Line Pipe, Drill Pipe, Standard
Pipe and Piling.

Non-API
OD                                                                      Pipe
diameters not listed in the current Edition of API 5CT (Casing and Tubing).

OCTG
                                                                                                         Oil
Country Tubular Goods: pipe used in the drilling and production of oil and gas
wells - Casing, Tubing, Drill Pipe and Couplings.

OEM
                                                                                                              Original
Equipment Manufacturers.  OEMs are companies that build
products, or components, which are used in products sold by another company.

Riser                                                                                                                  A
large-diameter pipe that connects a subsea Blowout Preventer (BOP) stack to a
floating surface rig to take drilling fluid returns to the surface.

 

Without the riser, the
drilling fluid would simply spill out of the top of the stack onto the
seafloor. The riser might be loosely considered a temporary extension of the
wellbore to the surface.

SMYS                                                                                                           Specified
Minimum Yield Strength.  Steel strength
listed in a given standard used to calculate some performance properties for
pipe or tubes, particularly in API and ISO standards.

Tube
                                                                                                              Tubulars
that is used to make a finished product: Bushings, bearings, housings,
cylinders etc.

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