Document:

EX 10.51 Jerry J Szilagyi

		
			Employment Agreement – Integrity Mutual Funds, Inc. 

			Jerry J. Szilagyi - Employment Agreement

			AGREEMENT effective as of April 1, 2004 by and between Integrity Mutual Funds, Inc., a Corporation organized and existing under the laws of the State of North Dakota, having an office and principal place of business at I North Main, Minot, North Dakota 58703 (hereinafter referred to as the ‘Employer” or “Company”), and Jerry J. Szilagyi, an individual residing at 5 Abbington Drive, Lloyd Harbor, New York 11743, (hereinafter referred to as the “Employee”). 

			WITNESSETH: 

			WHEREAS, Employer desires to procure the services and access the business knowledge and contacts of Employee upon the terms herein set forth; and 

			WHEREAS, Employee desires to render services upon the terms herein set forth; and 

			WHEREAS, this Agreement will replace in its entirety the prior employment agreement between Employer and Employee dated May 1, 2003. 

			NOW THEREFORE, in consideration of the premises herein, and the mutual promises and undertakings herein contained and for other good and valuable consideration, the parties agree as follows:

			  

			The Employer hereby employs the Employee and the Employee hereby accepts employment upon the terms and conditions hereinafter set forth.

			  

			1.     Purpose: This contract is made in order that the Employer may procure access to: (i) the investment industry knowledge, (ii) investment industry contacts and (iii) strategic planning and business acquisition experience of Employee. Employee agrees to devote Employee’s professional and business knowledge, energies and endeavors to the business of Employer in the manner directed by the Employer’s Chief Executive Officer (CEO) and/or Board of Directors of Integrity Mutual Funds, Inc., and shall operate at all times in strict accordance with the ethical standards of a securities and business professional. 

			2.     Duties. The Employee agrees to act as Senior Vice President for Business Development. Employee shall report to the Employer’s CEO and/or Board of Directors of Integrity Mutual Funds, Inc. Employee’s areas of responsibility shall include but are not limited to:

			a)            Strategic planning for the Employer through interaction, collaboration and work with the Employer’s management team. 

			b)            Assist senior management with the development and execution of a business plan including strategic initiatives with specific emphasis on mergers and acquisitions, all with the goal of enhancing Employer’s shareholder value. 

			c)            Identification, structuring and closing strategic growth transactions. 

			d)            Corporate finance and capital raising or restructuring on behalf of the Employer.

			e)            Such further responsibilities which are consistent with Employee’s position, title and experience as are reasonably assigned or directed to Employee by the Employer’s CEO and/or Board of Directors of Integrity Mutual Funds, Inc. 

			3.      Employee may continue to do consulting work with Abbington Capital Group LLC (with prior consent of Employer for each new project) so long as it does not interfere with his duties with Employer, create actual or appearance of conflict of interest with Employer, or detract from time and responsibilities more appropriately devoted to Employer’s interests. Employee will pay Employer 50% of any fees earned on Abbington Capital Group consulting projects related to merger and acquisition and strategic advisory services for investment management and other financial firms that are initiated during the term of this Agreement. 

			4.      Employer will indemnify Employee for claims against Employee that arise from lawful actions of the Employee done within the scope of Employee’s employment. 

			5.      Term: Subject to the provisions for termination as hereinafter provided, the term of this Agreement shall begin and be effective on the effective date written above, and shall continue for a period of three years thereafter (until March 31, 2007) unless otherwise terminated pursuant to terms of this agreement (the “Initial Term”). At each annual anniversary during the Initial Term, the Employer and Employee may mutual agree in writing to terminate or otherwise modify the terms of this Agreement. After the Initial Term, the term of this Agreement shall be automatically renewed for successive one-year periods upon the same terms and conditions existing at the end of term most recently ended unless either party hereto shall notif~’ the other party hereto in writing at least 30 days prior to the expiration of the Initial Term or any renewal term, as the case may be, that the term of this Agreement will not be renewed at the end of the Initial Term or any renewal term, as the case may be. 

			6.      Employee shall be allowed to work out of a home office in New York or an office maintained by Employer in Long Island, New York, for a portion of his time. Employee agrees that he must spend a minimum of fifty working days annually in the Minot, North Dakota office of Employer or other offices maintained by Employer outside of New York. Employee will be reimbursed up to a maximum of $2,500 per month cumulative for travel to and temporary living expenses in Minot, North Dakota. Amounts above $2,500 per month must be specifically authorized in advance by the Employer’s CEO. 

			7.      Salary Compensation: For all services rendered by the Employee during the term of this Agreement, the Employer shall pay to the Employee as salary (or other applicable payment) the sum of one hundred twenty thousand dollars ($120,000) per year as salary, which sum shall be payable under the Employer’s normal salary payment schedule commencing on the last day of the month of March, 2004 and continuing for the entire term hereof. All salary compensation provided for in this Agreement shall be subject to the Employer deducting therefrom Social Security, Medicare, federal and state income taxes and any and all withholding payments as may be required by law. 

			8.      Bonus Override: Employee will receive a bonus override (hereinafter referred to as the “Bonus”) equal to two percent (2.0%) of the revenue associated with Integrity Mutual Funds, Inc. mutual fund business segment excluding commission and rule 12b-1 fee revenue received by the funds’ distributor. Said amount shall be determined in accordance with GAAP and the amounts as confirmed by the independent auditor regularly engaged by Employer shall be the final determination of the revenue amount. The Bonus will be paid monthly based on the calendar month mutual fund segment revenue as reported by Employer. If Employee is employed for less than the full calendar month, the Bonus will be prorated. 

			9.      Finder’s Fee: Employee will receive a finder’s fee (hereinafter referred to as the “Finder Fee”) equal to 25 basis points (0.0025) of new assets under management that the Company or its affiliates receives as a result of Employee’s sourcing, negotiating, structuring or other assistance in executing joint venture or similar strategic transactions. The Finder Fee will be paid at the time when new assets under management are received by the Company. New assets under management as a result of sales generated through the Employer’s wholesalers and acquisitions covered under Section 10 will be excluded from the Finder Fee. 

			10.      Success Fee: Employee will receive a success fee (hereinafter referred to as the “Success Fee”) calculated under the Lehman formula (defined as 5% of the first $1 million of transaction value plus 4% of the second $1 million of transaction value and soon until 1% of amounts over $4 million) upon the successful completion of mergers, acquisitions or similar transactions of the Company as a result of Employee’s sourcing, negotiating, structuring or other assistance in executing such transactions. The Success Fee may be paid as a consulting fee to Abbington Capital Group LLC if mutually agreed by the parties. If an outside “finder” is to be paid a finder’s fee on a transaction, Employee and the Company will renegotiate the Success Fee payable under this Section 10 on mutually agreeable terms. 

			11.      Royalty: Employee will receive a royalty payment (hereinafter referred to as the “Royalty”) equal to an annual rate of 5 basis points (0.0005) times the Company’s assets under management in products related to transactions subject to sections 9 and 10 of this agreement. Such Royalty payment will be calculated and paid quarterly based on assets under management at the end of each calendar quarter. 

			12.      Options: Employee will receive options to purchase 2,000,000 of Employer’s common shares (currently traded under the symbol IMFD) at a price of $0.50 per share pursuant to the terms of this Section 12. Such options will vest at the rate of 250,000 per calendar quarter (each three months) starting from March 31, 2004 and have an expiration date ten years from each vesting date. The number of options and the common share purchase price will be subject to adjustment upon stock splits or other similar restructuring of Employer’s common shares. If the Employee’s employment with Employer is terminated for reasons outlined under section 19 of this agreement, all unvested options will be forfeited. If the Employee’s employment with Employer is terminated by the Employer for any other reason, or if Employer is involved in a corporate transaction where there is a change of control of the Company, all unvested options will become vested on the termination or change of control date. 

			13.      Other Employee Benefits 

			(a)      The Employer shall pay for and/or reimburse the Employee for the cost of attending required professional, management or technical seminars and maintaining professional licenses and designations. 

			(b)      The Employer shall maintain for the benefit of the Employee such medical, hospitalization, life and disability insurance with Employee to receive at a minimum, those benefits provided to other executive officers. The Employer agrees to provide Employee with Group term life insurance for one times Employee’s annual salary up to $100,000 commencing May 1, 2004. The Company will also provide for group long-term disability commencing May 1,2004. Employer agrees to provide Employee with long-term disability insurance with benefits equal to Employees salary. 

			(c)      The Employee is authorized to incur reasonable expenses for promoting and advancing the business of the Employer, including the expenses for entertainment, travel and similar items. The Employer will pay for and/or reimburse the Employee for all such reasonable expenses upon the presentation by the Employee, from time to time, of an itemized account of such expenditures in a form complying with all applicable rules and regulations of the Internal Revenue Service and reasonable requirements of the Employer. 

			(d)      The Employee shall be entitled to a vacation of up to four weeks per calendar year, or pro rata for a portion of a calendar year, without a reduction in compensation. The time of said vacation shall be determined by Employee with reasonable notice to be given to the Employer. 

			(e)      The Employee shall be entitled to sick leave in accordance with regular Employer policies without a reduction of Employee’s salary. 

			(f)      The Employee will participate in and receive any available benefits to employees under the Employer’s current 401K plan and any future pension, profit sharing or retirement plans which the Company may install, in accordance with the provisions of each plan.

			(g)      The Employee will participate in and receive any available benefits or distributions to employees under the Employer’s current ESOP plan in accordance with the provisions of such plan. 

			14.      Key Man Life Insurance: The Employer may, in its discretion, at any time after the execution of this Agreement, maintain for its own benefit, insurance on the life of the Employee, in such amounts and in such form or forms as the Employer may choose. The Employee shall have no interest whatsoever in any such policy or policies, but shall, at the request of the Employer, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Employer has applied for such insurance. 

			15.      Confidentiality and Disclosure of Information: The Employee recognizes and acknowledges that the Employer is engaged in the furnishing of certain financial services, securities brokerage and other customer related services some of which are intangible and not quantifiable and that there may be techniques and concepts which become a part of the proprietary rights of the Employer in and to the Employer’s techniques, operations and procedures. During the course of Employee’s employment hereunder, the Employee may develop or come into contact with, as same may exist from time to time, such techniques, operations and procedures, all of which are valuable, special and unique assets of the Employer’s business. The Employee shall not, during or after the term of Employee’s employment, without the prior written consent of the Employer, remove any software, files, records, lists, materials, documents, names or other matters which may come to Employee’s attention, including copies or abstractions therefrom, or Employee’s own notes made therefrom; disclose the names of the Employer’s customers, other employees or agents or any part thereof, nor make use of, nor disclose, divulge or reveal the files, records, materials, documents, or client names, owned by the Employer to any person, firm, corporation, association or any other entity, for any reason or purpose harmful to the company. The Employee further covenants and agrees that Employee shall retain all such knowledge and information which Employee shall acquire and develop during Employee’s employment respecting the customers and other confidential information in trust for the sole benefit of the Employer and its successors and assigns. In the event of a breach or threat of breach by the Employee of the provisions of this paragraph, the Employer shall be entitled to an injunction, restraining the Employee from any breach or threatened breach of the terms of this Agreement without the posting of any bond or security. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threat of breach, including the recovery of actual damages incurred from the Employee. 

			16.      Non Solicitation of Employees and Agents: Employee during the period commencing on the date hereof and ending one year after the termination of the Employee’s employment by Employer for any reason, the Employee shall not directly or indirectly induce or attempt to induce any of the employees or representatives of Employer to leave the employ of or association with Employer, or solicit the business of any client or customer of Employer. 

			17.      No Relationship with Local Competitor. During the period commencing on the date hereof and ending five years after the termination of the Employee’s employment by Employer for any reason, the Employee shall not be employed by, consult for, invest in, utilize the services of, or otherwise maintain any business relationship with Viking Fund Management, LLC, Viking Fund Distributors, LLC or Viking Mutual Funds of Minot, North Dakota or any successor or successors thereof. 

			18.      Covenant to Report: All written materials, records, software and documents made by the Employee or coming into Employee’s possession during the term of this Agreement concerning the business or affairs of the Employer, shall be the sole property of the Employer, and upon the termination of the employment period or upon the request of the Employer during this period, the Employee shall promptly deliver the same to the Employer, or any affiliate designated by it. The Employee agrees to render to the Employer, or any affiliate designated by it, such reports of the activities undertaken by the Employee or conducted under the Employee’s discretion pursuant hereto during the employment period as the Employer may request. In the event of a breach or threat of breach by the Employee of the provisions of this paragraph, the Employer shall be entitled to an injunction, restraining the Employee from any breach or threatened breach of the terms of this Agreement. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threat of breach, including the recovery of actual damages incurred from the Employee.

			19.      Termination: All compensation, including fringe benefits, if any, shall cease upon termination of employment if terminated in accordance with this section. This Agreement may be terminated by mutual written agreement and may also terminate upon the Employee’s commission of an act of fraud, misappropriation or embezzlement by the Employee in the performance of his duties to the Employer or willful misconduct or gross negligence by the Employee in the performance of his duties to the Employer or the conviction of a crime or violation of any federal, state or self regulatory organization rule or regulation by Employee which would by law or regulatory rule prevent or impair Employee from carrying out his duties and responsibilities under this agreement. 

			20.      Death or Disability: Upon the death or disability of the Employee, Employer will continue to provide all compensation and fringe benefits outlined in this Agreement to the Employee, or his estate or heirs as the case may be, for a period of six months from the date of death or disability. After six months all compensation and fringe benefits will terminate. 

			21.      Amendment or Alterations: No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both the Employer and the Employee. 

			22.      Choice of Law and Venue: This Agreement shall be governed by the laws of the State of North Dakota. Any action brought concerning this contract shall be venued in Minot, North Dakota. 

			23.      Notices: Any notices or tenders required or permitted to be given under this Agreement shall be sufficient, if in writing and if sent by registered mail to the residence of the Employee or to the residence of the legal representative of the estate of the Employee or to the principal place of business of the Employer and shall be deemed given when mailed. 

			24.      Waiver of Breach: The waiver by Employer or by Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by either of the parties hereto. 

			25.      Binding Effect: The terms of the Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, successors and assigns. 

			26.      Entire Agreement: This instrument contains the entire agreement of the parties. 

			IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written.

			 

			Employer: 

			Integrity Mutual Funds, Inc.

			By: /s/ Robert E. Walstad

			Print Name and Title: Robert E. Walstad, CEO

			 

			Employee:

			Jerry J. Szilagyi

			Signature:/s/ Jerry J. SzilagyiMIXED CAPITAL COMPANY

 

Exhibit 10.1

MIXED CAPITAL COMPANY CONTRACT

BETWEEN:

- The Committee of the Union of the Hebei Junfeng Prospecting Equipment
Company, a legal entity, constituted in accordance with the laws of the
People’s Republic of China, and having its head office in Xushui District,
Hebei Province, People’s Republic of China, having as its legal representative
Mrs FANG Lihua, President, of Chinese nationality, represented by Mr LI Haiyan,
duly authorised to sign the present contract as described in appendix 23,

Hereafter referred to as the “UNION”

- The Dongfang Geological Prospecting Limited Liability Company, a legal
entity, constituted in accordance with the law of the People’s Republic of
China, and having its head office at 65 Fanyang Road, Zhuozhou, Hebei Province,
People’s Republic of China, having as its legal representative Mr WANG Xiaomu,
President, of Chinese nationality, represented by Mr XU Wenrong, duly
authorised to sign the present contract, as described in appendix 23,

Hereafter referred to as “DONGFANG”

- The Xian General Factory for Oil Prospecting Equipment, an legal entity,
constituted in accordance with the laws of the People’s Republic of China, and
having its head office at 8 South Road Hong Zhuan, Xian, Shanxi Province,
People’s Republic of China, having as its legal representative Mr SUN Peng,
Chief Executive Officer, of Chinese nationality, duly authorised to sign the
present contract as described in appendix 23,

Hereafter referred to as “XPEIC”

and

- Sercel, a company constituted in accordance with French laws, and having its
head office at 16 Rue de Bel Air 44470 Carquefou, France, having as its legal
representative Mr Thierry LE ROUX, President and Chief Executive Officer, of
French nationality and duly authorised to sign the present contract, as
described in appendix 23,

Hereafter referred to as “SERCEL”

Hereinafter referred to jointly as the “PARTIES” and individually as the
“PARTY”

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INDEX

	1.	 	GENERAL PROVISIONS
	2.	 	DEFINITIONS
	3.	 	COMPANY’S NAME, ADDRESS AND LEGAL FORM
	4.	 	COMPANY PURPOSE
	5.	 	TOTAL INVESTMENT AND SHARE CAPITAL
	6.	 	TRANSFER OF SHAREHOLDINGS
	7.	 	RESPONSIBILITIES OF THE PARTIES DURING THE SETTING UP AND OPERATION OF THE COMPANY
	8.	 	LAND AND BUILDINGS
	9.	 	TECHNOLOGY
	10.	 	CONFIDENTIALITY
	11.	 	NON-COMPETITION
	12.	 	PURCHASE OF EQUIPMENT AND RAW MATERIALS OR COMPONENTS
	13.	 	PRODUCT MARKETING
	14.	 	TRADEMARKS AND CORPORATE NAME
	15.	 	PREPARATION COMMITTEE
	16.	 	BOARD OF DIRECTORS
	17.	 	GENERAL MANAGEMENT
	18.	 	PERSONNEL
	19.	 	TAXATION, ACCOUNTANCY, FINANCIAL AFFAIRS AND DISTRIBUTION OF PROFITS, AUDIT
	20.	 	GUARANTEES
	21.	 	INSURANCE
	22.	 	DURATION
	23.	 	REORGANISATION OF THE PARTIES
	24.	 	RESPONSIBILITY FOR BREACH OF CONTRACT
	25.	 	DISSOLUTION AND LIQUIDATION
	26.	 	FORCE MAJEURE
	27.	 	HARDSHIP
	28.	 	MODIFICATIONS TO THE CONTRACT
	29.	 	APPLICABLE LAW
	30.	 	SETTLEMENT OF DISPUTES
	31.	 	LANGUAGE
	32.	 	PARTIAL INVALIDITY
	33.	 	TERMS FOR EXERCISING AN OPTION TO BUY
	34.	 	ENTRY INTO EFFECT OF THE CONTRACT AND MISCELLANEOUS PROVISIONS

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APPENDICES:

	1.	 	RIGHT TO USE THE LAND CERTIFICATE
	2.	 	BUILDINGS OWNERSHIP CERTIFICATES AND/OR ATTESTATIONS
	3.	 	EQUIPMENT OWNERSHIP CERTIFICATES AND/OR ATTESTATIONS
	4.	 	SHAREHOLDING TRANSFER CONTRACT BETWEEN SERCEL AND THE UNION
	5.	 	SHAREHOLDING TRANSFER CONTRACT BETWEEN XPEIC AND DONGFANG
	6.	 	XPEIC’S ACTIVITIES
	7.	 	CABLE 408 TECHNOLOGY LICENCE CONTRACT
	8.	 	DONGFANG TECHNOLOGY LICENCE CONTRACT
	9.	 	SERCEL TRADEMARK AND CORPORATE NAME LICENCE CONTRACT
	10.	 	JUNFENG TRADEMARK AND CORPORATE NAME LICENCE CONTRACT
	11.	 	DISTRIBUTION CONTRACT
	12.	 	EMPLOYMENT CONTRACT
	13.	 	LIST OF PRODUCTS (marketed under the JUNFENG TRADEMARK or under the COMBINED TRADEMARK)
	14.	 	LIST OF TECHNOLOGIES OWNED BY JUNFENG AND LIST OF TECHNOLOGIES CONCEDED UNDER LICENCE TO JUNFENG BY DONGFANG
	15.	 	LIST OF ASSETS WITH A MORTGAGE RIGHT OR THIRD PARTY RIGHT
	16.	 	LIST OF EQUIPMENT NOT IN WORKING ORDER AND NOT AFFORDING NORMAL SAFETY CONDITIONS
	17.	 	LIST OF BANK BORROWINGS
	18.	 	LIST OF INSURANCE POLICIES
	19.	 	LIST OF AGENTS AND DISTRIBUTORS
	20.	 	LIST OF CONTRACTS AND AGREEMENTS CONCLUDED BY JUNFENG
	21.	 	LIST OF DISPUTES AND COMPLAINTS AGAINST JUNFENG
	22.	 	MINUTES OF THE JUNFENG GENERAL MEETING AND THE GENERAL MEETING OF
SHAREHOLDER EMPLOYEES CONFIRMING THE SHAREHOLDING TRANSFERS AND
JUNFENG’S REORGANISATION INTO A CHINESE AND FOREIGN CAPITAL COMPANY
	23.	 	DONGFANG’S POWER

XPEIC’S POWER

UNION’S POWER

SERCEL’S POWER
	24.	 	USE OF THE COMPANY’S TECHNOLOGY IN CASE OF LIQUIDATION

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GIVEN THAT:

(a) The Hebei Junfeng Prospecting Equipment Company (hereafter JUNFENG) is a
limited liability company in which the UNION and DONGFANG held 75% and 25%
respectively of the share capital.

(b) As part of a shareholding transfer contract signed on 26th November 2003,
the UNION transferred shares to SERCEL such that after the transfer SERCEL
holds 51% of JUNFENG’s capital and as part of a shareholding transfer contract
signed on 26th November 2003, DONGFANG transferred shares to XPEIC such that
after the transfer XPEIC holds 12% of JUNFENG’s capital.

(c) Following these transfers and amicable negotiations, the PARTIES decided to
establish a company with Chinese and foreign capital by modifying JUNFENG’s
legal form.

WHAT FOLLOWS HAS BEEN DECIDED AND AGREED:

ARTICLE 1 — GENERAL PROVISIONS

In accordance with the law of the People’s Republic of China concerning mixed
capital companies and the other applicable Chinese laws and regulations, the
UNION, DONGFANG, XPEIC and SERCEL, in observance of the principles of equality
and reciprocity, and following amicable discussions, agreed to transform
JUNFENG legally and establish a mixed capital company whose object is the
development, production and marketing of the PRODUCTS.

ARTICLE 2 — DEFINITIONS

In the context of the present CONTRACT, the terms below are defined in the
following manner:

APPROVING AUTHORITY refers to the Chinese authority charged with approving the
present CONTRACT (in other words the local office of the Ministry of Trade).

BUILDINGS refers to the buildings described in the CERTIFICATE OF BUILDINGS
OWNERSHIP and in the joint attestation of the UNION and DONGFANG enclosed in
appendix 2.

CERTIFICATE OF RIGHT TO USE THE LAND refers to the certificate enclosed in
appendix 1.

CERTIFICATES AND/OR ATTESTATIONS OF BUILDINGS OWNERSHIP refer to the
certificates and/or attestations enclosed in appendix 2.

CERTIFICATES and/or ATTESTATIONS OF EQUIPMENT OWNERSHIP signify the
certificates and/or joint attestations of the UNION and DONGFANG certifying
that the equipment used by JUNFENG is its sole property and that JUNFENG has
full use thereof, the said documents being enclosed in appendix 3.

CONTRACT refers to the present mixed capital company contract.

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SHAREHOLDING TRANSFER CONTRACTS refer to the shareholding transfer contract
signed between the UNION and SERCEL and the shareholding transfer contract
signed between DONGFANG and XPEIC enclosed respectively in appendices 4 and 5.

DISTRIBUTION CONTRACT refers to the export marketing contract signed between
SERCEL and the COMPANY enclosed in appendix 11.

“SERCEL” TRADEMARK AND CORPORATE NAME LICENCE CONTRACT refers to the contract
enclosed in appendix 9 under which SERCEL concedes to the COMPANY a
non-exclusive licence to use at no cost its trademark and name.

“JUNFENG” TRADEMARK AND CORPORATE NAME LICENCE CONTRACT refers to the contract
enclosed in appendix 10 under which the UNION and DONGFANG concede to the
COMPANY an exclusive licence to use at no cost the trademark and name JUNFENG.

CABLE 408 TECHNOLOGY LICENCE CONTRACT signed between SERCEL and the COMPANY
refers to the contract enclosed in appendix 7.

DONGFANG TECHNOLOGY LICENCE CONTRACT refers to the contract signed between
DONGFANG and the COMPANY enclosed in appendix 8.

TECHNOLOGY LICENCE CONTRACT refers to any other technology licence contract
that may be signed subsequently by the COMPANY.

APPENDED CONTRACTS refers to:

	 	–	 	the SHAREHOLDING TRANSFER CONTRACTS
	 	–	 	the CABLE 408 TECHNOLOGY LICENCE CONTRACT
	 	–	 	the DONGFANG TECHNOLOGY LICENCE CONTRACT

	 	–	 	the SERCEL AND JUNFENG TRADEMARK AND CORPORATE NAME LICENCE
CONTRACTS

	 	–	 	the DISTRIBUTION CONTRACT
	 	–	 	the EMPLOYMENT CONTRACT

EFFECTIVE DATE refers to the date on which the present CONTRACT, the MEMORANDUM
AND ARTICLES OF ASSOCIATION and the SHAREHOLDING TRANSFER CONTRACT are approved
by the APPROVING AUTHORITY, subject to the first paragraphs of articles 7.1 and
7.2 and article 15 which will become effective on the date the present CONTRACT
is signed.

COMPANY INCORPORATION DATE refers to the date when the operating licence is
issued to the COMPANY by the Trade and Industry Authorities.

RIGHT OF PRE-EMPTION refers to the priority right, if a PARTY wishes to
transfer its shareholding, which each of the other shareholders has to buy the
shareholding transferred on equivalent terms.

LAND USE RIGHT refers to the right to use the land transferred to the COMPANY,
as described by the CERTIFICATE OF RIGHT TO USE THE LAND enclosed in appendix
1.

BANKRUPTCY signifies a company’s inability to meet its due debts. The COMPANY
or one of the PARTIES, can only be regarded as being BANKRUPT by decision of a
jurisdiction competent to pronounce BANKRUPTCY.

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SUBSIDIARY refers to any company in which any one of the PARTIES owns or
controls at least fifty per cent (50%) of the voting rights.

MINORITY SUBSIDIARY refers to any company in which any one of the PARTIES owns
or controls less than fifty per cent (50%) of the voting rights.

SERCEL TRADEMARK refers to “SERCEL” in English, and is conceded exclusively in
association with the JUNFENG TRADEMARK under free licence by SERCEL to the
COMPANY in accordance with the SERCEL TRADEMARK AND CORPORATE NAME LICENCE
CONTRACT.

JUNFENG TRADEMARK refers to the trademark originally held by JUNFENG and
licensed to the COMPANY by the UNION and by DONGFANG for exclusive use at no
cost.

COMBINED TRADEMARK refers to the SERCEL TRADEMARK associated with the JUNFENG
TRADEMARK, which is SERCEL JUNFENG.

SERCEL CORPORATE NAME refers to “SERCEL” in English, and is conceded at no
charge under licence by SERCEL to the COMPANY in accordance with the SERCEL
TRADEMARK AND CORPORATE NAME LICENCE CONTRACT.

JUNFENG CORPORATE NAME refers to “JUNFENG” and is conceded at no charge under
licence by the UNION and DONGFANG to the COMPANY in accordance with the JUNFENG
TRADEMARK AND CORPORATE NAME LICENCE CONTRACT.

OPTION TO BUY refers to the right of one or more of the PARTIES to oblige the
other PARTY or PARTIES to transfer their SHAREHOLDING to it or them.

SHAREHOLDING refers to the participation in the share capital of the COMPANY
held by one or other of the PARTIES.

PRODUCTS refers to equipment for geophysical land-based operations, excluding
hydrophones, such as:

	 	–	 	geophones for geophysical land-based applications in the context of
seismic studies

	 	–	 	cables for geophones
	 	–	 	geophone boxes
	 	–	 	connectors
	 	–	 	seismic cables

	 	–	 	telemetric cables particularly certain Sercel 408 cables and
associated equipment as provided for by the CABLE 408 TECHNOLOGY
LICENCE CONTRACT
	 	–	 	seismic and civil sensors

and any other product applying to the land-based seismic industry that may be
decided on by the Board of Directors.

SERCEL LICENSED TECHNOLOGY refers to all technical information, experience,
expertise, design, model or datum, patented or not, concerning technology or
products owned by SERCEL and to which the COMPANY could have access by signing
the technology licence contracts on a case by case basis, such as the CABLE 408
TECHNOLOGY LICENCE CONTRACT.

SERCEL TECHNOLOGY refers, in addition to the SERCEL LICENSED TECHNOLOGY, to all
technical information, experience, expertise, design, model or datum, patented
or not, held by SERCEL or any one of its SUBSIDIARIES (other than the COMPANY)
on all the products and

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technology that SERCEL develops, manufactures and sells on the day this
CONTRACT is signed and/or subsequently.

DONGFANG LICENSED TECHNOLOGY refers to all technical information, experience,
expertise, design, model or datum, patented or not, concerning technology or
products owned by DONGFANG and to which the COMPANY could have access by
signing technology licence contracts on a case by case basis, such as the
DONGFANG TECHNOLOGY LICENCE CONTRACT.

COMPANY’S TECHNOLOGY refers to all technical information, experience,
expertise, design, model or datum, patented or not, originally held by JUNFENG
in ownership and any subsequent improvement and evolution of this technology or
any new technology developed by the COMPANY by decision of the Board of
Directors. The COMPANY’S TECHNOLOGY includes improvements contributed
exclusively by the COMPANY to the DONGFANG LICENSED TECHNOLOGY and to the
SERCEL LICENSED TECHNOLOGY, but it does not include the DONGFANG LICENSED
TECHNOLOGY and the SERCEL LICENSED TECHNOLOGY themselves.

PARENT COMPANY refers to any company that owns or controls fifty per cent (50%)
or more of the voting rights in one or other of the PARTIES.

COMPANY refers to the mixed capital company established by the PARTIES pursuant
to the CONTRACT.

MEMORANDUM AND ARTICLES OF ASSOCIATION refers to the COMPANY’s memorandum and
articles of association signed by the PARTIES at the same time as the present
CONTRACT.

OFFICIAL RATE OF EXCHANGE refers to the average rate of exchange between the
buying rate and the selling rate of any foreign currency in RMB as published by
the State Administration for Foreign Exchange (SAFE).

EXPORT MARKETING TERRITORY refers to the whole world apart from the INTERNAL
MARKETING TERRITORY.

INTERNAL MARKETING TERRITORY refers to the territory of the People’s Republic
of China. This term is understood to include any sale of PRODUCTS for use
outside the territory of China when the customer is a seismic prospecting
company or an entity registered and incorporated in China or a subsidiary,
incorporated in China or abroad, wholly owned by the said customer incorporated
in China.

THIRD PARTY refers to any person, company, partnership, foundation, department,
administration or any entity other than the UNION, DONGFANG, XPEIC or SERCEL.

XIAN-SERCEL refers to SERCEL’s and XPEIC’s joint company “Xian Sercel Petroleum
Exploration Instrument Company Limited Liability” in Xian.

ARTICLE 3 — COMPANY’S NAME, ADDRESS AND LEGAL FORM

3.1. The COMPANY’s name is:

	 	—	 	in Chinese: ...

7

 

	 	—	 	in English: Hebei Sercel-JunFeng Geophysical Prospecting Equipment Co. Ltd

3.2. The COMPANY’s head office is situated at: 1 Suicheng Industrial Zone,
Xushui District, Hebei Province.

3.3. The COMPANY is a legal entity in Chinese law subject to, and protected by
the published laws, decrees and regulations of the People’s Republic of China.

The COMPANY is organised under the form of a limited liability company.

The PARTIES share the risks, losses and profits of the COMPANY in proportion to
their respective SHAREHOLDING.

Each PARTY is liable to the COMPANY within the limits of its SHAREHOLDING, and
no PARTY has joint and several liability to the COMPANY beyond these limits. No
PARTY has joint and several liability towards a THIRD PARTY, whoever it may
be, for the COMPANY’s debts or obligations.

ARTICLE 4 — COMPANY PURPOSE

4.1. Objectives of the COMPANY

In creating a mixed capital company, the objectives of the PARTIES are to:

	 	—	 	develop economic co-operation and technical exchanges,
	 
	 	—	 	provide themselves with advanced and appropriate production technology
and with effective management methods,
	 
	 	—	 	manufacture the best possible quality products,
	 
	 	—	 	win, stabilise and increase market share in the INTERNAL MARKETING
TERRITORY, increase competitiveness and then increase market share in the
EXPORT MARKETING TERRITORY for PRODUCTS chosen by the Board of Directors,
both in terms of quality and price, in the terms and limits set in the
present CONTRACT,
	 
	 	—	 	develop new products,
	 
	 	—	 	yield profits so that the PARTIES enjoy a return on investment.

4.2. Company purpose

The COMPANY’s purpose will be to:

	 	—	 	seek out, develop and introduce new products, keep itself at the forefront internationally, increase competitiveness,
	 
	 	—	 	produce and market the PRODUCTS,
	 
	 	—	 	stabilise and increase market share in the INTERNAL MARKETING TERRITORY, and then market share in the EXPORT MARKETING TERRITORY.

4.3. Production location

The COMPANY will develop its activities at the head office where the main
production site is located.

8

 

4.4. COMPANY’s areas of activity and production capacity

4.4.1. The COMPANY’s area of activity is as follows: production and sale of
apparatus and instruments, detectors, cables, electrical and mechanical
products (not including equipment and apparatus related to public safety);
conduct export activities for the products manufactured by the COMPANY and
import activities for primary (raw) and secondary materials, machines and
equipment, spare parts and the technology needed by the COMPANY, apart from
products and technology subject to state import/export restrictions or
prohibitions.

4.4.2. Production capacity: the COMPANY will endeavour to achieve annual
production of 1,500,000 (one million five hundred thousand) geophones and
10,000 (ten thousand) km of seismic cables (telemetric cables, cable straps,
etc.), depending on the markets that can be accessed.

The COMPANY will endeavour to ensure that the share of turnover achieved in the
EXPORT MARKETING TERRITORY represents 20% of total turnover.

ARTICLE 5 — TOTAL INVESTMENT AND SHARE CAPITAL

5.1. The amount of the COMPANY’s total investment is 181,568,600 RMB (one
hundred and eighty one million five hundred and sixty eight thousand six
hundred).

5.2. The COMPANY’s share capital will be equal to the total amount of
investment on the COMPANY INCORPORATION DATE.

5.3. The PARTIES’ respective SHAREHOLDINGS, as described in the SHAREHOLDING
TRANSFER CONTRACTS, will be made within the periods set out in the SHAREHOLDING
TRANSFER CONTRACTS and are as follows:

5.3.1. SERCEL’s SHAREHOLDING: an amount expressed in RMB of 92,600,000 (ninety
two million six hundred thousand): 51%.

5.3.2. The UNION’s SHAREHOLDING: an amount expressed in RMB of 43,576,460
(forty three million five hundred and seventy six thousand four hundred and
sixty): 24%.

5.3.3. DONGFANG’s SHAREHOLDING: an amount expressed in RMB of 23,603,910
(twenty three million six hundred and three thousand nine hundred and ten):
13%.

5.3.4. XPEIC’s SHAREHOLDING: an amount expressed in RMB of 21,788,230 (twenty
one million seven hundred and eighty eight thousand two hundred and thirty):
12%.

5.4. Verification certificate

The PARTIES will engage an accounting practice authorised to work in China to
verify the PARTIES’ contributions. Taking the valuation report drawn up as part
of the SHAREHOLDING TRANSFER CONTRACTS as a basis, it will immediately draw up
a verification certificate for each contribution made by the PARTIES in
accordance with the present article 5.

5.5. Investment certificate

On receipt of a verification certificate, the COMPANY will send the PARTIES an
investment certificate containing the following details:

9

 

	 	–	 	COMPANY name,
	 
	 	–	 	COMPANY INCORPORATION DATE,
	 
	 	–	 	names of the PARTIES and their contributions,
	 
	 	–	 	day, month and year when the contributions are paid up,
	 
	 	–	 	issue date of the investment certificate.

5.6. Modification of the share capital

Any increase in share capital will be decided unanimously by the Board of
Directors in accordance with the applicable regulations, and must be submitted
for approval to the APPROVING AUTHORITY.

Any subsequent increase in the COMPANY’s share capital will be subscribed and
paid up by the PARTIES in proportion to their respective SHAREHOLDINGS. If a
PARTY approves but is not in a position to contribute to an increase in
capital, its SHAREHOLDING will be reduced accordingly. The PARTIES undertake
not to obstruct unreasonably a planned increase in capital necessary to the
pursuit of the COMPANY’s activities or its development.

Any reduction in share capital will be decided unanimously by the Board of
Directors in accordance with the applicable regulations, and must be submitted
for approval to the APPROVING AUTHORITY.

5.7. If a PARTY does not pay up its subsequent contribution at the time of an
increase in capital within the period set, it must pay the COMPANY interest for
delay at the reference daily rate set by the People’s Bank of China for
borrowings of under one year. Each of the other PARTIES will then have the
right to send the defaulting PARTY formal notice to pay up its contribution
within a period of thirty (30) days from the date of receipt of the said formal
notice.

If the defaulting PARTY does not pay up its contribution within the
above-mentioned period of thirty (30) days, the other PARTIES may, within a
period of fifteen days of the thirty first day, agree to exercise one of the
following options, simply by sending written notification to the defaulting
PARTY:

	•	 	Subscribe to the increase in capital (each party in proportion to its
percentage shareholding or only one of them) and pay up the
contribution not made by the defaulting PARTY in its stead and in the
same periods as were assigned to the defaulting PARTY, calculated from
the date when the above-mentioned written notification was sent;

	•	 	Or find a new partner who undertakes to subscribe to the increase in
capital and pay up the contribution not made by the defaulting PARTY,
in its stead and in the same set periods; in the latter case, the
defaulting PARTY must mandate its representatives on the COMPANY’s
Board of Directors to vote to approve the entry of the new partner and
the related modification of the memorandum and articles of
association.

	•	 	Or reduce the amount of the increase in capital to the amount of their
respective contributions

If one of the non-defaulting PARTIES or the other three PARTIES exercise(s) one
of the first three options indicated above, the SHAREHOLDING of the defaulting
PARTY will be reduced in proportion.

10

 

If one of the non-defaulting PARTIES cannot agree on how to deal with the
default of the PARTY that does not pay up its contribution within the
above-mentioned period of fifteen days, the increase in capital will be
cancelled.

5.8. Additional financing

The COMPANY may borrow the necessary funds from Chinese or international banks,
or other financial institutions in the terms and conditions approved by the
Board of Directors.

No PARTY is obliged to lend funds to the COMPANY nor to provide guarantees for
loans granted to the COMPANY. However, if at the request of the Board of
Directors, a PARTY agrees to lend funds to the COMPANY or to guarantee a loan
granted to the COMPANY by a THIRD PARTY, that PARTY will have the right to
receive interest on this loan or guarantee fees in the same way as if that
PARTY were not a PARTY in the COMPANY. The interest on this loan or guarantee
fees will not be higher than the conditions published at the same period by the
People’s Bank of China.

Unless decided otherwise by the PARTIES, the PARTIES guarantee loans in
proportion to their respective SHAREHOLDINGS.

ARTICLE 6 – TRANSFER OF SHAREHOLDINGS

6.1. Transfer to a SUBSIDIARY or PARENT COMPANY

Any transfer by one of the PARTIES to its PARENT COMPANY or to one of its
SUBSIDIARIES will be regarded as a transfer to a third party and subject to the
provisions of Article 6.2 below.

6.2. Transfer to a THIRD PARTY

6.2.1. The transfer by one of the PARTIES of all or part of its SHAREHOLDING to
a THIRD PARTY requires the unanimous approval of the Board of Directors. Each
PARTY may transfer or transmit all or part of its SHAREHOLDING to a third party
subject to the approval of the other PARTIES and the APPROVING AUTHORITY.

6.2.2. SERCEL may not transfer its SHAREHOLDING to a THIRD PARTY for a period
of five (5) years following the COMPANY INCORPORATION DATE. The other parties
may not transfer their SHAREHOLDING to a THIRD PARTY for a period of three (3)
years following the COMPANY INCORPORATION DATE.

6.2.3. At the end of the periods set out in article 6.2.2. each PARTY may
transfer or transmit all or part of its SHAREHOLDING to a THIRD PARTY subject
to the agreement of the other PARTIES and the APPROVING AUTHORITY. If a PARTY
gives its agreement to a transfer, it undertakes to ensure that its
representative on the Board of Directors votes in favour of the planned
transfer.

6.2.4. In the case of the transfer referred to in article 6.2.3. above, the
other PARTIES enjoy a RIGHT OF PRE-EMPTION in the same conditions as those
offered to the third party. The RIGHT OF PRE-EMPTION must be exercised in the
conditions set out below.

6.2.4.1. If a PARTY decides to transfer all or part of its SHAREHOLDING to a
third party, it must first inform the other PARTIES of its intention by written
notification, by registered post with recorded delivery, mentioning the
identity of the third party, the price and the terms and conditions of the
planned transfer. Each of the other PARTIES then has a period of thirty (30)
days from receipt of the notification to notify the COMPANY and the other
PARTIES in writing

11

 

by registered letter with recorded delivery of the exercise or not of its RIGHT
OF PRE-EMPTION, it being specified that the RIGHT OF PRE-EMPTION can concern
only all or part of the proportion of shares transferred corresponding to its
percentage shareholding. If one or other PARTY does not exercise its RIGHT OF
PRE-EMPTION in full, the other non-transferring PARTIES, advised by the
transferring PARTY within fifteen (15) days of the end of the aforementioned
period of thirty (30) days by registered letter with recorded delivery, have an
additional period of fifteen (15) days from receipt of the notification to
exercise or not their RIGHT OF PRE-EMPTION including [their right] over the
part of the transferred SHAREHOLDING for which one of the PARTIES did not
exercise its RIGHT OF PRE-EMPTION. The PARTY or PARTIES that does/do not
exercise its/their RIGHT OF PRE-EMPTION within thirty (30) days of receipt of
the notification (each party in proportion to its percentage shareholding or
one or two of them for the whole of the transferred SHAREHOLDING), then
this/these other PARTY/PARTIES must give instructions to its/their
representatives on the COMPANY’s Board of Directors to vote to approve the
planned transfer by the transferring PARTY to third parties or to the other
Parties and sign all the necessary documents.

As a result of the above, if only one PARTY wishes to exercise its RIGHT OF
PRE-EMPTION, it must exercise it over the whole of the SHAREHOLDING to be
transferred.

6.2.4.2. If a PARTY wishes to exercise its RIGHT OF PRE-EMPTION but disputes
the proposed price, the transferring PARTY and the PARTY or PARTIES that
wishes/wish to exercise its/their RIGHT OF PRE-EMPTION and contest(s) the price
will, by mutual agreement within a period of 15 days from receipt of the
notification of exercise of RIGHT OF PRE-EMPTION, appoint an independent expert
charged with valuing the net assets of the COMPANY and consequently determining
the value of the SHAREHOLDING that the transferring PARTY proposes to transfer.
The third party expert will be an auditor of international repute with
experience in China and must pronounce as soon as possible and in any event
within 60 days of his or her appointment. If after the expert has sent in his
or her report, the PARTY wishing to exercise its RIGHT OF PRE-EMPTION does not
agree with the price proposed by the expert, it may decide to abandon the
exercise of the RIGHT OF PRE-EMPTION.

6.2.4.3. If several PARTIES wish to exercise their RIGHT OF PRE-EMPTION, they
shall reach an agreement over a distribution among themselves of the
SHAREHOLDING to be acquired. If no agreement is reached within a period of
thirty (30) days of receipt of the notification, the PARTIES must buy the
SHAREHOLDING according to the proportion of their shareholding in the COMPANY
at the time of this purchase.

6.2.5. In no case can the transfer by a PARTY to a THIRD PARTY of all or part
of its SHAREHOLDING, carried out in accordance with the provisions of article
6.2 of the CONTRACT, give rise to compensation should the transfer cause
economic losses to the other parties.

6.3. Transfer between the PARTIES

6.3.1. Transfer between the PARTIES must be approved unanimously by the Board
of Directors.

6.3.2. A PARTY may transfer all or part of its SHAREHOLDING to one or other of
the PARTIES subject to the agreement of the other PARTIES and the APPROVING
AUTHORITY. If a PARTY agrees to a transfer, it undertakes to ensure that its
representative on the Board votes in favour of the planned transfer.

6.3.3. In the case of the transfer referred to in article 6.3.1. above, the
other PARTIES enjoy a RIGHT OF PRE-EMPTION in proportion to their respective
SHAREHOLDING, in the same

12

 

conditions as those offered to the transferee. The RIGHT OF PRE-EMPTION must be
exercised in the same conditions as those set out in article 6.2 above.

In no case can the transfer by one PARTY to another PARTY, carried out in
accordance with the provisions of article 6.2 of the CONTRACT, of all or part
of its SHAREHOLDING, give rise to compensation should this transfer cause
economic losses to the other parties.

6.4. Consequences of the transfer

6.4.1. The transferee of the SHAREHOLDING becomes a party to the present
CONTRACT; the transferor must ensure that, at the time of the transfer, the
transferee takes over all the obligations and responsibilities of the
transferor stipulated in the CONTRACT.

6.4.2. If for any reason whatsoever SERCEL transfers the whole of its
SHAREHOLDING to the UNION, to DONGFANG, to XPEIC or to a third party, the CABLE
408 TECHNOLOGY LICENCE CONTRACT remains in force in the same terms and
conditions; the SERCEL TRADEMARK AND CORPORATE NAME LICENCE CONTRACT
automatically ends with no compensation due to the other PARTIES or to the
COMPANY. Despite the end of the SERCEL TRADEMARK AND CORPORATE NAME LICENCE
CONTRACT, the COMPANY may continue to use the SERCEL TRADEMARK (in cases of
sub-contracting) and the COMBINED TRADEMARK in the same conditions to run down
any stocks of PRODUCTS marketed under the COMBINED TRADEMARK that exist on the
day of the SHAREHOLDING transfer for a period that may not exceed six (6)
months.

6.4.3. Should SERCEL transfer its shareholding to one of its SUBSIDIARIES or to
its PARENT COMPANY, the CABLE 408 TECHNOLOGY LICENCE CONTRACT and the SERCEL
TRADEMARK AND CORPORATE NAME LICENCE CONTRACT will remain in force in the same
terms and conditions.

6.4.4. Any deed of transfer referred to by the provisions of the present
article must be:

	–	 	approved unanimously at a meeting of the COMPANY’s Board of Directors by each
of the PARTIES mandating their respective representatives to vote to approve
the planned transfer, it being understood that each of the PARTIES undertakes
not to obstruct the RIGHT OF PRE-EMPTION procedure and to oblige its
representatives to vote in favour of any transfer that results from the
exercise by one of the PARTIES of its RIGHT OF PRE-EMPTION and to sign all
necessary legal documents, in particular, amendments to the present CONTRACT
and the memorandum and articles of association;
	 
	–	 	submitted to the APPROVING AUTHORITY.

ARTICLE 7 — RESPONSIBILITIES OF THE PARTIES DURING THE SETTING UP AND OPERATION OF THE COMPANY

Without prejudice to the obligations subscribed elsewhere by the PARTIES, the
parties undertake to assume the following responsibilities:

7.1. Responsibilities of the UNION, DONGFANG and XPEIC:

	•	 	Provide their assistance to conduct all steps with the competent Chinese authorities to obtain approval of the
present CONTRACT, the issue of the COMPANY’s operating licence and its registration;

13

 

	•	 	Make contributions to the capital of the COMPANY in accordance with the present CONTRACT and the SHAREHOLDING
TRANSFER CONTRACTS
	 
	•	 	Assist the COMPANY to transfer the RIGHT TO USE THE LAND;
	 
	•	 	Sign the APPENDED CONTRACTS to which one of them is party;
	 
	•	 	Assist the COMPANY to obtain all the regulations and information relating to the environment;
	 
	•	 	Assist the COMPANY in the purchase or rental in China of equipment, materials, raw materials, office
equipment, means of transport and communication, etc.;
	 
	•	 	Assist the COMPANY to access electricity, water, transport and other networks;
	 
	•	 	Assist the COMPANY in recruiting Chinese staff;
	 
	•	 	Assist foreign staff in the procedures to obtain entry visas, work and residence permits and for their travel
and movements;
	 
	•	 	Assist the COMPANY to obtain the tax reductions and exemptions provided for by the law and the tax regulations;
	 
	•	 	Assist the COMPANY to obtain any permit and/or certificate from the State Administration for Exchange Control
allowing it to procure the necessary foreign currency during the life of the COMPANY;
	 
	•	 	Assist the COMPANY to obtain the necessary loans in RMB from Chinese banks;
	 
	•	 	Take on any other task entrusted by the COMPANY and accepted by the PARTY concerned.

7.2. SERCEL’s responsibilities:

	•	 	Provide its assistance to conduct all steps with the competent Chinese authorities to obtain approval of the
present CONTRACT, the issue of the COMPANY’s operating licence and its registration;
	 
	•	 	Make contributions to the capital of the COMPANY in accordance with the present CONTRACT and the SHAREHOLDING
TRANSFER CONTRACTS
	 
	•	 	Sign the APPENDED CONTRACTS to which it is party;
	 
	•	 	Provide technical assistance and training in accordance with the TECHNOLOGY LICENCE CONTRACT;
	 
	•	 	Assist the COMPANY in the purchase or rental outside China of equipment, materials, raw materials, office
equipment, means of transport and communication, etc.;
	 
	•	 	Assist the COMPANY in recruiting foreign staff;
	 
	•	 	Assist the COMPANY to apply the standards and norms that apply in the SERCEL Group;

14

 

	•	 	Organise meetings between the COMPANY’s and SERCEL’s research and development teams;
	 
	•	 	If necessary and at the discretion of SERCEL, assist the COMPANY to obtain the necessary loans in foreign
currency from foreign banks;
	 
	•	 	Take on any other task entrusted by the COMPANY and accepted by SERCEL.

7.3. Any expenses taken on by a PARTY when providing assistance in accordance
with this Article 7 must be borne by the COMPANY on provision of supporting
written evidence. The PARTIES agree to provide this assistance free of charge
and to refrain from taking any profit therefrom (apart from services rendered
under the APPENDED CONTRACTS whose financial conditions are, if applicable, set
out in the said APPENDED CONTRACTS).

ARTICLE 8 – LAND AND BUILDINGS

8.1. The RIGHT TO USE THE LAND, dated November 2003 for a period of fifty
years, as specified in the certificate enclosed in appendix 1 will be
transferred to the COMPANY.

The BUILDINGS will be transferred freehold to the COMPANY.

8.2. The LAND is situated in Xiefang Village, Suicheng Town.

8.3. Since the COMPANY cannot exercise its activity without the LAND and
BUILDINGS, if the right to use the land is not renewed, and the cost of moving
the factory cannot be borne, the present CONTRACT shall be terminated and the
COMPANY will be dissolved in accordance with the provisions of article 26
below.

ARTICLE 9 — TECHNOLOGY

9.1. SERCEL TECHNOLOGY

9.1.1 To allow the COMPANY to produce and market part of the PRODUCTS, SERCEL
has granted the COMPANY, under non-exclusive licence, the use of the SERCEL
TECHNOLOGY concerned with cable 408 in accordance with the terms and conditions
set out in the CABLE 408 TECHNOLOGY LICENCE CONTRACT.

Other TECHNOLOGY LICENCE CONTRACTS concerning the SERCEL TECHNOLOGY may be
signed on a case by case basis between the COMPANY and SERCEL and these
possible other technology contracts will be subject to the same provisions as
those set out in this article 9.1. and in the CABLE 408 TECHNOLOGY LICENCE
CONTRACT.

SERCEL undertakes to sign a TECHNOLOGY LICENCE CONTRACT that allows the
COMPANY to have access to its most recent SG 10 geophone technology.

Any improvement made by the COMPANY to the SERCEL LICENSED TECHNOLOGY may be
used freely and at no cost by the COMPANY to manufacture the PRODUCTS resulting
from the said technology, it being specified that the SERCEL Group
(subsidiaries 100% controlled by SERCEL HOLDING) also has an irrevocable, free
of charge licence to use and exploit the said improvements.

15

 

SERCEL undertakes to communicate to the COMPANY any improvement in the SERCEL
LICENSED TECHNOLOGY that SERCEL may make.

9.1.2. The COMPANY has the right to use the SERCEL LICENSED TECHNOLOGY but may
not, directly or indirectly, cede or transfer the SERCEL LICENSED TECHNOLOGY
wholly or in part to a THIRD PARTY, to the UNION, to DONGFANG or to XPEIC.
Neither the COMPANY nor any of the other PARTIES has the right to use the
SERCEL TECHNOLOGY if it has not concluded a technology licence agreement in due
form between the COMPANY and/or the PARTY concerned and SERCEL.

On dissolution of the COMPANY, the UNION will have access to the improvements
made to the SERCEL LICENSED TECHNOLOGY in the conditions set out in article
25.2.7.

9.1.3. Use of the SERCEL TECHNOLOGY is granted, under licence, solely to the
COMPANY. The UNION, DONGFANG and XPEIC may in no case, directly or indirectly,
together or separately, by the intermediary of any of their SUBSIDIARIES,
MINORITY SUBSIDIARIES AND PARENT COMPANY use, cede or transfer the SERCEL
LICENSED TECHNOLOGY, including any technology resulting from the SERCEL
TECHNOLOGY, in any way whatsoever,

9.1.4. If the UNION, DONGFANG, XPEIC or one of their employees, or
SUBSIDIARIES, does not observe the provisions of Articles 9.1.2 and 9.1.3,
SERCEL has the right to take any administrative or legal action to cause any
illegal or unauthorised use of the SERCEL TECHNOLOGY to cease, to stop
production and apply for compensation.

If the illegal or unauthorised use of the SERCEL TECHNOLOGY has not ceased
within thirty (30) days, SERCEL has the right to:

	•	 	cancel the TECHNOLOGY LICENCE CONTRACT and the SERCEL TRADEMARK AND
CORPORATE NAME LICENCE CONTRACT;

and / or, with the agreement of the non-defaulting PARTY or PARTIES

	•	 	exercise an OPTION TO BUY the SHAREHOLDING of the infringing
PARTY if this is authorised by the Chinese regulations, (the
transfer price being fixed in accordance with article 33, and SERCEL
being still free to withdraw its option after determination of the
price);
	 
	•	 	or demand the dissolution of the COMPANY.

9.1.5. Any use of the SERCEL LICENSED TECHNOLOGY (including modifications and
improvements made by SERCEL and/or the COMPANY) by a person or entity other
than the COMPANY, will be equivalent to an infringement unless it has been
expressly authorised by SERCEL.

To protect the investment made by and in the COMPANY, and SERCEL’s intellectual
property rights, the PARTIES undertake to inform each other immediately and
inform the COMPANY of any unauthorised use of the SERCEL TECHNOLOGY, and to
help each other to combat infringement.

9.1.6. The CABLE 408 TECHNOLOGY LICENCE CONTRACT (or any other contract
connected with the SERCEL LICENSED TECHNOLOGY) will be automatically cancelled
if one of the following cases occurs before its planned end date: dissolution,
bankruptcy and / or

16

 

liquidation of the COMPANY and may be cancelled in the cases set out in the
said contracts (the terms of which are not changed by signing the present
CONTRACT).

9.2. DONGFANG TECHNOLOGY

9. 2.1 DONGFANG has granted use of the DONGFANG TECHNOLOGY to the COMPANY
under exclusive licence at no cost in accordance with the DONGFANG TECHNOLOGY
LICENCE CONTRACT.

DONGFANG undertakes to communicate to the COMPANY any improvement in the
DONGFANG TECHNOLOGY that DONGFANG makes.

9.2.2. Subject to what is also set out in the CONTRACT, the PARTIES acknowledge
that none of them, apart from DONGFANG, nor any third party may use the
DONGFANG TECHNOLOGY without having previously concluded a technology licence
agreement with DONGFANG.

Consequently, the UNION, XPEIC or SERCEL can in no case, directly or
indirectly, together or separately, by the intermediary of any of their
SUBSIDIARIES (other than the COMPANY for SERCEL), MINORITY SUBSIDIARIES (other
than the COMPANY for the UNION, DONGFANG and XPEIC), and PARENT COMPANY, use,
cede or transfer the DONGFANG TECHNOLOGY in any way whatsoever.

9.2.3. If the UNION, XPEIC, SERCEL or one of their employees, or SUBSIDIARIES
does not observe the provisions of Article 9.2.2, DONGFANG has the right to
enter into any administrative or legal action to cause all illegal or
unauthorised use of the DONGFANG TECHNOLOGY to cease, to stop production and
apply for compensation.

To protect the COMPANY to which the DONGFANG TECHNOLOGY has been licensed, the
PARTIES undertake to inform each other immediately and inform the COMPANY of
any unauthorised use of the DONGFANG TECHNOLOGY.

9.2.4. If the UNION, SERCEL, XPEIC or one of their employees, SUBSIDIARIES or
MINORITY SUBSIDIARIES does not observe the provisions of Articles 9.2.2 and
9.2.3, DONGFANG has the right to enter into any administrative or legal action
to cause any illegal or unauthorised use of the DONGFANG TECHNOLOGY to cease,
to stop production and apply for compensation.

If the illegal or unauthorised use of the DONGFANG TECHNOLOGY has not ceased
within thirty (30) days, DONGFANG has the right to:

	•	 	cancel the DONGFANG TECHNOLOGY LICENCE CONTRACT
	 
	•	 	and / or with the agreement of the non-defaulting PARTY or PARTIES:
	 

	 
	 	•	 	exercise an OPTION TO BUY the SHAREHOLDING of the infringing
PARTY if this is authorised by the Chinese regulations, (the
transfer price being fixed in accordance with article 33, DONGFANG
being however free to withdraw its option after determination of the
price);
	 
	 	•	 	or to demand the dissolution of the COMPANY.

9. 3. COMPANY’S TECHNOLOGY

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9. 3.1 When it is constituted and subsequently in realising its company
purpose, the COMPANY is the owner of the COMPANY’S TECHNOLOGY.

9. 3.2. Subject to what is also set out in the CONTRACT, the PARTIES
acknowledge that none of them nor any third party can use the COMPANY’S
TECHNOLOGY without having previously concluded a technology licence agreement
with the COMPANY on conditions accepted by the Board of Directors.

Consequently, the UNION, DONGFANG, XPEIC or SERCEL may in no case, directly or
indirectly, together or separately, by the intermediary of any of their
SUBSIDIARIES (other than the COMPANY for SERCEL), MINORITY SUBSIDIARIES (other
than the COMPANY for the UNION, DONGFANG and XPEIC), AND PARENT COMPANY, use,
cede or transfer the COMPANY’S TECHNOLOGY in any way whatsoever.

9.3.3. If the UNION, DONGFANG, XPEIC, SERCEL or one of their employees, or
SUBSIDIARIES, does not observe the provisions of Article 9.2.2, the COMPANY has
the right to enter into any administrative or legal action to cause any illegal
or unauthorised use of the COMPANY’S TECHNOLOGY to cease, to stop production
and apply for compensation.

To protect the COMPANY the PARTIES undertake to inform each other immediately
and inform the COMPANY of any unauthorised use of the COMPANY’S TECHNOLOGY.

ARTICLE 10 — CONFIDENTIALITY

10.1. Each of the PARTIES undertakes to keep secret and confidential and not to
divulge to a THIRD PARTY any technical, economic, financial or commercial
information, unless the disclosure of such information has been expressly
authorised by the other PARTIES or the party concerned or unless it is
information about the COMPANY that should usually be transmitted to the PARENT
COMPANIES.

The PARTIES undertake not to use any of the information obtained through each
other for a purpose other than that expressly set out in this CONTRACT.

10.2. Each of the PARTIES will take the necessary precautions and safety
measures to ensure that this Article 10 is observed by each of its directors,
executives, temporary staff or contracting partners who has access to the
information exchanged and guarantees observance of this Article by these
directors, executives, employees, temporary staff or contracting partners. One
of these measures will be to include a non-competition and confidentiality
clause in the employment contract signed by each member of the COMPANY’s staff.
Each of the PARTIES may transmit confidential information to its PARENT
COMPANY, direct or indirect, in the context of the usual financial reporting
and more generally may transmit any information necessary to the observance of
the laws and regulations to which each of the PARTIES is directly or indirectly
subject in this matter.

The PARTIES undertake to use all necessary means, including recourse to the
courts, to observe or cause to be observed the provisions of this article 10.

10.3. The obligations subscribed by the PARTIES pursuant to article 10 do not
apply to information obtained by the intermediary of one of the PARTIES that is
or will be published, or would become accessible to the public by sources other
than disclosure by the PARTY that received this information, nor to information
already in the possession of the PARTY receiving it on the date of its
transmission or that is transmitted to it subsequently and non-confidentially

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by other sources, nor to information that a Party is obliged to disclose to
observe the laws and regulations to which it is directly or indirectly subject.

10.4. The PARTIES undertake to respect the obligations that they subscribe
pursuant to article 10 for a period of five (5) years after expiry or
cancellation of the present CONTRACT.

ARTICLE 11 – NON-COMPETITION

11.1. The COMPANY will be independent in the management of its commercial
affairs in the territory of the People’s Republic of China.

Nevertheless, good prior co-ordination between SERCEL’s other entities present
on the INTERNAL TERRITORY will be essential to avoid any competition.

11.2. From the date of signing the CONTRACT, each PARTY in the COMPANY is
committed on its own account and that of its SUBSIDIARIES not to conclude any
co-operation agreement directly or indirectly on the territory of the People’s
Republic of China, with any Chinese or foreign third party, in any form
whatsoever, particularly in the form of investment, technological co-operation,
incorporation of a company or in any other form, to develop, manufacture or
sell, on the territory of the People’s Republic of China, products that compete
(cables and geophones) with those of the COMPANY.

SERCEL undertakes to develop the COMPANY to become the most important
manufacturer of geophones in its Group, the intention being to make it the
major site for the manufacture of geophones (particularly the super geophone).

SERCEL will do its utmost to ensure that the COMPANY becomes an important site
for the manufacture of cables.

11.3. The non-competition clause above is not an obstacle to SERCEL and XPEIC
continuing their co-operation in XIAN-SERCEL, nor to DONGFANG taking a
shareholding in XIAN-SERCEL, nor to SERCEL and its SUBSIDIARIES continuing to
sell their present or future products on the INTERNAL TERRITORY, it being
specified that SERCEL may market the PRODUCTS resulting from the COMPANY’S
TECHNOLOGY as provided for in the DISTRIBUTION CONTRACT. The PARTIES
acknowledge that among its present activities, XPEIC includes the activities
detailed in Appendix 6, which are in competition with those of the COMPANY.

It is also stated that XIAN-SERCEL remains free to use the SERCEL TECHNOLOGY
referred to in the joint company incorporation contract and subject to
observance of the terms of the joint company agreement.

11.4. Subject to article 13 applying to relations between the COMPANY and
SERCEL, each of the PARTIES undertakes to buy the PRODUCTS that it requires for
its own needs as a priority from the COMPANY, subject always to competitiveness
in terms of quality, delivery and price.

11.5. DONGFANG remains free to use or resell the PRODUCTS resulting from the
SERCEL TECHNOLOGY that it buys for its own needs from the COMPANY or from
SERCEL. SERCEL and the COMPANY undertake not to impede the purchase of their
products by DONGFANG and they will apply preferential conditions to DONGFANG in
terms of quality, delivery, price and payment methods.

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11.6. The PARTIES will refrain from buying products resulting from an
infringement of the COMPANY’S TECHNOLOGY, of the DONGFANG TECHNOLOGY or of the
SERCEL TECHNOLOGY.

ARTICLE 12 – PURCHASE OF EQUIPMENT AND RAW MATERIALS OR COMPONENTS

12.1. After having rationally and equitably compared the respective merits of
different sources of supply in terms of competitiveness and quality, the
COMPANY will supply itself with equipment, raw materials, spare parts and
components, means of transport, office equipment, etc. on equal conditions of
preference on the Chinese market, and as a priority from the PARTIES to the
COMPANY always subject to competitiveness in terms of price, quality and
delivery. If the Chinese market is not satisfactory, supplies may be acquired
on the international market and as a priority from SERCEL subject always to
competitiveness in terms of price, quality and delivery.

12.2. For the manufacture of products resulting from the SERCEL TECHNOLOGY
LICENCE CONTRACT or CONTRACTS, raw materials, spare parts and components will
always be chosen in accordance with the specifications required by that
TECHNOLOGY LICENCE CONTRACT or CONTRACTS with the object of ensuring the
quality of the PRODUCTS.

ARTICLE 13 – PRODUCT MARKETING

13.1. INTERNAL MARKETING TERRITORY

The COMPANY has the right to sell the following products on the INTERNAL
MARKETING TERRITORY:

	 	ü	 	PRODUCTS marketed under the JUNFENG TRADEMARK as expressly listed
in Appendix 13 (these are JUNFENG’s existing products); (certain
products usually marketed under the JUNFENG TRADEMARK may be marketed
under the COMBINED TRADEMARK with the agreement of SERCEL on a case by
case basis.)
	 
	 	ü	 	SERCEL products for which SERCEL has concluded a TECHNOLOGY LICENCE
CONTRACT with the COMPANY with a marketing right on the INTERNAL
MARKETING TERRITORY, in particular the CABLE 408 TECHNOLOGY LICENCE
CONTRACT. These products will be sold under the SERCEL JUNFENG
trademark and in this regard the PARTIES expressly agree that on the
COMPANY INCORPORATION DATE, the COMPANY may sell 408 cables given in
licence under the SERCEL JUNFENG trademark on the INTERNAL MARKETING
TERRITORY;
	 
	 	ü	 	new products that the COMPANY may develop after the INCORPORATION
DATE.

SERCEL retains the right to sell SERCEL’s or its SUBSIDIARIES’ present or
future products directly on the INTERNAL MARKETING TERRITORY.

13.2. EXPORT MARKETING TERRITORY

Sales on the EXPORT MARKETING TERRITORY of the PRODUCTS mentioned in article
13.1 will be made exclusively by SERCEL under the DISTRIBUTION CONTRACT shown
in Appendix 11.

In this regard, JUNFENG’s existing international marketing network will be
integrated, if possible, into SERCEL’s marketing network.

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13.3 Sub-contracting of manufacturing

Products resulting from SERCEL TECHNOLOGY for which SERCEL may sub-contract
manufacturing to the COMPANY will not be marketed by the COMPANY but solely and
exclusively by SERCEL unless SERCEL gives the COMPANY a marketing right, on a
case by case basis, on the INTERNAL MARKETING TERRITORY.

ARTICLE 14 – TRADEMARK AND CORPORATE NAME

14.1. JUNFENG TRADEMARK AND CORPORATE NAME LICENCE

14.1.1 The JUNFENG TRADEMARK and the JUNFENG CORPORATE NAME are conceded
exclusively and free of charge under licence to the COMPANY. The UNION,
DONGFANG, SERCEL or XPEIC may in no case, directly or indirectly, by the
intermediary of any SUBSIDIARY, MINORITY SUBSIDIARY or PARENT COMPANY, use,
cede or transfer the JUNFENG TRADEMARK, the COMBINED TRADEMARK and the JUNFENG
CORPORATE NAME in any way whatsoever. It is specified that each of the Parties
may continue to make reference to the JUNFENG TRADEMARK in the normal context
of its activities (particularly to make known to third parties that it uses
products marketed under the JUNFENG TRADEMARK or the COMBINED TRADEMARK)).

SERCEL may use the JUNFENG TRADEMARK or the COMBINED TRADEMARK in the context
of marketing the PRODUCTS as provided for in the DISTRIBUTION CONTRACT.

14.1.2 If the UNION, DONGFANG, XPEIC, SERCEL or one of their SUBSIDIARIES does
not observe the provisions of the above paragraph, the COMPANY has the right to
enter into any administrative or legal action to cause all illegal or
unauthorised use of the JUNFENG TRADEMARK, the COMBINED TRADEMARK and the
JUNFENG CORPORATE NAME to cease, to stop production and apply for compensation.

14.1.3. Any use of the JUNFENG TRADEMARK, the COMBINED TRADEMARK and / or the
JUNFENG CORPORATE NAME by a person other than the COMPANY will be regarded as
an infringement unless it has been expressly authorised by the COMPANY.
To protect the COMPANY, the PARTIES undertake to inform each other immediately
and inform the COMPANY of any unauthorised use of the JUNFENG TRADEMARK, the
COMBINED TRADEMARK and the JUNFENG CORPORATE NAME.

14.1.4 The JUNFENG TRADEMARK AND CORPORATE NAME LICENCE CONTRACT will be
cancelled automatically before the planned expiry date in case of the
dissolution, bankruptcy and / or liquidation of the COMPANY.

14.2. SERCEL TRADEMARK AND CORPORATE NAME LICENCE

14.2.1. SERCEL will concede the use of the SERCEL TRADEMARK and the SERCEL
CORPORATE NAME free of charge, under licence, to the COMPANY exclusively in
association with the JUNFENG trademark in accordance with the terms and
conditions set out in the SERCEL TRADEMARK AND CORPORATE NAME LICENCE CONTRACT
enclosed in appendix 9.

14.2.2. The SERCEL TRADEMARK and the SERCEL CORPORATE NAME are conceded
exclusively in association with the JUNFENG trademark free of charge under
licence solely to the COMPANY. The UNION, DONGFANG or XPEIC may in no case,
directly or indirectly, by the

21

 

intermediary of any SUBSIDIARY, MINORITY SUBSIDIARY (other than the COMPANY for
the UNION and DONGFANG and other than the COMPANY and XIAN-SERCEL for XPEIC) or
PARENT COMPANY, use, cede or transfer the SERCEL TRADEMARK, the COMBINED
TRADEMARK or the SERCEL CORPORATE NAME in any way whatsoever, it being
specified that DONGFANG may continue to make reference to the SERCEL TRADEMARK
in the normal context of its activities (particularly to let its customers know
that it uses SERCEL material).

14.2.3. If the UNION, DONGFANG, XPEIC or one of their employees or their
SUBSIDIARIES, does not observe the provisions of the above paragraph, SERCEL
has the right to enter into any administrative or legal action to cause any
illegal or unauthorised use of the SERCEL TRADEMARK, the COMBINED TRADEMARK and
the SERCEL CORPORATE NAME to cease, to stop production and apply for
compensation;

If the illegal or unauthorised use of the SERCEL TRADEMARK, the COMBINED
TRADEMARK and the SERCEL CORPORATE NAME has not ceased within thirty (30) days,
SERCEL has the right to:

	•	 	cancel the TECHNOLOGY LICENCE CONTRACT and the SERCEL TRADEMARK AND
CORPORATE NAME LICENCE CONTRACT;
	 
	•	 	and/or, with the agreement of the non-defaulting PARTY or PARTIES.
	 
	 	 	•	 	exercise an OPTION TO BUY the SHAREHOLDING of the infringing
PARTY if this is authorised by the Chinese regulations (the transfer
price being fixed, in accordance with article 33, SERCEL still being
free to withdraw its offer after determination of the price).
	 
	 	 	•	 	or demand the dissolution of the COMPANY

14.2.4. Any use of the COMBINED TRADEMARK and/or the SERCEL CORPORATE NAME by a
person other than the COMPANY will be regarded as an infringement unless it has
been expressly authorised by SERCEL.

To protect the investment made by the COMPANY, and SERCEL’s intellectual
property rights, the PARTIES undertake to inform each other immediately and
inform the COMPANY of any unauthorised use of the SERCEL TRADEMARK, the
COMBINED TRADEMARK and the SERCEL CORPORATE NAME.

14.2.5 The SERCEL TRADEMARK AND CORPORATE NAME LICENCE CONTRACT will be
cancelled automatically if one of the following cases arises before their
planned expiry date:

	•	 	Dissolution, bankruptcy and/or liquidation of the COMPANY;
	 
	•	 	Cession or transfer, for whatever reason, of the whole of SERCEL’s
SHAREHOLDING to the UNION, DONGFANG, XPEIC or any THIRD PARTY
whatsoever, as set out in article 6.4.2.

In this case, the COMPANY will proceed to cancel registration of the SERCEL
CORPORATE NAME, the COMBINED TRADEMARK and the SERCEL TRADEMARK AND CORPORATE
NAME LICENCE CONTRACT.

ARTICLE 15. PREPARATION COMMITTEE

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15.1. The PARTIES will set up a Preparation Committee charged with controlling
JUNFENG’s management, authorising certain decisions and co-ordinating all the
tasks that must be carried out before the date of the first session of the
Board of Directors.

This Committee is made up of four (4) members, one member being appointed by
each of the PARTIES. The Committee will pronounce unanimously.

15.2. The Preparation Committee’s responsibilities will consist of:

	•	 	Controlling JUNFENG’s management during the period between signing the
transfer contract and the COMPANY INCORPORATION DATE and in particular
authorising any expenditure in excess of 1,000,000 RMB (one million),
authorising the subscription of any contractual commitment for a
period in excess of six (6) months or that gives rise to financial
commitments in excess of 500,000 RMB (five hundred thousand), the
subscription of any loan or bank borrowing, taking on any new
employee, and more generally any decision that could have an
unfavourable effect on the accounts or the financial or commercial
situation of JUNFENG or the COMPANY;
	 
	•	 	Drawing up the inventory of stocks to be taken over by the COMPANY
(finished and semi-finished products, raw materials, spare parts,
etc.);
	 
	•	 	Validating and authorising the formation of stocks additional to those
that JUNFENG has on 31st July 2003;
	 
	•	 	Selecting those employees of JUNFENG who will be transferred to the
COMPANY and drawing up all the necessary employment contracts;
	 
	•	 	Preparing and negotiating on behalf of the COMPANY any necessary
agreements such as service agreements, raw material supply agreements,
etc.;
	 
	•	 	Negotiating loans to be subscribed by the COMPANY;
	 
	•	 	Drawing up the opening balance sheet;
	 
	•	 	Ensuring that all the necessary formalities for the present CONTRACT
to become effective are performed as soon as possible;
	 
	•	 	Controlling the financing plan and expenditure;
	 
	•	 	Establishing the management methods for the project, completing and
preserving all documents, designs and files;
	 
	•	 	Drawing up the profit and loss account for the period between the base
day for the valuation and the COMPANY INCORPORATION DATE.

15.3. After completing this work, the Preparation Committee will be dissolved
by decision of the Board of Directors.

15.4. The Board of Directors must ratify all the Preparation Committee’s acts
in relation to the COMPANY’s activity from the COMPANY INCORPORATION DATE.

Should the present CONTRACT not become effective, the acts of the Preparation
Committee would be regarded as null and void.

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ARTICLE 16- BOARD OF DIRECTORS

16.1. Nomination of Directors

16.1.1. The Board of Directors is made up of nine (9) directors appointed by
the shareholders of the COMPANY in accordance with article 16.1.2 below.

16.1.2. Five (5) directors, including the President, will be appointed by
SERCEL, two (2) directors, including the Vice-President, will be nominated by
the UNION, and one (1) director will be nominated by DONGFANG and one (1) by
XPEIC.

16.1.3. The PARTIES will consult each other on the choice of people whom they
wish to nominate or remove as directors, but no PARTY can oppose the choice of
the other PARTY, unless the person chosen is not legally authorised to occupy
the functions of director or has acted in the past against the decisions of the
Board of Directors.

16.1.4. The mandate of the directors, President and Vice-President is four (4)
years renewable several times.

16.1.5. Each PARTY may at any time remove or replace the director(s) it
nominates, by written notification addressed to the COMPANY with a copy to the
other PARTIES. The mandate of a director appointed in replacement expires on
the same date as the mandate of the director replaced.

16.1.6. The directors appointed by the PARTIES must comply with the obligation
of confidentiality set out in article 10 of the present CONTRACT.

16.2. Powers and functions of the Board of Directors

16.2.1. The Board of Directors is the COMPANY’s supreme authority.

16.2.2. The Board of Directors decides on all important questions concerning
the COMPANY.

16.2.3. The following decisions must be made unanimously by the directors
present or represented as indicated in article 16.3.3 :

	•	 	Modification of the COMPANY’s memorandum and articles of association;
	 
	•	 	Extension, cessation and dissolution of the COMPANY;
	 
	•	 	Increase and reduction of the COMPANY’s share capital and transfer of
SHAREHOLDINGS by the PARTIES;
	 
	•	 	Merger of the COMPANY with other entities, de-merger of the COMPANY;
	 
	•	 	Granting of guarantees by the COMPANY concerning commitments that it
has not subscribed.

16.2.4. The following decisions must be made by a 2/3 majority of the directors
present or represented as indicated in article 16.3.3.:

24

 

	•	 	Granting of guarantees to financial institutions;
	 
	•	 	Modification of the main production site;
	 
	•	 	Approval of the annual financial reports;
	 
	•	 	Establishment of the medium- and long-term business plan, including
the research and development strategy;
	 
	•	 	Acquisition, transfer or licence by the COMPANY of patents, trademarks
and / or expertise or technologies or other properties or other
technical information.
	 
	•	 	Modification of dividends as set out in Article 19.4.1;
	 
	•	 	Approval of the annual budget, particularly the investment budget.

16.2.5. Any decisions other than those above and those delegated to the Chief
Executive Officer must be made by simple majority of the directors present or
represented as indicated in article 16.3.3, particularly, without limitation,
the following decisions:

	•	 	Granting of guarantees to customers or suppliers in the normal course of activity;
	 
	•	 	Increase in production capacity and diversification of the range of PRODUCTS;
	 
	•	 	Transfer of assets for an amount of over twenty (20) million RMB;
	 
	•	 	Subscription of borrowing for an amount of over twenty (20) million RMB;
	 
	•	 	Borrowing, loan, sale of assets;
	 
	•	 	Hiring and dismissing the Chief Executive Officer and decisions concerning his salary;
	 
	•	 	Hiring on recommendation of the Deputy Chief Executive Officers (apart from the Deputy Chief Executive Officer proposed by
SERCEL), the Chief Engineer, the Chief Accountant and other management executives, decisions concerning their salaries;
dismissing on recommendation of the Chief Executive Officer, the Deputy Chief Executive Officers, the Chief Engineer, the
Chief Accountant and other high-level management executives;
	 
	•	 	Dividend distribution plan;
	 
	•	 	Salaries policy;
	 
	•	 	Research and development policy;
	 
	•	 	Allocations to the legal reserve, expansion and welfare funds;
	 
	•	 	Drafting of staff employment contracts;
	 
	•	 	Internal regulations and their amendments;
	 
	•	 	Establishment of the COMPANY’s management system;

25

 

	•	 	Powers delegated to the Chief Executive Officer in accordance with article 17.

16.2.6. The President of the Board of Directors is the legal representative of
the COMPANY. However, he may not commit himself in the name and on behalf of
the COMPANY in the terms of any legal document, contract or agreement without
having been duly and expressly mandated to this effect by the Board of
Directors. If for any reason, the President is incapable of exercising his
responsibilities, he must ask the Vice-President or another director to
represent the COMPANY provisionally.

16.3. Meetings of the Board of Directors

16.3.1. The Board of Directors will hold its first meeting fifteen (15) days at
the latest after the COMPANY INCORPORATION DATE. At this first meeting, the
Board of Directors will:

	•	 	confirm the decisions made by the Preparation Committee, carry out the joining formalities with
the Preparation Committee and dissolve the Preparation Committee;
	 
	•	 	choose the President and Vice-President;
	 
	•	 	nominate the special advisor to the Board of Directors, the Chief Executive Officer, the Deputy
Chief Executive Officers, the Chief Engineer, the Chief Accountant and other high-level
management executives, and decide on their remuneration;
	 
	•	 	approve the company’s MEMORANDUM AND ARTICLES OF ASSOCIATION;
	 
	•	 	fix the COMPANY’s budget for the current year depending on the COMPANY’S activity plan for the
current year and the investment plan;
	 
	•	 	establish the COMPANY’s base management system.

In addition at this same session of the Board of Directors:

	•	 	The APPENDED CONTRACTS will be signed;
	 
	•	 	The Board of Directors will confirm that it will respect the provisions set out by the PARTIES
in the CONTRACT, in particular those relating to the RIGHT OF PRE-EMPTION, the OPTIONS TO BUY
and the dissolution of the COMPANY.

16.3.2. The Board of Directors must meet at least four times a year. Any
meeting must be convened by written notification addressed at least thirty (30)
days in advance and chaired by the President of the Board. In addition, the
President must convene a meeting of the Board within fifteen (15) days of
receipt of any written request, emanating from more than three directors and
specifying the questions to be included on the agenda.

Any meeting of the Board of Directors may be held by telephone conference,
video conference or any other equivalent method of communication that allows
all the directors participating in the meeting to understand and communicate
with each other; all the directors who have participated in such a meeting of
the Board of Directors are regarded as being present in person at the said
meeting.

16.3.3. If a director cannot attend a meeting of the Board of Directors, he may
mandate a representative of the PARTY concerned to represent him and vote in
his name and on his behalf.

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If no representative is mandated to attend a meeting of the Board of Directors,
the absent director is regarded as having renounced his right to vote at that
meeting.

16.3.4. Any meeting of the Board requires a quorum of two thirds of the
directors present or represented (in the case in point, six directors). If a
quorum is not reached at a meeting of the Board, that meeting will be postponed
automatically to the next working day, at the same time and place. Each Party
will ensure that its representatives are present or represented at all meetings
of the Board of Directors.

Any decision adopted at a meeting of the Board where a quorum has not been
reached in the conditions set out in the paragraphs above is regarded as null
and void.

16.3.5. Meetings of the Board of Directors are usually held at the COMPANY’s
head office, but may also be held at any other place decided by the Board of
Directors. The COMPANY will take responsibility for the travelling and
accommodation expenses incurred by the directors to attend meetings of the
Board.

16.3.6. At each meeting, the President of the Board nominates a secretary
charged with the true and complete drafting, in Chinese and English, of the
minutes of the meetings. These minutes will be signed immediately by the
directors present at the end of any meeting of the Board and if the meeting is
held by video conference or telephone, the minutes will be signed by fax as
soon as possible and within 96 hours at the most.

Minutes of meetings are kept at the COMPANY’s head office.

16.3.7. Directors exercise their function without being paid. However, expenses
arising from the participation of directors at the Board of Directors will be
paid by the COMPANY, as normal expenses, within reasonable limits.

16.4. Deadlock

16.4.1. If:

	•	 	The Board of Directors does not reach agreement over a decision that must be made unanimously or
by a two thirds majority pursuant to article 16.2.3. above, and
	 
	•	 	This disagreement occurs following rejection of the decision at two consecutive meetings, held validly, of the Board of Directors; the last meeting being conducted within ninety days of the
date of the first, and where
	 
	•	 	The PARTIES acknowledge that this situation prevents the COMPANY from pursuing its activities normally or developing,

Or if:

	•	 	A quorum cannot be reached at two consecutive meetings validly convened,

The Board of Directors must immediately inform the PARTIES at the highest
hierarchical level of each PARTY so that they may make a pronouncement.

16.4.2. The PARTIES undertake to negotiate in good faith and do their utmost to
find a mutually acceptable solution to the question.

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16.4.3. If the PARTIES do not reach a mutually acceptable solution within
ninety (90) days of the date of the last meeting of the Board of Directors,
each PARTY present at the meeting and/or who voted in favour of the decision
may take the initiative to exercise, in proportion to its SHAREHOLDING, an
OPTION TO BUY the SHAREHOLDING of the PARTY or PARTIES that caused the deadlock
either by the absence of its/their representative(s) at legitimately convened
sessions of the Board or by voting against the decision submitted for approval
to the Board (the transfer price being fixed by an independent auditor
registered in China, each PARTY being free however to withdraw its option after
determination of the price) or to demand the dissolution of the COMPANY in
accordance with the provisions of article 26.1 below.

ARTICLE 17 – GENERAL MANAGEMENT

17.1. The COMPANY establishes a General Management in charge of day-to-day
management. It is made up of a Chief Executive Officer proposed by the UNION,
several Deputy Chief Executive Officers, one of which is proposed by SERCEL, a
Chief Engineer, a Chief Accountant and other high-level management executives
proposed by the Chief Executive Officer. The Chief Executive Officer and Deputy
Chief Executive Officers, whose mandates last four (4) years, are nominated by
the Board of Directors. The number of Deputy Chief Executive Officers will be
fixed by the Board of Directors.

The Chief Engineer, Chief Accountant and other high-level management executives
will be proposed by the Chief Executive Officer and appointed by the Board of
Directors.

17.2. The Chief Executive Officer is responsible for executing the decisions of
the Board of Directors, organising and directing the day-to-day management of
the COMPANY.

The Chief Executive Officer attends all sessions of the Board of Directors.

Within the limit of his powers as accepted by the Board of Directors, the Chief
Executive Officer represents the COMPANY in its relations with third parties.

17.3. The Chief Executive Officer has the following powers, it being specified
that the Board of Directors may delegate other powers to him on a case by case
basis:

	 	(a)	 	to prepare the financial reports and balance sheets submitted for
approval to the Board of Directors;
	 
	 	(b)	 	to direct work connected with the operation and management of the
COMPANY, to apply the decisions of the Board of Directors;
	 
	 	(c)	 	to apply the COMPANY’s annual business plan and investment plan as
defined by the Board of Directors;
	 
	 	(d)	 	to propose to the Board of Directors the nomination of Deputy Chief
Executive Officers (apart from the Deputy Chief Executive Officer
proposed by SERCEL), the Chief Engineer, the Chief Accountant and other
high-level management executives; to propose to the Board of Directors
the removal of the Deputy Chief Executive Officers, Chief Engineer,
Chief Accountant and other high-level management executives;
	 
	 	(e)	 	to conclude all contracts or transactions in relation to the
COMPANY’s normal activity, other than customer contracts for an amount
determined by the Board of Directors, with a sub-limit also defined by
the Board of Directors for investments, acquisitions of fixed assets or
of any asset;

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	 	(f)	 	conclude all customer contracts up to an amount for each contract
determined by the Board of Directors and/or any sale contract that does
not create an obligation of more than 6 months;
	 
	 	(g)	 	contract any borrowing or loan for an amount determined by the
Board of Directors;
	 
	 	(h)	 	sell assets for an accounting value that does not exceed an amount
determined by the Board of Directors;
	 
	 	(i)	 	keep the COMPANY’s registers and archives diligently;
	 
	 	(j)	 	inform the Board of Directors of any contract or agreement
concluded with one of the PARTIES [other than contracts for the sale of
PRODUCTS concluded in normal conditions];
	 
	 	(k)	 	sign alone cheques, in any currency, to be debited from the
COMPANY’s bank accounts within limits to be set by the Board of
Directors;
	 
	 	(l)	 	take on and dismiss all employees of the COMPANY within limits and
conditions set by the Board of Directors and the present CONTRACT,
apart from the Deputy Chief Executive Officers, Chief Engineer, Chief
Accountant and other high-level management executives, whose conditions
of hiring and dismissal are specially set by the Board of Directors.

17.4. The Deputy Chief Executive Officers assist the Chief Executive Officer in
his functions.

17.5. The Chief Executive Officer is also assisted by the Chief Engineer and
Chief Accountant and by several departmental Directors:

Human Resources, Administration, Finance, Marketing and Development, Sales,
Production, Research and Development, Quality Control

Departmental Directors are appointed and dismissed by the Chief Executive
Officer, after consultation with the Board of Directors.

17.6. The President, Vice-President or members of the Board of Directors may
occupy the posts of Chief Executive Officer, Deputy Chief Executive Officer or
high-level management executive concurrently without however infringing the
other provisions of this CONTRACT.

17.7. The salary, company’s social security schemes and travelling expenses of
the Chief Executive Officer, Deputy Chief Executive Officers, Chief Accountant,
Chief Engineer and other high-level management executives are determined at the
Board of Directors and are paid in full by the COMPANY.

17.8. The Board of Directors has the power at any time to dismiss the Chief
Executive Officer, Deputy Chief Executive Officers, Chief Engineer, Chief
Accountant and other high-level management executives.

ARTICLE 18 — PERSONNEL

18.1. The company may freely recruit, take on and dismiss its own employees.
Any employee of the COMPANY will be taken on and dismissed by the Chief
Executive Officer, in observance of the PRC’s Labour Law, the Regulations on
Employment Management in Companies with Foreign Capital, and any other
published and applicable Chines law or regulation (under the supervision or
with the agreement of the Board of Directors). The Board of Directors will set
the level of the COMPANY’s workforce. All local employees will be paid in RMB.

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18.2 SERCEL may decide at any time to send expatriate personnel. Expatriate
personnel may be replaced in future by local personnel if SERCEL deems it
possible.

18.3. No employee of the COMPANY, including the Chief Executive Officer, Deputy
Chief Executive Officers, Chief Engineer, Chief Accountant and other high-level
management executives may occupy other management posts concurrently in another
economic entity, and may not participate in commercial activities that compete
with those of the COMPANY apart from the Deputy Chief Executive Officer who may
have functions within SERCEL.

All employees of the COMPANY, including Directors, the Chief Executive Officer
and Deputy Chief Executive Officers must observe the COMPANY’s MEMORANDUM AND
ARTICLES OF ASSOCIATION, exercise their functions in a serious manner and
protect the interests of the COMPANY.

	•	 	They may not use their position or powers in the COMPANY to obtain personal profit;
	 
	•	 	They may not use their powers to obtain illegal commissions or revenues, and may not seize the COMPANY’s assets;
	 
	•	 	They may not misappropriate the COMPANY’s funds or lend the COMPANY’s funds to a THIRD PARTY;
	 
	•	 	They may not open a bank account in their name or in the name of a third party in order to deposit the COMPANY’s funds
therein;
	 
	•	 	They may only sign a contract or conclude transactions with the COMPANY in accordance with the provisions of the MEMORANDUM
AND ARTICLES OF ASSOCIATION or with the agreement of the Board of Directors.

18.4. For all JUNFENG employees taken on by the COMPANY, the UNION and DONGFANG
must guarantee that all salaries, company’s social security schemes and taxes
due before the employee was transferred to the COMPANY have been paid and are
up-to-date, in accordance with the requirements of the applicable Chinese laws
and regulations, and that no liability will arise therefrom.

18.5. Apart from employees coming from JUNFENG, all newly recruited employees
must complete a trial period (that may vary according to the length of the
employment contract) and will only be formally taken on by the COMPANY after
having satisfactorily completed this trial period.

18.6. The COMPANY will take on the 480 current JUNFENG employees and undertakes
not to dismiss more than 3% of staff in the first three years of its existence,
provided that the COMPANY’s level of activity remains as high as JUNFENG’s in
2002. However, employees who are not competent or who do not observe in a
serious manner the COMPANY’s operating rules, including the safety regulations,
will not enjoy this guarantee. At the end of the first three years, employment
contracts will be renewed normally.

The COMPANY will make all efforts to avoid redundancies after the first three
years if the level of activity allows it.

18.7. Based on a standard contract approved by the Board of Directors stating
conditions of hiring, resignation and dismissal, salaries and company’s social
security schemes, bonuses and disciplinary sanctions, and all other points
concerning the COMPANY’s staff, employment contracts will be signed by the
COMPANY, represented by the Chief Executive Officer, and each employee of the
COMPANY, in accordance with published and applicable Chinese laws and
regulations.

30

 

18.8. After signature, employment contracts will be registered with the local
employment management department.

18.9. The salaries and company’s social security schemes of the COMPANY’s staff
will be determined by the Board of Directors, on recommendation of the Chief
Executive Officer, depending on the particular situation of the COMPANY and on
published and applicable Chinese laws and regulations, it being understood that
these salaries and company’s social security schemes will not be inferior to
the average salaries and company’s social security schemes enjoyed by JUNFENG’s
employees in 2002. Moreover, the COMPANY will observe Chinese legislation
relating to the employees of mixed capital companies.

18.10. Technical and management employees in the middle and higher levels of
the COMPANY who must be trained will be selected by the Board of Directors, on
the recommendation of the Chief Executive Officer.

18.11. The COMPANY’s staff may set up union branches and organise union
activities in accordance with published and applicable Chinese laws and
regulations. To this end, the COMPANY makes available to employees, in the
conditions defined in the COMPANY’s Internal Regulations, the necessary means
to develop these union activities (premises for holding meetings, equipment)
and pays the cost of repair for wear and tear,.

In accordance with the regulations, each month the COMPANY allocates the
percentage provided for by Chinese legislation of the total amount of the
salaries of the COMPANY’s employees, as union operating expenses.

The Union may represent employees to negotiate with the COMPANY on points
relating to remuneration, working hours, rest periods and holidays, health and
safety, insurance and welfare, etc. and a collective employment contract may
also be drawn up.

18.12. If employees do not respect the COMPANY’s internal regulations and
working discipline, the Chief Executive Officer will take the appropriate
disciplinary measures. In observance of published and applicable Chinese laws
and regulations, the Chief Executive Officer has the power to dismiss any
employee of the COMPANY who commits a serious offence, turns out to be
incompetent or not qualified for the work assigned to him, or is surplus to
requirements.

ARTICLE 19 – TAXATION, ACCOUNTANCY, FINANCIAL AFFAIRS AND DISTRIBUTION OF
PROFITS

19.1. Taxation

19.1.1. The COMPANY must be registered with the Tax Office and pay the taxes
due in accordance with published and applicable Chinese laws and other
regulations..

To the benefit of the COMPANY and the PARTIES, the PARTIES will apply to obtain
any preferential fiscal treatment, exemption, reduction, privilege, fiscal
preference that applies now or in future in accordance with Chinese law, or any
international treaty to which China is or may become party, including but not
limited to preferential fiscal treatment reserved for advanced technology
companies.

19.1.2. The COMPANY’s staff must pay individual income tax in accordance with
the published and applicable Chinese laws and regulations.

19.2. Accountancy

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19.2.1. The COMPANY must be registered with the competent administrative
department and adopt an accounting and financial system that complies with the
administrative laws and regulations and with the provisions of the financial
authorities responsible to the State Business Council.

19.2.2. The COMPANY must adopt the international accounting system based on
credit and debit and use the Renminbi as the accounting currency. Conversion of
any amount in Euros or USD is made at the OFFICIAL EXCHANGE RATE.

19.2.3. The books of accounts and accounting reports are kept in Chinese and
English.

19.2.4. All supporting evidence, invoices and receipts must be written in
Chinese, and at the request of SERCEL translated into English.

19.2.5. The COMPANY’s tax and accounting year runs from 1st January to 31st
December of the same year, apart from the first year which begins on the
COMPANY INCORPORATION DATE and ends on 31st December of the same year.

19.3. Financial affairs

19.3.1. The Chief Executive Officer prepares the balance sheet, profit and loss
account and profit distribution proposal for the year just ended.

19.3.2. Verification and examination of the COMPANY’s accounts are conducted by
an independent auditor registered in China who submits his reports to the Chief
Executive Officer. In addition, the COMPANY will report regularly on SERCEL
using a format specified by SERCEL.

19.3.3. The financial documents prepared by the Chief Executive Officer and the
independent auditor’s reports are submitted to the Board of Directors for
approval in the first three (3) months of each fiscal year.

19.3.4. Having regard for the COMPANY’s financial situation, the Board of
Directors decides, under the published and applicable Chinese laws and
regulations, on the annual amount allocated to the COMPANY’s legal reserve
fund, expansion fund and social funds and staff bonuses.

The reserve fund may be used not only to offset the COMPANY’s losses but also,
on approval of the approving authorities, to increase the COMPANY’s capital.
Until the previous year’s losses have not been offset, the COMPANY may not
distribute dividends. Undistributed dividends from previous years may be
distributed in subsequent years.

19.3.5. After deduction of the allocations to the funds mentioned in article
19.3.4., and the amounts needed for the COMPANY’s investments, for bringing
forward previous years’ losses and for payment of taxes, the Board of Directors
may decide to distribute profits in accordance with article 19.4. below.

19.4. Distribution of profits

19.4.1. For the first three years, 30% of net profits will be distributed in
the form of dividends. If the COMPANY is in difficulties, the Board of
Directors will rule on a 2/3 majority to decide to modify the percentage or not
to pay a dividend.

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At end of the first three years, payment of dividends will be decided by the
Board of Directors on simple majority.

19.4.2. Profits are shared between the / distributed to the PARTIES in
proportion to their SHAREHOLDING.

19.4.3. Dividends are determined in RMB and will be distributed in RMB for the
PARTIES incorporated in China and in Euros for SERCEL.

The COMPANY will obtain the necessary Euros from banks authorised in accordance
with the applicable Chinese laws and regulations.

19.4.4. Calculation of the amount of dividends payable in Euros will be at the
OFFICIAL EXCHANGE RATE in force on the day the Board of Directors decides on
the dividend distribution.

19.4.5. Dividends will be paid simultaneously to the PARTIES, by transfer to
the bank account of the PARTIES, within thirty (30) days of the date of the
Board of Directors’s resolution deciding on the dividend distribution.

19.4.6. Dividends paid to SERCEL will be freely repatriated abroad.

19.5. Audit

19.5.1. Compulsory audit

The COMPANY’s books and accounts will be audited each year by an independent
auditor appointed by the Board of Directors in accordance with article 16.2.5
above. This independent auditor must always be able to provide evidence of
internationally recognised qualifications regarding accountancy expertise and
auditing. The auditor’s report will be written in Chinese and English.

19.5.2. Independent audit

Each PARTY may ask to audit the COMPANY’s books and accounts once a year
subject to the audits conducted by the regulatory authorities of one or other
PARTY, and SERCEL, as majority shareholder, may conduct such an audit at any
time.

This audit will be conducted either by its accountancy staff or, at its
expense, by an independent auditor.

ARTICLE 20 — GUARANTEES

20.1. The UNION guarantees each PARTY that:

	•	 	The UNION is a legal entity duly constituted, exercising its activity in
accordance with Chinese law, and is of good repute;
	 
	•	 	The UNION has all the necessary civil capacity and powers to execute its
obligations pursuant to the present CONTRACT;

33

 

	•	 	The UNION’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT in the name of the UNION and all
its members, in accordance with a valid power, a copy of which has been
sent to each of the other PARTIES ;
	 
	•	 	The UNION is not bound by any contract or agreement that may hinder the
COMPANY’s incorporation and activities or prevent execution by the UNION
of its obligations set out in the present CONTRACT ;

20.2. DONGFANG guarantees each Party that:

	•	 	DONGFANG is a legal entity duly constituted, exercising its activity in
accordance with Chinese law, and is of good repute;
	 
	•	 	DONGFANG has all the necessary civil capacity and powers to execute its
obligations pursuant to the present CONTRACT;
	 
	•	 	DONGFANG’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT, in accordance with a valid power
a copy of which has been sent to each of the other PARTIES;
	 
	•	 	DONGFANG is not bound by any contract or agreement that may hinder the
incorporation and activities of the COMPANY or prevent execution by
DONGFANG of its obligations set out in the present CONTRACT ;

20.3. The UNION and DONGFANG guarantee SERCEL and XPEIC that:

	•	 	JUNFENG was incorporated in accordance with Chinese laws and
regulations, and exercises its activity in accordance with Chinese
law, and is of good repute;
	 
	•	 	All the salaries, company’s social security schemes and taxes due in
connection with JUNFENG’s employees have been paid up to the COMPANY
INCORPORATION DATE, are up-to-date, in accordance with the
requirements of the applicable Chinese laws and regulations, and there
is no liability arising therefrom;
	 
	•	 	JUNFENG is the lawful owner and/or owns the exclusive right to use the
assets that are transferred and the said assets are the sole and exclusive
property of JUNFENG and are from all mortgage rights or THIRD PARTY right,
other than those mentioned in the enclosed appendix 15;
	 
	•	 	The equipment transferred is in working order and affords normal safety
conditions given its previous use by JUNFENG, other than that mentioned in
the enclosed appendix 16;
	 
	•	 	JUNFENG’s existing industrial installations are connected to the public
running water, heating, electricity and sewerage networks, and to
telecommunications systems and all other necessary public networks.
	 
	•	 	The list of patents, expertise, designs and models licensed by DONGFANG
to the COMPANY corresponds to all the patents, expertise, designs and
models used by JUNFENG before its transformation, and there is no action
or claim against JUNFENG or DONGFANG in relation to these trademarks,
patents, expertise, designs and models; all precautions have been taken to
preserve the confidentiality of information connected with these
trademarks, patents, expertise, designs and models.

34

 

	•	 	JUNFENG is the sole owner or legal user of the technical information,
patents, experience and expertise used by JunFeng on the day the
Contract is signed that does not form part of the SERCEL LICENSED
TECHNOLOGY or the DONGFANG TECHNOLOGY.
	 
	•	 	JUNFENG has not infringed in any way whatsoever the intellectual or
industrial property rights, expertise, designs or models of THIRD
PARTIES on the Chinese or international market;
	 
	•	 	JUNFENG is not bound by any contract, commitment or agreement that may
hinder the incorporation and activities of the COMPANY in China or abroad;
	 
	•	 	JUNFENG has no subsidiaries other than the company “Baoding Junfeng”;
	 
	•	 	JUNFENG is not bound by any contract or agreement other than those
mentioned in the enclosed appendix 20;
	 
	•	 	JUNFENG is not bound by any bank borrowing and has not issued any surety
or guarantee in relation to third party commitments, other than those
mentioned in the enclosed appendix 17;
	 
	•	 	The insurance polices subscribed by JUNFENG on assets, vehicles and
transport (see list in appendix 18) provide for reasonable levels of
guarantee and will be continued in the COMPANY’s name;
	 
	•	 	JUNFENG has no distributors or agents other than those mentioned in the
enclosed appendix 19;
	 
	•	 	JUNFENG conducts its activity in accordance with the laws, regulations,
provisions and other government directives in particular, but without
limitation, on environmental protection and that the land is not polluted;
	 
	•	 	No action, claim, dispute, process or procedure has been entered into or
risks being entered into, by or before any Chinese or foreign authority or
jurisdiction or by any third party against JUNFENG that could affect
execution of the present CONTRACT (other than those mentioned in the
enclosed appendix 21, which will not be transferred to the COMPANY);
	 
	•	 	JUNFENG has successfully completed all formalities within the required
periods with regard to the local and national authorities to which it has
sent any report, item of data and estimate concerning in particular local
and national taxes and customs dues and other taxes, and has paid all
taxes due within the required periods; sufficient provisions have been
constituted on the date of closing the accounts and on the EFFECTIVE DATE
to cover in particular any amount of taxes and customs dues payable for
the period prior to the COMPANY INCORPORATION DATE;
	 
	•	 	The accounting and financial documents provided by JUNFENG, such as the
balance sheet, profit and loss account and cash flow situation are in
compliance with JUNFENG’s books of accounts and reports, and have been
prepared in accordance with the Chinese GAAP. The adjusted valuation
report accepted by the PARTIES faithfully represents the state of
JUNFENG’s assets and balance sheet at 31st July 2003. The profit and loss
account and cash flow situation faithfully represent JUNFENG’s present
situation and results at 31st July 2003;

35

 

	•	 	All the information provided to SERCEL relating in particular but without
limitation to JUNFENG’s assets, operations, technology, industrial and
intellectual property rights and financial situation are authentic,
correct and complete and provide a faithful representation of JUNFENG’s
situation, particularly its legal, financial, fiscal, operational or
commercial situation and no information necessary to obtain this faithful
representation has been omitted;
	 
	•	 	From the signature date of the present CONTRACT to the COMPANY
INCORPORATION DATE, unless there is a contrary clause in the present
CONTRACT, there is and will be no modification that significantly and
unfavourably affects JUNFENG’s activity, financial situation or results,
and operations will have been conducted in a manner that complies with the
manner in which they were conducted before the CONTRACT was signed;

All the above-mentioned guarantees are correct on the day the present CONTRACT
is signed and will remain correct for the whole period between the CONTRACT
signature date and the COMPANY INCORPORATION DATE.

20.4. SERCEL guarantees the UNION, DONGFANG and XPEIC that:

	•	 	SERCEL is a legal entity duly constituted, exercising its activity in
compliance with French law, and is of good repute;
	 
	•	 	SERCEL has all capacity and powers to execute its obligations pursuant to
the present CONTRACT;
	 
	•	 	SERCEL’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT, in accordance with a valid power
a copy of which has been sent to the UNION, DONGFANG and XPEIC;
	 
	•	 	SERCEL is not bound by any contract or agreement that may hinder the
COMPANY’s incorporation and activities or prevent execution by SERCEL of
its obligations set out in the present CONTRACT; the other PARTIES
acknowledge that SERCEL has a 40% shareholding in XIAN-SERCEL whose
purpose is to manufacture certain land-based seismic products;
	 
	•	 	SERCEL exercises its activity in compliance with the laws, regulations,
provisions and other government directives regarding environmental
protection;
	 
	•	 	No action, claim, dispute, process or procedure has been entered into or
risks being entered into, by or before any authority or jurisdiction
against SERCEL that could affect execution of the present CONTRACT.

	20.5.	 	XPEIC guarantees each Party that:

	•	 	XPEIC is a legal entity duly constituted, exercising its activity in
compliance with Chinese law, and is of good repute;
	 
	•	 	XPEIC has all civil capacity and the necessary powers to execute its
obligations pursuant to the present CONTRACT;
	 
	•	 	XPEIC’s representative whose signature is affixed below is fully
authorised to sign the present contract, in accordance with a valid power
a copy of which has been sent to each of the other PARTIES;

36

 

	•	 	XPEIC is not bound by any contract or agreement that may hinder the
COMPANY’s incorporation or activities or prevent execution by XPEIC of its
obligations set out in the present CONTRACT; the other PARTIES acknowledge
that XPEIC has a 60% shareholding in XIAN-SERCEL whose purpose is to
manufacture certain land-based seismic products;
	 
	•	 	XPEIC exercises its activity in accordance with the laws, regulations,
provisions and other government directives regarding environmental
protection;
	 
	•	 	No action, claim, dispute, process or procedure has been entered into or
risks being entered into, by or before any authority or jurisdiction
against XPEIC that could affect the execution of the present CONTRACT.

	20.6.	 	Indemnities
	 
	20.6.1.	 	The UNION undertakes and agrees to indemnify and guarantee each of the
other PARTIES against any liability, damage, loss, fine, penalty, claim,
cost or expense, suffered directly by each of the other PARTIES, resulting
from a false or incorrect representation of reality or incorrectness or
violation of the guarantees and assurances set out in article 20.1. up to
the prescription date of the corresponding actions or claims.
	 
	20.6.2.	 	DONGFANG undertakes and agrees to indemnify and guarantee each of the
other PARTIES against any liability, damage, loss, fine, penalty, claim,
cost or expense, suffered directly by each of the other PARTIES, resulting
from a false or incorrect representation of reality or incorrectness or
violation of the guarantees and assurances set out in article 20.2. up to
the prescription date of the corresponding actions or claims.
	 
	20.6.3.	 	SERCEL undertakes and agrees to indemnify and guarantee each of the
other PARTIES against any liability, damage, loss, fine, penalty, claim,
cost or expense, suffered directly by each of the other PARTIES, resulting
from a false or incorrect representation of reality or incorrectness or
violation of the guarantees and assurances set out in article 20.4. up to
the prescription date of the corresponding actions or claims.
	 
	20.6.4.	 	XPEIC undertakes and agrees to indemnify and guarantee each of the
other PARTIES against any liability, damage, loss, fine, penalty, claim,
cost or expense, suffered directly by each of the other PARTIES, resulting
from a false or incorrect representation of reality or incorrectness or
violation of the guarantees and assurances set out in article 20.5. up to
the prescription date of the corresponding actions or claims.
	 
	20.6.5.	 	In addition, the UNION and DONGFANG undertake and agree to indemnify
and guarantee SERCEL against any liability, damage, loss, fine, penalty,
claim, cost or expense, suffered directly by SERCEL or the COMPANY
resulting from a false or incorrect representation of reality or
incorrectness or violation of the guarantees and assurances set out in
article 20.3., administrative or legal procedures relating to events that
occurred before the COMPANY INCORPORATION DATE in relation in particular
to liability for products and pollution, up to the prescription date for
the corresponding actions or claims and within the financial limit of 50%
of the price stipulated in the SHAREHOLDING TRANSFER CONTRACT concluded
between SERCEL and the UNION.
	 
	 	 	If the guarantor is not in a position to substitute himself for the beneficiary
or pay on behalf of the beneficiary, or indemnify the beneficiary for the loss
suffered, the beneficiary may demand that the guarantor sell part of his
assets. If the UNION is not in a position to reimburse the whole of the
indemnity, it must indemnify with its SHAREHOLDING and other interests in the

37

 

COMPANY1. The other PARTIES undertake not to exercise their RIGHT OF
PRE-EMPTION if all or part of the UNION’s SHAREHOLDING is transferred to
SERCEL;

20.6.6. Moreover, DONGFANG undertakes and agrees to indemnify and guarantee
XPEIC against any liability, damage, loss, fine, penalty, claim, cost or
expense, suffered directly by XPEIC or the COMPANY resulting from a false
or incorrect representation of reality or incorrectness or violation of
the guarantees and assurances set out in article 20.3. administrative or
legal procedures relating to events that occurred before the COMPANY
INCORPORATION DATE in relation in particular to liability for products and
pollution, up to the prescription date for the corresponding actions or
claims and within the financial limit of 50% of the purchase price
stipulated in the SHAREHOLDING TRANSFER CONTRACT between XPEIC and
DONGFANG.

20.6.7. The guarantee will come into play by sending a recorded delivery letter
on receipt of the complaint or assessment of loss suffered by the COMPANY or
the party concerned.

ARTICLE 21 — INSURANCE

The COMPANY’s insurance policies covering various risks are subscribed with
insurance companies established in China in accordance with published and
applicable Chinese laws and regulations.

ARTICLE 22 — DURATION

22.1. Subject to a possible early dissolution, the COMPANY will have a life of
forty eight (48) years from the COMPANY INCORPORATION DATE.

22.2. Any application for an extension of the life of the COMPANY, proposed by
one or other of the PARTIES and approved unanimously by the Board of Directors
will be submitted to the APPROVING AUTHORITY at least six (6) months before the
end of the COMPANY’s life.

ARTICLE 23 — REORGANISATION OF THE PARTIES

23.1. If there is a significant reorganisation of one or more of the PARTIES
(dissolution, change of control, alteration of activities, etc.) and if this
reorganisation seriously undermines the interests of one or other of the other
PARTIES, and/or seriously affects execution of the present CONTRACT or one of
its essential provisions, and/or leads to a serious violation of the present
CONTRACT, the PARTIES not undergoing this reorganisation may, by mutual
agreement:

	•	 	continue to execute the present CONTRACT:

or

	•	 	cancel the present CONTRACT in accordance with the provisions of
article 24 below and:
	 
	•	 	exercise an OPTION TO BUY the SHAREHOLDING(S) of the PARTY or PARTIES
being reorganised if this is authorised by the Chinese regulations and
if necessary in proportion to the percentage shareholdings;

	1	 	NdT : simplification de la phrase, à valider.

38

 

	•	 	or demand the dissolution of the COMPANY.

If the PARTIES not undergoing this reorganisation do not manage to reach
agreement over one of the three solutions above within a reasonable period of
the implementation or announcement of the reorganisation, then any one of the
PARTIES not undergoing reorganisation may:

	•	 	cancel the present CONTRACT in accordance with the provisions of
article 24 below and:
	 
	•	 	exercise an OPTION TO BUY the SHAREHOLDING(S) of the PARTY or PARTIES
being reorganised if this is authorised by the Chinese regulations and
if necessary in proportion to the percentage shareholdings;
	 
	•	 	or demand the dissolution of the COMPANY.

23.2. If this material reorganisation of one of the PARTIES leads to the entry
of a THIRD PARTY into the COMPANY following a SHAREHOLDING transfer, that
[transfer] will be conducted in accordance with article 6 of the present
CONTRACT.

ARTICLE 24 — RESPONSIBILITY FOR BREACH OF CONTRACT

24.1 The present CONTRACT will be terminated automatically without compensation
due to one or other of the PARTIES if there is a breach of the shareholding
transfer contract between the PARTIES for any reason whatsoever before the
COMPANY INCORPORATION DATE.

24.2. If all or part of the present CONTRACT cannot be executed because of the
behaviour (act or omission) of one of the PARTIES, that PARTY will assume
responsibility for this in accordance with the provisions of article 24.3.

24.3. If the COMPANY cannot continue its activities because of the serious
failure by one of the PARTIES to fulfil its obligations pursuant to the present
CONTRACT or the COMPANY’s MEMORANDUM AND ARTICLES OF ASSOCIATION, or if one of
the PARTIES commits a serious violation of the present CONTRACT or the
COMPANY’s MEMORANDUM AND ARTICLES OF ASSOCIATION, and if that PARTY does not
remedy that failure to fulfil or violation within thirty (30) days of receipt
of a formal written notice sent by the other PARTY, each PARTY may exercise an
OPTION TO BUY the SHAREHOLDING of the DEFAULTING PARTY (either alone, or in
proportion to the percentage shareholdings) and claim damages.

In particular, but not exclusively, a serious violation by one of the PARTIES
of its obligations pursuant to articles 9, 10, 11 and 14 above will be regarded
as a serious violation of the present CONTRACT.

24.4. The defaulting PARTY will transfer its SHAREHOLDING at the price set by
mutual agreement by the PARTIES.

In the absence of an agreement over the price within sixty (60) days of sending
written notification by the non-defaulting PARTY, the PARTIES will appoint an
independent expert (an auditor of international repute with experience in
China) to determine that price on the basis of the company’s net accounting
value, the party or parties who exercised the OPTION TO BUY being, however,
free to withdraw its/their option after determination of the price.

39

 

ARTICLE 25 — DISSOLUTION AND LIQUIDATION

25.1. Dissolution

25.1.1. The COMPANY will be dissolved if the PARTIES reach an agreement to end
the COMPANY and if a unanimous resolution to this effect in voted by the Board
of Directors.

25.1.2. In addition, the PARTIES decide henceforward to dissolve the COMPANY in
the following circumstances:

	•	 	The RIGHT TO USE the land is not renewed and the cost of moving the
factory cannot be supported, in accordance with article 8 above, or the
COMPANY is expropriated of the land;
	 
	•	 	The Board of Directors does not approve an extension of the
COMPANY’s life in accordance with article 22 above;
	 
	•	 	A PARTY has cancelled the CONTRACT and asked for the dissolution of
the COMPANY because of the material reorganisation of one or more of
the PARTIES in the circumstances indicated in article 23 above;
	 
	•	 	The consequences of an event of force majeure prevent the COMPANY
from pursuing its activity normally as indicated in article 26 below;
	 
	•	 	The PARTIES cannot restore the fair and equitable character of the
CONTRACT because of circumstances of hardship described in article 27
below;
	 
	•	 	The occurrence of partial or total invalidity prevents execution of
the present CONTRACT in accordance with article 32 below;
	 
	•	 	The COMPANY is incapable of continuing its activity because one of
the APPENDED CONTRACTS has not come into effect (within three months of
the COMPANY INCORPORATION DATE) or has been cancelled before its term;
	 
	•	 	An OPTION TO BUY has not been taken up in all the cases that
provide for such a possibility (art 9.1.4, 14.2.3., 16.4.3., 23.1.,
26.4.)
	 
	•	 	The present CONTRACT is ended by an arbitration award;
	 
	•	 	The COMPANY is bankrupt in accordance with Chinese law or is
incapable of paying its due debts which prevents it from pursuing its
normal activity, or its cumulative losses exceed fifty per cent (50%)
of its share capital;
	 
	•	 	And / or the COMPANY has received an order to cease its activity
because of a violation of the published Chinese laws and regulations.

25.2. Liquidation procedure

25.2.1. Following the dissolution of the COMPANY, its liquidation must be
conducted in accordance with the published and applicable Chinese laws and
regulations.

40

 

25.2.2. In pronouncing the dissolution of the COMPANY, the Board of Directors
must establish the liquidation principles and procedure and set up a
Liquidation Committee in accordance with the following provisions.

25.2.3. The Liquidation Committee’s functions are to conduct the required
notifications and publications, draw up a statement of the COMPANY’s assets and
debts and formulate a liquidation plan submitted for approval to the Board of
Directors.

25.2.4. If the RIGHT TO USE THE LAND CONTRACT has not been terminated on
liquidation of the COMPANY, the right to use the land and buildings and all the
structures erected on the LAND must be sold. The UNION has a priority right to
acquire these assets, at the same price as offered, if applicable, by a THIRD
PARTY or another PARTY.

25.2.5. On liquidation, all the factory equipment must be sold and the UNION
has a priority right to acquire all the factory’s equipment, at the same price
as offered, if applicable, by a THIRD PARTY or another PARTY.

25.2.6. On liquidation, SERCEL and the UNION each have a priority right to
acquire all the stocks of PRODUCTS at the same price as offered, if applicable,
by a THIRD PARTY or another PARTY.

25.2.7. On liquidation of the COMPANY, the UNION and SERCEL will be the joint
owners of the COMPANY’S TECHNOLOGY and will each benefit from a non-exclusive,
world-wide, cost-free right to use the COMPANY’S TECHNOLOGY in accordance with
the terms of appendix 25 to each manufacture and market throughout the world
the products resulting from the COMPANY’S TECHNOLOGY. The UNION retains no
right in relation to the SERCEL TECHNOLOGY and to technologies arising
therefrom belonging to SERCEL.

25.2.8. Valuation of the assets will be conducted according to the following
principles:

	•	 	The transfer price of the assets must be set by mutual agreement by the PARTIES;
	 
	•	 	The minimum transfer price is the residual accounting value of the assets, after depreciation;

In the absence of agreement of the PARTIES on the transfer price, they will
appoint a qualified valuation organisation in China (of international repute
with experience in China) to determine this price.

25.2.9. The sums obtained by the COMPANY under the liquidation of assets will
be allocated in the following order:

	•	 	1. To payment of the liquidation expenses and remuneration of the members
of the Liquidation Committee;
	 
	•	 	2. To payment of the costs of publication, legal procedures and
arbitration;
	 
	•	 	3. To payment of the salaries and company’s social security schemes of
the COMPANY’s staff and social security contributions;
	 
	•	 	4. To payment of state taxes;
	 
	•	 	5. To payment of other debts;

41

 

	•	 	6. To the constitution of reserves deemed reasonable by the Board of
Directors to pay the COMPANY’s unexpected charges and expenses;
	 
	•	 	7. To payment of corporation tax on the liquidation dividend;
	 
	•	 	8. To the PARTIES in proportion to their SHAREHOLDING.

25.2.10. At the close of the liquidation, the COMPANY submits a liquidation
report to the APPROVING AUTHORITY.

The COMPANY will cancel its registration with the fiscal, customs and Trade and
Industry authorities. It will publish the COMPANY’s liquidation in national and
local newspapers.

25.2.11. Following the COMPANY’s liquidation, all the COMPANY’s books of
accounts and accounting documents will be deposited by a PARTY of Chinese
nationality, the other PARTIES and their representatives however having the
right to make and keep a full set of copies of these books and documents.

25.3. Other consequences of the dissolution

The following provisions apply to the dissolution of the COMPANY:

	•	 	The CABLE 408 TECHNOLOGY LICENCE CONTRACT is automatically terminated
and all documents relating to the SERCEL LICENSED TECHNOLOGY are
immediately returned to SERCEL;
	 
	•	 	The SERCEL TRADEMARK AND CORPORATE NAME LICENCE CONTRACT is
automatically terminated, and the COMPANY will ask the competent
authorities to cancel registration of the COMPANY’s name;
	 
	•	 	The JUNFENG TRADEMARK AND CORPORATE NAME LICENCE CONTRACT is
automatically terminated, and the COMPANY will ask the competent
authorities to cancel registration of the COMPANY’s name;
	 
	•	 	The effective dissolution of the COMPANY automatically brings about
the end of the present CONTRACT (and all the APPENDED CONTRACTS)
except for what concerns the obligations stated in articles 9.2 and
9.3 (prohibition on using the SERCEL TECHNOLOGY), 10
(confidentiality), 24 (liability for breach of contract), 25.4.3.
(other consequences of the dissolution), 29 (applicable law), 30
(settlement of disputes) of the present CONTRACT which will remain in
force.

ARTICLE 26 — FORCE MAJEURE

26.1. “Force majeure” signifies any event that could not be foreseen on the
date of signing the present CONTRACT or any event that can be foreseen but is
reasonably inevitable, such as but not limited to events such as earthquakes,
typhoons, fires, floods, epidemics, strikes, riots or war.

26.2. If one of the PARTIES cannot execute the CONTRACT for reasons of force
majeure, that PARTY must, within a period of fifteen (15) days of the
occurrence of the event constituting

42

 

force majeure, provide the other PARTIES with detailed information, confirmed
by an official document emanating from the local authorities.

26.3. Depending on the consequences produced on the execution of the CONTRACT,
the PARTIES decide by mutual agreement within three (3) months to:

	•	 	end the present CONTRACT;

or

	•	 	release the PARTIES, or one of them, from all or part of their (its)
obligation(s) pursuant to the present CONTRACT;

or

	•	 	delay execution of the CONTRACT.

26.4. If the PARTIES do not reach agreement as set out in article 26.3., each
of the Parties may terminate the CONTRACT and ask for the liquidation of the
COMPANY unless one of the PARTIES wishes to exercise an OPTION TO BUY the
SHAREHOLDING of the others.

ARTICLE 27 — HARDSHIP

27.1. The PARTIES acknowledge that the present CONTRACT is fair and equitable
on the day it is signed.

27.2. If during execution of the present CONTRACT, economic or other
circumstances such as government action unhampered by legal considerations 2,
that could not be foreseen on the date of signing the present CONTRACT, which
are beyond the reasonable control of the PARTIES and cannot be imputed to the
PARTY confronted by these circumstances, cause a fundamental change in the
general situation in which the present CONTRACT takes place and, consequently,
one of the PARTIES finds itself confronted with serious and unforeseeable
difficulties, that PARTY must advise the other PARTY within fifteen (15) days
of the date when these circumstances occur and give it detailed information.

27.3. The PARTIES must then consult each other as quickly as possible to make
the necessary adjustments and reviews justified by the circumstances of
hardship in order to restore the fair and equitable character of the present
CONTRACT.

27.4. If it is impossible for the PARTIES to restore the fair and equitable
character of the present CONTRACT, the PARTY that is the victim of the
circumstances of hardship may terminate the present CONTRACT.

ARTICLE 28 — MODIFICATIONS TO THE CONTRACT

Any modification of the present CONTRACT will only become effective after
signature by the PARTIES of a written agreement, drawn up in French and
Chinese, approved by the APPROVING AUTHORITY.

	2	 	Translator’s note : « le fait du
prince » of
the original is defined thus by E. Le Docte — Legal Dictionary in Four Languages

43

 

ARTICLE 29 — APPLICABLE LAW

The drawing-up, validity, interpretation, execution, modification and
termination of the present CONTRACT and its APPENDICES, and disputes relating
thereto are governed by the laws of the People’s Republic of China. If the
applicable laws and regulations do not deal with a given question, the
international conventions signed by the People’s Republic of China, and
international principles and usage will apply.

ARTICLE 30 — SETTLEMENT OF DISPUTES

30.1. All disputes arising on execution of or linked to the present CONTRACT
will be settled amicably between the PARTIES. Amicable consultations must begin
immediately after a PARTY notifies the other of a request to this effect.

30.2. If an amicable settlement cannot be found within sixty (60) days of the
date of notification mentioned previously, disputes will be submitted to
arbitration in accordance with the Arbitration Regulations of the International
Chamber of Commerce (the “Regulations”) at the request of one of the PARTIES
with notification to the other PARTY.

Arbitration will be conducted by five (5) arbitrators. Each of the PARTIES will
designate an arbitrator within thirty (30) days of notification or receipt of
the arbitration request. These arbitrators are chosen freely by the PARTIES and
the PARTIES’ choice cannot be limited to a previously drawn up list. The fifth
arbitrator is chosen by the first four arbitrators within thirty (30) days of
their appointment, as set out in the Regulations. If there is deadlock or
inertia of one of the PARTIES in the procedure of designating one of the
arbitrators, the designating authority will be the President of the
International Chamber of Commerce.

Arbitration will be conducted in the special administrative region of Hong
Kong. The fifth arbitrator will have a casting vote. The arbitration language
is English. The applicable law will be that set out in article 29 of the
CONTRACT.

30.3. The award is final and binds the PARTIES. By agreeing to submit
themselves to arbitration, the PARTIES undertake to execute the arbitration
award without delay.

30.4. During arbitration, the CONTRACT will continue to be executed by the
PARTIES apart from the points in dispute.

30.5. Each of the PARTIES agrees to pay its own costs and expenses incurred
during arbitration.

ARTICLE 31 — LANGUAGE

The present CONTRACT is drawn up in Chinese and French.

Both versions are authentic. Each PARTY acknowledges that it has examined both
versions and that they are identical. If there is divergence between the two
versions, the Chinese version will prevail.

ARTICLE 32 — PARTIAL INVALIDITY

44

 

32.1. If one of the provisions of the present CONTRACT (after approval by the
APPROVING AUTHORITY) is declared null and void because it does not comply with
the published law or international conventions to which China is party, the
other provisions of the CONTRACT remain in force insofar as this partial
invalidity does not affect an essential provision and/or the spirit of the
CONTRACT.

32.2. In this case, the PARTIES decide by mutual agreement to replace the
provision in question by a new provision while retaining the equilibrium and
spirit of the present CONTRACT.

32.3. If the PARTIES do not succeed in reaching agreement over this new
provision, and if this disagreement prevents observance of the obligations and
rights of one of the parties, each of them may terminate the CONTRACT.

ARTICLE 33 – TERMS FOR EXERCISING AN OPTION TO BUY

Wherever provision is made in the contract for one of the PARTIES to exercise
an option to BUY, the following terms will apply:

33.1. The PARTY that wishes to exercise its OPTION TO BUY must inform the
others of this in writing and the PARTIES will meet within sixty (60) days of
receipt of this written notification to reach agreement over a price. In the
absence of agreement over the price within the period of sixty (60) days
mentioned above, the first PARTY to take action will appoint an independent
expert (an auditor of international repute with experience in China) to
determine this price on the basis of the net accounting value of the company,
the PARTY that has exercised the OPTION TO BUY still being free to withdraw its
option after determination of the price.

33.2. In accordance with the law, the resulting transfers of shares must be
approved unanimously at a meeting of the COMPANY’s Board of Directors by each
of the PARTIES mandating their respective representatives to vote to approve
the transfer or the planned act of disposal, it being understood that each of
the PARTIES undertakes not to obstruct the OPTION TO BUY mechanism and to
oblige its representatives to vote in favour of any transfer that may result
from the exercise by one of the PARTIES of its OPTION TO BUY and to sign all
the necessary legal documents, in particular amendments to the present Contract
and to the memorandum and articles of association.

ARTICLE 34 – ENTRY INTO EFFECT OF THE CONTRACT AND MISCELLANEOUS PROVISIONS

34.1. The COMPANY’s MEMORANDUM AND ARTICLES OF ASSOCIATION and appendices drawn
up in compliance with the principles of the present CONTRACT form an integral
part of the CONTRACT, including the APPENDED CONTRACTS. If there is divergence
between the CONTRACT and the APPENDICES, the CONTRACT will prevail.

34.2. The present CONTRACT, the MEMORANDUM AND ARTICLES OF ASSOCIATION and its
appendices come into effect after the PARTIES have:

	•	 	initialled each page, signed and stamped the last page of the present
CONTRACT and the MEMORANDUM AND ARTICLES OF ASSOCIATION;

45

 

	•	 	initialled the contracts that must be signed between the COMPANY and
one of the PARTIES (or a THIRD PARTY) (in other words the APPENDED
CONTRACTS) at the first [meeting of] the Board of Directors. The
PARTIES acknowledge that signature by the COMPANY of all the APPENDED
CONTRACTS is a preliminary condition to the entry into effect of the
present CONTRACT;
	 
	•	 	sent the CONTRACT, the COMPANY’s MEMORANDUM AND ARTICLES OF
ASSOCIATION (and the APPENDED CONTRACTS) together to the APPROVING
AUTHORITY;
	 
	•	 	obtained formal approval from the APPROVING AUTHORITY. The PARTIES
will not execute the present CONTRACT until they have received the
approval certificate from the APPROVING AUTHORITY.

The present CONTRACT, the COMPANY’s MEMORANDUM AND ARTICLES OF ASSOCIATION and
the APPENDED CONTRACTS will not become effective if this approval is subject to
amendments that are not acceptable to the PARTIES and that do not meet their
expectation when they signed or initialled it.

34.3. Any notification relating to execution of the present CONTRACT must be
addressed by each PARTY to the other PARTY by fax or e-mail, and then confirmed
by registered airmail. Any notification must be drawn up in French or Chinese
with its translation. The PARTIES’ legal addresses shown in the present
CONTRACT are postal addresses.

If there is a change of address, the PARTY concerned must inform the other
PARTY of this in writing in the thirty (30) days preceding the change.

34.4. The CONTRACT is signed in Beijing, People’s Republic of China, by the
representatives of each PARTY on 26th November 2003.

In ten (10) original examples in Chinese, ten (10) original examples in French.

The Committee of the Union of the Hebei Junfeng Prospecting Equipment Company

Representative

The Dongfang Geological Prospecting Limited Liability Company

Representative

The Xian Oil Prospecting Factory

Representative

SERCEL

Representative

46

 

     Exhibit 4.16

SHAREHOLDING TRANSFER CONTRACT

BETWEEN

The COMMITTEE OF THE JUNFENG UNION

The DONGFANG GEOLOGICAL PROSPECTING COMPANY

AND

SERCEL

1

 

BETWEEN:

- The Committee of the Union of the Hebei Junfeng Prospecting Equipment
Company, a legal entity, constituted in accordance with the laws of the
People’s Republic of China, and having its head office in Xushui District,
Hebei Province, People’s Republic of China, having as its legal representative
Mrs FANG Lihua, President, of Chinese nationality, represented by Mr LI Haiyan,
duly authorised to sign the present contract as described in appendix 23,

Hereafter referred to as the “UNION”

- The Dongfang Geological Prospecting Limited Liability Company, a legal
entity, constituted in accordance with the law of the People’s Republic of
China, and having its head office at 65 Fanyang Road, Zhuozhou, Hebei Province,
People’s Republic of China, having as its legal representative Mr WANG Xiaomu,
President, of Chinese nationality, represented by Mr XU Wenrong, duly
authorised to sign the present contract, as described in appendix 23,

Hereafter referred to as “DONGFANG”

and

- Sercel, a company constituted in accordance with French laws, and having its
head office at 16 Rue de Bel Air 44470 Carquefou, France, having as its legal
representative Mr Thierry LE ROUX, President and Chief Executive Officer, of
French nationality and duly authorised to sign the present contract, as
described in appendix 23,

Hereafter referred to as “SERCEL”

Hereinafter referred to jointly as the “PARTIES” and individually as the
“PARTY”

2

 

TABLE OF CONTENTS

	 	 	 
	1.
	 	DEFINITIONS
	2.
	 	TRANSFER, PRICE AND PAYMENT
	3.
	 	GUARANTEES
	4.
	 	CONSEQUENCES OF THE TRANSFER
	5.
	 	CONFIDENTIALITY
	6.
	 	AMENDMENT AND END OF THE CONTRACT
	7.
	 	BREACH OF CONTRACT
	8.
	 	FORCE MAJEURE
	9.
	 	HARDSHIP
	10.
	 	APPLICABLE LAW
	11.
	 	SETTLEMENT OF DISPUTES
	12.
	 	LANGUAGE
	13.
	 	PARTIAL INVALIDITY
	14.
	 	ENTRY INTO EFFECT AND MISCELLANEOUS

APPENDICES:

	1.	 	List of technologies owned by JUNFENG and list of technologies conceded
under licence to JUNFENG by DONGFANG
	 
	2.	 	Approval of the application to liquidate Baojing Junfeng

3

 

Given that:

	 	-	 	The Hebei Junfeng Prospecting Equipment Company (hereafter referred
to as “JUNFENG”) is a limited liability company in which the Union and
the Dongfang Geological Prospecting Limited Liability Company (referred
to below as “DONGFANG” ) are 75% and 25% shareholders respectively;
	 
	 	-	 	SERCEL wishes to acquire a shareholding from the UNION representing
51% of JUNFENG’s share capital (which will bring about the change of
JUNFENG’s company form into a company with Chinese and foreign
capital.);
	 
	 	-	 	At the same time DONGFANG will transfer a shareholding representing
12% of JUNFENG’s share capital to the Xian General Factory for Oil
Prospecting Equipment (hereafter “XPEIC”);
	 
	 	-	 	These two shareholding transfers have been approved unanimously by
JUNFENG’s General Meeting of 10th November 2003;
	 
	 	-	 	The decision to transform JUNFENG into a company with Chinese and
foreign capital has been approved by unanimous decision of JUNFENG’s
General Meeting of 10th November 2003 ;
	 
	 	-	 	The UNION, DONGFANG, XPEIC and SERCEL have signed this same company
contract transforming JUNFENG into a company with Chinese and foreign
capital (hereafter the “COMPANY CONTRACT”).

Following amicable discussion, the PARTIES have decided what follows:

ARTICLE 1 — DEFINITIONS

APPROVING AUTHORITY refers to the Chinese authority charged with approving the
present CONTRACT (in other words the local office of the Ministry of Trade).

CONTRACT refers to the present contract.

COMPANY CONTRACT refers to the contract for the company with Chinese and
foreign capital that the UNION, DONGFANG, XPEIC and SERCEL wish to constitute
following the shareholding transfers.

EFFECTIVE DATE signifies the date of approval by the Approving Authority after
signature of this contract by the three parties.

COMPANY INCORPORATION DATE refers to the date the COMPANY’s operating licence
is obtained by the local Trade and Industry Authority.

COMPANY refers to the company with Chinese and foreign capital that the UNION,
DONGFANG, XPEIC and SERCEL wish to constitute following the shareholding
transfers.

THIRD PARTY refers to any person, company, foundation, department,
administration or any entity other than the UNION, DONGFANG, XPEIC or SERCEL.

Other terms shown in capital letters not defined in the present contract will
have the definition set out in the COMPANY CONTRACT.

4

 

ARTICLE 2 – TRANSFER, PRICE AND PAYMENT

2.1. SERCEL would like to buy from the UNION part of its shareholding
representing 51% JUNFENG’s share capital.

2.2. By mutual agreement, the Parties have chosen a valuation organisation to
conduct a valuation of JUNFENG’s assets.

2.3. This valuation organisation’s valuation report will be submitted to the
State Assets Department for approval.

2.4. Based on the valuation, the transfer price negotiated between SERCEL and
the UNION is 92,600,000 RMB (ninety two million six hundred thousand)

2.5. SERCEL will pay the full price in American dollars according to the
following schedule:

- 75% within fifteen (15) days of the COMPANY INCORPORATION DATE.

- 25% within ten (10) days of determining the adjustment as set out in article
2.9. below.

2.6. Payment will be made by bank transfer to the following account:
Bank of China – Xushui branch No. 07732108091014

2.7. The UNION’s legal representative will take charge of the distribution of
the price among the employees and other members of the UNION and in this regard
discharges SERCEL of any direct or indirect responsibility.

2.8. This payment in foreign currency will be supported by a certificate issued
by the exchange control authorities.

2.9. The final accounts will be made up on the basis of the company accounts at
the end of the month in which the COMPANY is constituted. An adjustment will be
made to take account of variations between the accounts at 31/7/03, included in
the valuation report, and the final accounts. The valuation organisation that
carried out the revaluation on the accounts at 31/7/03 will calculate this
adjustment, in co-operation with SERCEL’s advisor. The amount of the adjustment
may be discussed between the Parties.

The amount of the variation in the proportion of 51% will be compared with the
price mentioned in Article 2.4. and the positive or negative difference in this
comparison will be the amount of the adjustment. The adjustment must be
determined within (30) days of the date when the final accounts are made up and
is payable within 10 days.

ARTICLE 3 — GUARANTEES

3.1. The UNION guarantees SERCEL that:

	•	 	The UNION is a duly constituted entity, exercising its activity in
accordance with Chinese law, and is of good repute;

	•	 	The UNION has all the necessary civil capacity and powers to execute its
obligations pursuant to the present CONTRACT;

5

 

	•	 	The UNION’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT in the name of the UNION and all
its members, in accordance with a valid power, a copy of which has been
sent to SERCEL ;

	•	 	The UNION is not bound by any contract or agreement that may hinder the
COMPANY’s incorporation and activities or prevent execution by the UNION
of its obligations set out in the present CONTRACT ;

3.2. DONGFANG guarantees SERCEL that:

	•	 	DONGFANG is a legal entity duly constituted, exercising its activity in
accordance with Chinese law, and is of good repute;
	 
	•	 	DONGFANG has all the necessary civil capacity and powers to execute its
obligations pursuant to the present CONTRACT;
	 
	•	 	DONGFANG’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT, in accordance with a valid power
a copy of which has been sent to SERCEL;
	 
	•	 	DONGFANG is not bound by any contract or agreement that may hinder the
incorporation and activities of the COMPANY or prevent execution by
DONGFANG of its obligations set out in the present CONTRACT ;

3.3. The UNION and DONGFANG guarantee SERCEL that:

	•	 	JUNFENG was incorporated in accordance with Chinese laws and
regulations, and exercises its activity in accordance with Chinese
law, and is of good repute;
	 
	•	 	All the salaries, company’s social security schemes and taxes due in
connection with JUNFENG’s employees have been paid up to the COMPANY
INCORPORATION DATE, are up-to-date, in accordance with the
requirements of the applicable Chinese laws and regulations, and there
is no liability arising therefrom;
	 
	•	 	JUNFENG is the lawful owner and/or owns the exclusive right to use the
assets that are transferred and the said assets are the sole and exclusive
property of JUNFENG and are from all mortgage rights or THIRD PARTY right,
other than those mentioned in appendix 15 of the Company Contract;
	 
	•	 	The equipment transferred is in working order and affords normal safety
conditions given its previous use by JUNFENG, other than that mentioned in
appendix 16 of the Company Contract;
	 
	•	 	JUNFENG’s existing industrial installations are connected to the public
running water, heating, electricity and sewerage networks, and to
telecommunications systems and all other necessary public networks.
	 
	•	 	The list of patents, expertise, designs and models licensed by DONGFANG
to the COMPANY corresponds to all the patents, expertise, designs and
models used by JUNFENG before its transformation, and there is no action
or claim against JUNFENG or DONGFANG in relation to these trademarks,
patents, expertise, designs and models; all precautions have been taken to
preserve the confidentiality of information connected with these
trademarks, patents, expertise, designs and models.

6

 

	•	 	JUNFENG is the sole owner or legal user of the technical information,
patents, experience and expertise used by JunFeng on the day the
Contract is signed that does not form part of the SERCEL LICENSED
TECHNOLOGY or the DONGFANG TECHNOLOGY.
	 
	•	 	JUNFENG has not infringed in any way whatsoever the intellectual or
industrial property rights, expertise, designs or models of THIRD
PARTIES on the Chinese or international market;
	 
	•	 	JUNFENG is not bound by any contract, commitment or agreement that may
hinder the incorporation and activities of the COMPANY in China or abroad;
	 
	•	 	JUNFENG has no subsidiaries other than the company “Baoding Junfeng”;
	 
	•	 	JUNFENG is not bound by any contract or agreement other than those
mentioned in appendix 20 of the Company Contract;
	 
	•	 	JUNFENG is not bound by any bank borrowing and has not issued any surety
or guarantee in relation to third party commitments, other than those
mentioned in appendix 17 of the Company Contract;
	 
	•	 	The insurance polices subscribed by JUNFENG on assets, vehicles and
transport (see list in appendix 18 of the Company Contract) provide for
reasonable levels of guarantee and will be continued in the COMPANY’s
name;
	 
	•	 	JUNFENG has no distributors or agents other than those mentioned in
appendix 19 of the Company Contract;
	 
	•	 	JUNFENG conducts its activity in accordance with the laws, regulations,
provisions and other government directives in particular, but without
limitation, on environmental protection and that the land is not polluted;
	 
	•	 	No action, claim, dispute, process or procedure has been entered into or
risks being entered into, by or before any Chinese or foreign authority or
jurisdiction or by any third party against JUNFENG that could affect
execution of the present CONTRACT (other than those mentioned in appendix
21 of the Company Contract, which will not be transferred to the COMPANY);
	 
	•	 	JUNFENG has successfully completed all formalities within the required
periods with regard to the local and national authorities to which it has
sent any report, item of data and estimate concerning in particular local
and national taxes and customs dues and other taxes, and has paid all
taxes due within the required periods; sufficient provisions have been
constituted on the date of closing the accounts and on the EFFECTIVE DATE
to cover in particular any amount of taxes and customs dues payable for
the period prior to the COMPANY INCORPORATION DATE;
	 
	•	 	The accounting and financial documents provided by JUNFENG, such as the
balance sheet, profit and loss account and cash flow situation are in
compliance with JUNFENG’s books of accounts and reports, and have been
prepared in accordance with the Chinese GAAP. The adjusted valuation
report accepted by the PARTIES faithfully represents the state of
JUNFENG’s assets and balance sheet at 31st July 2003. The profit and loss
account and cash flow situation faithfully represent JUNFENG’s present
situation and results at 31st July 2003;

7

 

	•	 	All the information provided to SERCEL relating in particular but without
limitation to JUNFENG’s assets, operations, technology, industrial and
intellectual property rights and financial situation are authentic,
correct and complete and provide a faithful representation of JUNFENG’s
situation, particularly its legal, financial, fiscal, operational or
commercial situation and no information necessary to obtain this faithful
representation has been omitted;
	 
	•	 	From the signature date of the present CONTRACT to the COMPANY
INCORPORATION DATE, unless there is a contrary clause in the present
CONTRACT, there is and will be no modification that significantly and
unfavourably affects JUNFENG’s activity, financial situation or results,
and operations will have been conducted in a manner that complies with the
manner in which they were conducted before the CONTRACT was signed;

All the above-mentioned guarantees are correct on the day the present CONTRACT
is signed and will remain correct for the whole period between the CONTRACT
signature date and the COMPANY INCORPORATION DATE.

3.4. Preparation Committee

During this period, control of JUNFENG’s management will be put in place by a
Preparation Committee constituted in accordance with article 15 of the COMPANY
CONTRACT, which will be responsible for:

	•	 	Monitoring JUNFENG’s management for the period between signature of
the transfer contract and the COMPANY INCORPORATION DATE, and in
particular for authorising any expenditure in excess of 1,000,000 RMB
(one million), authorising the subscription of any contractual
commitment for a period in excess of six [6] months or that gives rise
to financial commitments of over 500,000 RMB (five hundred thousand),
the subscription of any loan or borrowing from banks, the taking on of
any new employee, and more generally any decision that could have an
unfavourable effect on the accounts or the financial or commercial
situation of JUNFENG or the COMPANY;
	 
	•	 	Drawing up an inventory of the stocks that are to be taken over by the
COMPANY (finished and semi-finished products, raw materials, spare
parts, etc.);
	 
	•	 	Validating and authorising the constitution of additional stocks
compared with those existing in JUNFENG at 31st July 2003;
	 
	•	 	Selecting those JUNFENG employees who will be transferred to the
COMPANY and drawing up the necessary employment contracts;
	 
	•	 	Preparing and negotiating on behalf of the COMPANY all the necessary
agreements such as service agreements, raw material supply agreements,
etc.;
	 
	•	 	Negotiating loans to be subscribed by the COMPANY;
	 
	•	 	Drawing up the opening accounting balance sheet;
	 
	•	 	Ensuring that all the necessary formalities for the present CONTRACT
to become effective are performed as soon as possible;
	 
	•	 	Controlling the financing plan and expenditure;

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	•	 	Establishing management methods relating to the project, completing
and retaining all documents, designs and files;
	 
	•	 	Drawing up the profit and loss account for the period between the
valuation base date and the COMPANY INCORPORATION DATE.

After completing this work, the Preparation Committee will be dissolved on
decision of the Board of Directors.

All the Preparation Committee’s acts relating to the COMPANY’s activities must
be ratified by the Board of Directors from the COMPANY INCORPORATION DATE.

If the COMPANY CONTRACT does not come into force, the acts of the Preparation
Committee will be regarded as null and void.

3.5. SERCEL guarantees the UNION that:

	•	 	SERCEL is a duly constituted company exercising its activity in
accordance with French law, and is of good repute;
	 
	•	 	SERCEL has all capacity and powers to execute its obligations pursuant to
the present CONTRACT;
	 
	•	 	SERCEL’s representative whose signature is affixed below is fully
authorised to sign the present CONTRACT, in accordance with a valid power,
a copy of which has been sent to the UNION;
	 
	•	 	SERCEL is not bound by any contract or agreement that may hinder the
COMPANY’s incorporation and activities or prevent execution by SERCEL of
its obligations set out in the present CONTRACT; DONGFANG and the UNION
acknowledge that SERCEL has a 40% shareholding in XIAN-SERCEL of which the
object is to manufacture certain land-based seismic products;
	 
	•	 	SERCEL exercises its activity in accordance with the laws, regulations,
provisions and other government directives regarding environmental
protection;
	 
	•	 	No action, claim, dispute, process or procedure has been entered into, or
risks being entered into by or before any authority or jurisdiction
against SERCEL that could affect the execution of the present CONTRACT ;

3.6. Indemnities

3.6.1. The UNION and DONGFANG jointly undertake and agree to indemnify and
guarantee SERCEL against any liability, damage, loss, fine, penalty, claim,
cost or expense suffered directly by SERCEL or the COMPANY resulting from a
false or incorrect representation of reality or incorrectness or violation of
the guarantees and assurances set out in articles 3.1 and 3.2 until the
prescription date for the corresponding actions or claims.

3.6.2. SERCEL undertakes and agrees to indemnify and guarantee the UNION and
DONGFANG against all liability, damage, loss, fine, penalty, claim, cost or
expenses suffered directly by the UNION and DONGFANG resulting from a false or
incorrect representation of reality or incorrectness or violation of the
guarantees and assurances set out in article 3.5. until the prescription date
for the corresponding actions or claims.

9

 

3.6.3. Moreover the UNION and DONGFANG jointly undertake and agree to indemnify
and guarantee SERCEL against all liability, damage, loss, fine, penalty, claim,
cost or expense suffered directly by SERCEL or the COMPANY resulting from a
false or incorrect representation of reality or incorrectness or violation of
the guarantees and assurances set out in article 3.3. or resulting from
administrative or legal procedures relating to events that occurred before the
COMPANY INCORPORATION DATE in relation in particular but without limitation to
liability for products and pollution, until the prescription date for the
corresponding actions or claims and within the financial limit of 50% of the
purchase price set out in the present CONTRACT.

3.6.4. The guarantee will come into play by sending a registered letter on
receipt of the complaint or assessment of loss suffered by the COMPANY or the
party concerned.

3.6.5. If the guarantor is not in a position to substitute himself for the
beneficiary or pay on behalf of the beneficiary, or indemnify the beneficiary
for the loss suffered, the beneficiary may demand that the guarantor sell part
of his assets. When the UNION indemnifies, if the UNION is not in a position to
reimburse the whole of the indemnity, it must indemnify with is SHAREHOLDING or
other interests in the COMPANY. The other PARTIES undertake not to exercise
their RIGHT OF PRE-EMPTION in the case of the transfer of all or part of the
UNION’s SHAREHOLDING to SERCEL;

ARTICLE 4 — CONSEQUENCES OF THE SHAREHOLDING TRANSFER

4.1. At the same time as this CONTRACT is signed, the PARTIES will sign the
COMPANY CONTRACT and the necessary memorandum and articles of association for
the COMPANY to be set up.

4.2. The PARTIES’ shareholdings in the COMPANY’s share capital will be as
follows:

SERCEL: 51% or an amount expressed in RMB of 92,600,000 (ninety two million six
hundred thousand)

UNION: 24% or an amount expressed in RMB of 43,576,460 (forty three million
five hundred and seventy six thousand four hundred and sixty)

DONGFANG: 13% or an amount expressed in RMB of 23,603,910 (twenty three
million six hundred and three thousand nine hundred and ten)

XPEIC: 12% or an amount expressed in RMB of 21,788,230 (twenty one million
seven hundred and eighty eight thousand two hundred and thirty).

4.3. Trademark and corporate name licence contracts will be signed between
SERCEL and the COMPANY and between the UNION, DONGFANG and the COMPANY
respectively for the SERCEL name and the JUNFENG name, the use of which will be
conceded, under certain conditions, without charge to the COMPANY.

4.4. The COMPANY will take over the rights and obligations of contracts signed
by JUNFENG, a list of which is given in appendix 20 of the COMPANY CONTRACT.

4.5. The COMPANY will take over JUNFENG’s 480 (four hundred and eighty)
employees.

4.6. Given that the application to liquidate JUNFENG’s subsidiary “Baoding
Junfeng” was approved by the Boading COFTEC on 22nd April 2003 and the
liquidation should have ended before the COMPANY INCORPORATION DATE, the
COMPANY need not therefore take over any of its rights and obligations. If the
liquidation has not ended before the COMPANY INCORPORATION DATE, the UNION and
DONGFANG give SERCEL an undertaking that they will take over Baoding Junfeng’s
rights and obligations.

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ARTICLE 5 — CONFIDENTIALITY

5.1. Each of the Parties undertakes to keep secret and confidential and not to
disclose to a THIRD PARTY, other than its staff, its directors, advisors and
auditors any technical, economic, financial or commercial information relating
to JUNFENG obtained through the other PARTIES, unless the disclosure of such
information is expressly authorised by the other PARTIES.

5.2. Each of the Parties will take the necessary precautions and security
measures to ensure that this Article 5 is observed by each of its directors,
executives, employees, temporary staff or contracting partners who have access
to the information exchanged and guarantees respect of this Article by its
directors, executives, employees, temporary staff or contracting partners. Each
of the PARTIES may transmit confidential information to the PARENT COMPANY,
directly or indirectly, as part of normal financial reporting and more
generally may transmit all information necessary for the observance of the laws
and regulations to which each of the PARTIES is directly or indirectly subject
in this matter.

5.3. The obligations subscribed by each of the Parties pursuant to article 5 do
not apply to information obtained through one of the PARTIES that is or will be
published, or will become accessible to the public through sources not subject
to confidentiality, other than a disclosure by the PARTY that received this
information, nor to information already in the possession of the PARTY
receiving it on the date of its transmission or that may be transmitted to it
subsequently by other sources not subject to confidentiality, nor to
information that a Party is obliged to disclose to observe the laws and
regulations to which it is directly or indirectly subject.

ARTICLE 6 – AMENDMENTS AND END OF THE CONTRACT

6.1. Any modification of the present CONTRACT will only become effective after
signature by the PARTIES of a written agreement, drawn up in French and
Chinese.

6.2. The present CONTRACT may be terminated in the cases set out in articles
7.2., 8.3 or 9.4.
Moreover, SERCEL may terminate the contract without indemnity due to the other
Parties if, before the COMPANY INCORPORATION DATE a modification of any kind
occurs that significantly and unfavourably affects JUNFENG’s activity,
financial situation or results and if the management control put in place by
the Preparation Committee constituted in accordance with article 15 of the
mixed capital COMPANY CONTRACT has not been respected, which article is
incorporated with reference to the present CONTRACT.

ARTICLE 7 — RESPONSIBILITIES FOR BREACH OF CONTRACT

7.1. If all or part of the present CONTRACT cannot be executed because of the
wrongful behaviour of (act or omission) of one of the PARTIES, that PARTY will
assume responsibility thereof.

7.2. If one of the PARTIES commits a serious violation of the present CONTRACT,
such as non-transfer of the shareholding of the transferring party or
non-payment by the acquirer in accordance with the provisions of the present
CONTRACT, and if that PARTY does not remedy this failure to execute or
violation within thirty (30) days of receipt of a formal written notice sent by
the other PARTY, that PARTY may terminate the CONTRACT and claim damages
(within the limits of an amount of 30% of the total transfer price).

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7.3. The defaulting PARTY is regarded as solely and entirely responsible for
the breach of CONTRACT and will take on all liability within the limits defined
in article 7.2 above.

ARTICLE 8 — FORCE MAJEURE

8.1. “Force majeure” signifies any event that could not be foreseen on the date
of signing the present CONTRACT or any event that can be foreseen but is
reasonably inevitable, such as but not limited to events such as earthquakes,
typhoons, fires, floods, epidemics, strikes, riots or war.

8.2. If one of the PARTIES cannot execute the CONTRACT for reasons of force
majeure, that PARTY must, within a period of fifteen (15) days of the
occurrence of the event constituting force majeure, provide the other PARTIES
with detailed information, indicating the reasons why it cannot execute all or
part of the CONTRACT, confirmed by an official document emanating from the
local authorities.

8.3. Depending on the consequences produced on the execution of the CONTRACT,
the PARTIES decide by mutual agreement within three (3) months to:

	•	 	end the present CONTRACT;
	 
	•	 	release the PARTIES, or one of them, from all or part of their (its)
obligation(s) pursuant to the present CONTRACT;
	 
	•	 	delay execution of the CONTRACT.

8.4. If the PARTIES do not reach agreement as set out in article 8.3., the
contract will be automatically terminated.

ARTICLE 9 — HARDSHIP

9.1. The PARTIES acknowledge that the present CONTRACT is fair and equitable on
the day it is signed.

9.2. If during execution of the present CONTRACT, economic or other
circumstances such as government action unhampered by legal considerations,
that could not be foreseen on the date of signing the present CONTRACT, which
are beyond the reasonable control of the PARTIES and cannot be imputed to the
PARTY confronted by these circumstances, cause a fundamental change in the
general situation in which the present CONTRACT takes place and, consequently,
one of the PARTIES finds itself confronted with serious and unforeseeable
difficulties, that PARTY must advise the other PARTY within fifteen (15) days
of the date when these circumstances occur and give it detailed information.

9.3. The PARTIES must then consult each other as quickly as possible to make
the necessary adjustments and reviews justified by the circumstances of
hardship in order to restore the fair and equitable character of the present
CONTRACT.

9.4. If it is impossible for the PARTIES to restore the fair and equitable
character of the present CONTRACT, the PARTY that is the victim of the
circumstances of hardship may terminate the present CONTRACT.

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ARTICLE 10 – APPLICABLE LAW

The drawing-up, validity, interpretation, execution, modification and
termination of the present CONTRACT and its APPENDICES, and disputes relating
thereto are governed by the laws of the People’s Republic of China. If the
applicable laws and regulations do not deal with a given question, the
international conventions signed by the People’s Republic of China, and
international principles and usage will apply.

ARTICLE 11 – SETTLEMENT OF DISPUTES

11.1. All disputes arising on execution of or linked to the present CONTRACT
will be settled amicably between the PARTIES. Amicable consultations must begin
immediately after a PARTY notifies the other of a request to this effect.

11.2. If an amicable settlement cannot be found within sixty (60) days of the
date of notification mentioned previously, disputes will be submitted to
arbitration in accordance with the Arbitration Regulations of the International
Chamber of Commerce (the “Regulations”) at the request of one of the PARTIES
with notification to the other PARTY.

Arbitration will be conducted by four (4) arbitrators named in accordance with
the Regulations. Each of the PARTIES will designate an arbitrator within thirty
(30) days of notification or receipt of the arbitration request. These
arbitrators are chosen freely by the PARTIES and the PARTIES’ choice cannot be
limited to a previously drawn up list. The fourth arbitrator is chosen by the
first three arbitrators within thirty (30) days of their appointment, as set
out in the Regulations. If there is deadlock or inertia of one of the PARTIES
in the procedure of designating one of the arbitrators, the designating
authority will be the President of the International Chamber of Commerce.

Arbitration will be conducted in Hong Kong. The fourth arbitrator will have a
casting vote. The arbitration language is English. The applicable law will be
that set out in article 10 above.

11.3. The award is final and binds the PARTIES. By agreeing to submit
themselves to arbitration, the PARTIES undertake to execute the arbitration
award without delay.

11.4. During arbitration, the CONTRACT will continue to be executed by the
PARTIES apart from the points in dispute.

11.5. The arbitration costs will be determined by the court of arbitration and
borne by the losing PARTY.

ARTICLE 12 – LANGUAGE

The present CONTRACT is drawn up in Chinese and French.

Both versions are authentic. Each PARTY acknowledges that it has examined both
versions and that they are identical. If there is divergence between the two
versions, the Chinese version will prevail.

ARTICLE 13 – PARTIAL INVALIDITY

13.1. If one of the provisions of this CONTRACT is declared null and void
because it does not comply with the enacted laws or international conventions
to which China is party, the other

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provisions of the CONTRACT remain in force insofar as this partial invalidity
does not affect an essential provision and/or the spirit of the CONTRACT.

13.2. In this case, the PARTIES decide by mutual agreement to replace the
provision in question by a new provision while retaining the equilibrium and
spirit of the present CONTRACT.

13.3. If the PARTIES do not succeed in reaching agreement over this new
provision, and if this disagreement prevents observance of the rights and/or
obligations of one of the parties, each of them may terminate the CONTRACT.

ARTICLE 14 – ENTRY INTO EFFECT AND MISCELLANEOUS

14.1. The appendices to this CONTRACT form an integral part thereof.

This CONTRACT and its appendices will come into effect after having been signed
by each of the PARTIES and approved by the APPROVING AUTHORITY;

14.2. The UNION will take responsibility for taxation that applies to the
transfer transaction.

14.3. This CONTRACT and its appendices are initialled and signed in Beijing, on
26th November 2003, in ten (10) original examples in Chinese, and ten (10)
original examples in French.

For the UNION:

For DONGFANG:

For SERCEL:

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