Document:

EX-10.1

 

EXECUTION COPY

	 	 	 
	 
	 	 
	 

EQUITY JOINT VENTURE CONTRACT

between

SINOPEC YIZHENG CHEMICAL FIBRE COMPANY LIMITED

and

UNIFI ASIA HOLDING, SRL

for

the establishment of

YIHUA UNIFI FIBRE INDUSTRY COMPANY LIMITED

Dated as of June 10, 2005

	 	 	 
	 
	 	 
	 

 

 

Table of Contents

	 	 	 	 	 	 	 
	1.

	 	DEFINITIONS
	 	 	1	 
	 
	 	 	 	 	 	 
	2.

	 	PARTIES TO JOINT VENTURE COMPANY
	 	 	7	 
	 
	 	 	 	 	 	 
	3.

	 	ESTABLISHMENT OF JOINT VENTURE COMPANY
	 	 	10	 
	 
	 	 	 	 	 	 
	4.

	 	GOALS AND SCOPE OF BUSINESS OPERATIONS
	 	 	11	 
	 
	 	 	 	 	 	 
	5.

	 	TOTAL INVESTMENT, REGISTERED CAPITAL AND METHOD OF CONTRIBUTION
	 	 	13	 
	 
	 	 	 	 	 	 
	6.

	 	RELEVANT CONTRACTS
	 	 	20	 
	 
	 	 	 	 	 	 
	7.

	 	RESPONSIBILITIES OF THE PARTIES
	 	 	21	 
	 
	 	 	 	 	 	 
	8.

	 	BOARD OF DIRECTORS
	 	 	23	 
	 
	 	 	 	 	 	 
	9.

	 	BUSINESS MANAGEMENT
	 	 	29	 
	 
	 	 	 	 	 	 
	10.

	 	FINANCIAL MANAGEMENT
	 	 	33	 
	 
	 	 	 	 	 	 
	11.

	 	FOREIGN EXCHANGE
	 	 	37	 
	 
	 	 	 	 	 	 
	12.

	 	LABOR MANAGEMENT
	 	 	37	 
	 
	 	 	 	 	 	 
	13.

	 	TECHNOLOGY TRANSFER
	 	 	39	 
	 
	 	 	 	 	 	 
	14.

	 	SALES AND MARKETING OF PRODUCTS, RESTRICTIONS ON COMPETITION
	 	 	39	 
	 
	 	 	 	 	 	 
	15.

	 	THE JOINT VENTURE TERM
	 	 	41	 
	 
	 	 	 	 	 	 
	16.

	 	TERMINATION AND LIQUIDATION
	 	 	41	 
	 
	 	 	 	 	 	 
	17.

	 	VALUATION
	 	 	46	 
	 
	 	 	 	 	 	 
	18.

	 	LIABILITY FOR BREACH OF CONTRACT
	 	 	49	 
	 
	 	 	 	 	 	 
	19.

	 	FORCE MAJEURE
	 	 	50	 
	 
	 	 	 	 	 	 
	20.

	 	CONFIDENTIAL INFORMATION
	 	 	51	 
	 
	 	 	 	 	 	 
	21.

	 	GOVERNING LAW
	 	 	53	 
	 
	 	 	 	 	 	 
	22.

	 	DISPUTE RESOLUTION
	 	 	53	 
	 
	 	 	 	 	 	 
	23.

	 	MISCELLANEOUS
	 	 	55	 

 

 

	 	 	 
	APPENDICES
	 	 
	 
	 	 
	APPENDIX I

	 	ARTICLES OF ASSOCIATION OF THE COMPANY
	 
	 	 
	APPENDIX II

	 	FEASIBILITY STUDY REPORT
	 
	 	 
	APPENDIX III

	 	LIST OF TRANSFERRED ASSETS
	 
	 	 
	APPENDIX IV

	 	LIST OF EXCLUDED ASSETS
	 
	 	 
	APPENDIX V

	 	LAND MAP
	 
	 	 
	SCHEDULES
	 	 
	 
	 	 
	SCHEDULE 1

	 	LIST OF PARTY A’S SUBSIDIARIES PRODUCING POY, FDY OR DTY
PRODUCTS AND RELEVANT CAPACITY LEVELS
	 
	 	 
	SCHEDULE 2

	 	LIST OF PARTY B’S HOME MARKETS

 

 

EXECUTION COPY

THIS EQUITY JOINT VENTURE CONTRACT (this “Contract”) is entered into
on June 10, 2005 by and between:

SINOPEC YIZHENG CHEMICAL FIBRE COMPANY LIMITED, a company limited by shares duly incorporated and
existing under the laws of the People’s Republic of China (“China” or the “PRC”),
with its legal address at Yizheng, Jiangsu Province, PRC, 211900 (“Party A”); and

UNIFI ASIA HOLDING, SRL, a limited liability company duly incorporated and existing under the laws
of Barbados, with its registered address at Alphonzo House, Cr. 2nd Avenue & George Street,
Belleville, St. Michael, Barbados (“Party B”).

Each of Party A and Party B is referred to hereinafter as a “Party” and collectively as the
“Parties.”

The Parties hereby agree as follows:

	1.  	Definitions
	 
	1.1.  	Specific Definitions
	 
	   	In this Contract, unless the context otherwise specifies, the following terms shall have the
meanings set forth below:

	 	(a)  	“Affiliate” of a Person (the “Relevant Person”) means any other
Person directly or indirectly Controlling, Controlled by or under common Control with
the Relevant Person.
	 
	 	(b)  	“Approval Date” means the date of issuance of a document by the
Examination and Approval Authority approving this Contract, the Articles of Association
and the Feasibility Study Report, and without making any substantive amendments
thereto.
	 
	 	(c)  	“Arbitration Centre” means the Singapore International Arbitration
Centre.
	 
	 	(d)  	“Articles of Association” means the Articles of Association of the
Company in the agreed form and attached as Appendix I hereto.
	 
	 	(e)  	“Board” means the board of directors of the Company.
	 
	 	(f)  	“Business Day” means any day other than a Saturday, Sunday or other day
on which commercial banks in the city of Yizheng, the PRC or Greensboro, North
Carolina, USA are required or authorized by Law or executive order to be closed.
	 
	 	(g)  	“Business License” means the business license of the Company issued by
SAIC following the approval of this Contract, the Articles of Association and the
Feasibility Study Report.
	 
	 	(h)  	“Business Scope” means the business scope of the Company set forth in
Section 4.2 hereunder.

 

 

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	 	(i)  	“Company” means the Chinese-foreign equity joint venture established by
the Parties in accordance with the provisions of this Contract and the Articles of
Association.
	 
	 	(j)  	“Company Approvals” means all rights, licenses, permits, approvals,
waivers, consents and authorizations that are necessary for the Company to engage in
the activities specified in the Business Scope and the other business activities
contemplated in this Contract.
	 
	 	(k)  	“Confidential Information” means any technology, know-how, trade
secrets, marketing plans, commercial or financial information, demonstrations,
drawings, prototypes, models, samples, devices, specifications, data, methods, recipes,
or business policies or practices of the Company or any Party, whether conveyed
verbally, in writing or in any tangible or intangible form whatsoever (including
electronically).
	 
	 	(l)  	“Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise and includes:

	 	(i)  	ownership, directly or indirectly, of 50% or more of the shares
in issue or other equity interests of such Person;
	 
	 	(ii)  	possession, directly or indirectly, of 50% or more of the
voting power of such Person; or
	 
	 	(iii)  	the power directly or indirectly to appoint a majority of the
members of the board of directors or similar governing body of such Person,

	 	   	and the terms “Controlling” and “Controlled” shall have meanings
correlative to the foregoing.
	 
	 	(m)  	“Deputy General Manager” means the deputy general manager of the
Company, appointed pursuant to Section 9.1(c).
	 
	 	(n)  	“DTY” means Polyester Drawn Textured Yarn.
	 
	 	(o)  	“Encumbrance” means (i) any mortgage, charge, pledge, lien,
hypothecation, assignment, deed of trust, title retention, security interest or other
encumbrance of any kind securing, or conferring any priority of payment in respect of,
any obligation of any Person, including any right granted by a transaction that, in
legal terms, is not the grant of security but that has an economic or financial effect
similar to the creation of a security that is legally enforceable under applicable Law,
any proxy, power of attorney, voting trust agreement, interest, option, right of first
offer, negotiation or refusal or transfer restriction in favor of any Person and (ii)
any adverse claim as to title, possession or use.
	 
	 	(p)  	“Equity Interest” means the equity interest held by each Party in the
Registered Capital.

 

 

  3

	 	(q)  	“Examination and Approval Authority” means the Ministry of Commerce of
the PRC or its relevant local counterpart that is legally authorized to approve this
Contract and the Articles of Association pursuant to Law.
	 
	 	(r)  	“FDY” means Polyester Fully Drawn Yarn.
	 
	 	(s)  	“Feasibility Study Report” means the “Feasibility Study Report on Joint
Venture Project of 150,000 T/Y PET yarn between Unifi Asia Holding, SRL and Yizheng
Chemical Fibre Co., Ltd.” jointly prepared by the Parties in connection with the
establishment and operation of the Company, a copy of which is attached hereto as
Appendix II.
	 
	 	(t)  	“Foreign Exchange Regulations” means the applicable Laws of the PRC on
foreign exchange.
	 
	 	(u)  	“General Manager” means the general manager of the Company appointed
pursuant to Section 9.1(c).
	 
	 	(v)  	“JV Products” means the Products that will be produced and sold by the
Company.
	 
	 	(w)  	“Land” means the land with a total area of 216,197.36 square meters,
parcel number 13-2-11 located at Road Number 4, Yihua Factory Area, at Yizheng, Jiangsu
Province, PRC, a map of which is attached as Appendix V hereto.
	 
	 	(x)  	“Law” means all officially published and publicly available and
applicable laws, regulations, rules and orders of any governmental authority,
securities exchange or other self-regulatory body, including any ordinance, statute or
other legislative measure and any officially published and publicly available
regulation, rule, treaty, order, decree or judgment.
	 
	 	(y)  	“Party A Affiliate” means any company, joint venture, limited liability
company, enterprise or other entity with legal person status directly Controlled by
Party A.
	 
	 	(z)  	“Person” means an individual, corporation, joint venture, enterprise,
partnership, trust, unincorporated association, limited liability company, government
or any department thereof, or any other entity.
	 
	 	(aa)  	“Plant Number 5” means the production facility and associated
structures owned and operated by Party A under the designation of South Area of
Filament Business Department and located in the area specified in the Land Map attached
hereto as Appendix V.
	 
	 	(bb)  	“POY” means polyester partially oriented yarn, but specifically
excluding partially oriented yarns used to produce industrial yarns which have a
tenacity of 6.0 grams per denier or higher.
	 
	 	(cc)  	“Products” means (i) the various types of differentiated polyester
textile filament, including different types of POY and FDY and different types of
further processed differentiated polyester textile filament in the form of DTY, whether
or not they have undergone additional value added process such as

 

 

  4

	 	   	covering, warping, beaming, dyeing and/or air jet texturing; and (ii) woven fabrics.
	 
	 	(dd)  	“RMB” means Renminbi, the lawful currency of the PRC.
	 
	 	(ee)  	“SAIC” means the State Administration of Industry and Commerce of the
PRC or its local branches as appropriate to the context.
	 
	 	(ff)  	“Subsidiary” of a Person means any other Person that the Relevant
Person Controls.
	 
	 	(gg)  	“US Dollars” or “US$” means United States Dollars, the lawful
currency of the USA.

	1.2.  	Other Defined Terms
	 
	   	The following terms shall have the meanings defined in the Section indicated:

	 	 	 
	Defined Term	 	Section Reference
	“Annual Plan”

	 	Section 9.2(a)
	“Application”

	 	Section 3.3
	“Appointment Notice”

	 	Section 17.1(a)
	“Appraiser”

	 	Section 17.1(b)(i)
	“Asset Contribution and Purchase Contract”

	 	Section 5.2(a)
	“Assignment and Assumption Contract”

	 	Section 6.1(j)
	“Buyout Notice”

	 	Section 16.3(b)
	“Buyout Price”

	 	Section 16.3(b)
	“Capacity Level”

	 	Section 14.2(a)(i)
	“CEA”

	 	Section 17.1(a)
	“Certificate of Approval”

	 	Section 3.4(b)
	“Chairman”

	 	Section 8.2(b)
	“Change”

	 	Section 23.13
	“China” or the “PRC”

	 	Preamble
	“Commencement Date”

	 	Section 22.1
	“Contract”

	 	Preamble
	“Contributed Assets”

	 	Section 5.2(a)
	“Current Financial Year”

	 	Section 9.2(a)
	“Deadlocked Matter”

	 	Section 8.4(a)
	“Deadlock Notice”

	 	Section 8.4(b)
	“Deadlock Notice Date”

	 	Section 8.4(c)
	“Deadlock Put Option Period”

	 	Section 8.4(d)(i)
	“Dispute”

	 	Section 22.1
	“Dispute Notice”

	 	Section 22.1
	“Electing Party”

	 	Section 8.4(b)
	“Establishment Date”

	 	Section 3.5
	“Event of Force Majeure”

	 	Section 19.1
	“Event of Termination”

	 	Section 16.2
	“Excluded Assets”

	 	Section 2.2(b)(ii)
	“Final Equity Interest Purchase Price”

	 	Section 16.3(c)

 

 

  5

	 	 	 
	Defined Term	 	Section Reference
	“Final FMV”

	 	Section 17.1(a)
	“Financial Year”

	 	Section 10.2
	“Indemnified Party”

	 	Section 18.3(b)
	“Indemnifying Party”

	 	Section 18.3(b)
	“Independent Auditor”

	 	Section 10.4(c)
	“Initial FMV”

	 	Section 17.1(a)
	“Initial Term”

	 	Section 15.1
	“Interested Party”

	 	Section 8.3(d)
	“JV Term”

	 	Section 15.1
	“Lease Contract”

	 	Section 6.1(c)
	“Liquidation Committee”

	 	Section 16.4(c)
	“List”

	 	Section 14.2(a)(i)
	“New Provision”

	 	Section 23.13
	“Non-Appointing Party”

	 	Section 16.4(c)
	“Non-Electing Party”

	 	Section 8.4(b)
	“Parent’s Chairman”

	 	Section 22.1
	“Party” or the “Parties”

	 	Preamble
	“Party A”

	 	Preamble
	“Party A Affiliate Transferee”

	 	Section 5.6(g)
	“Party A Trademark License Contract”

	 	Section 6.1(g)
	“Party B”

	 	Preamble
	“Party B Affiliate Transferee”

	 	Section 5.6(g)
	“Party B Put Option”

	 	Section 5.7(a)
	“Party B Trademark License Contract”

	 	Section 6.1(h)
	“Party B Technology License and Support Contract”

	 	Section 6.1(f)
	“Plant Number 5 Employees”

	 	Section 12.1(d)
	“Preliminary Approval”

	 	Section 3.4(a)
	“Preliminary FMV”

	 	Section 17.1(c)(iii)
	“Premium”

	 	Section 16.3(c)
	“Prevented Party”

	 	Section 19.1
	“Production Offer Negotiation Period”

	 	Section 14.2(a)(ii)
	“Production Offer Notice”

	 	Section 14.2(a)(ii)
	“Proposing Party”

	 	Section 14.2(a)(ii)
	“Proposition”

	 	Section 14.2(a)(ii)
	“Purchased Assets”

	 	Section 5.2(c)
	“Purchased Equity Interest”

	 	Section 16.3(b)
	“Purchasing Party”

	 	Section 16.3(b)
	“Put Exercise Notice”

	 	Section 5.7(c)
	“Put Exercise Price”

	 	Section 5.7(c)
	“Raw Material Supply Contract”

	 	Section 6.1(d)
	“Receiving Party”

	 	Section 20.1(a)
	“Recipients”

	 	Section 20.1(b)
	“Registered Capital”

	 	Section 3.7
	“Relevant Contracts”

	 	Section 6.1
	“Relevant Financial Year”

	 	Section 9.2(a)
	“Restriction”

	 	Section 14.2(a)
	“Sales Agency Contract”

	 	Section 6.1(i)
	“Second Appraiser”

	 	Section 17.1(b)(iii)

 

 

  6

	 	 	 
	Defined Term	 	Section Reference
	“Second FMV”

	 	Section 17.1(b)(i)
	“Selling Party”

	 	Section 16.3(b)
	“Senior Management Staff”

	 	Section 9.1(b)
	“Services Contract”

	 	Section 6.1(b)
	“Special Meeting Request”

	 	Section 8.6(b)
	“Terminating Party”

	 	Section 16.2(g)
	“Third Appraiser ”

	 	Section 17.1(b)(iii)
	“Third Appraiser’s FMV”

	 	Section 17.1(c)(vii)
	“Third FMV”

	 	Section 17.1(b)(iii)
	“Third Party Buyer”

	 	Section 5.7(c)
	“Three Funds”

	 	Section 8.3(c)(xi)
	“Total Investment”

	 	Section 5.1(a)
	“Transfer”

	 	Section 5.6(a)
	“Transfer Notice”

	 	Section 5.6(e)
	“Transferee”

	 	Section 5.6(a)
	“Transferred Assets”

	 	Section 2.2(b)(ii)
	“Transferring Party”

	 	Section 5.6(e)
	“Utilities Supply Contract”

	 	Section 6.1(a)
	“Valuation Notice”

	 	Section 5.7(b)
	“Vice Chairman”

	 	Section 8.2(b)

	1.3.  	Principles of Interpretation
	 
	   	The following principles for interpretation shall apply:

	 	(a)  	Any reference to a “company” in this Contract shall be to a company or
legal person entity incorporated in any relevant jurisdiction.
	 
	 	(b)  	Any reference to a “director” in this Contract shall include reference
to a proxy or proxy director (if relevant).
	 
	 	(c)  	Any reference to “statutes” or “statutory provisions” shall
include reference to those statutes or provisions as amended or re-enacted or serving
as amendment (exclusive of any amendment or re-enactment with retroactive effect).
	 
	 	(d)  	Headings set forth in this Contract shall not affect the interpretation or
construction of this Contract.
	 
	 	(e)  	“Include,” “including,” “are inclusive of” and similar
expressions are not expressions of limitation and shall be construed as if followed by
the words “without limitation.”
	 
	 	(f)  	References to any government ministry, agency, department or authority shall be
construed as references to the duly appointed successor ministry, agency, department or
authority of such ministry, agency, department or authority where the context permits.
	 
	 	(g)  	A reference in this Contract to a document “in the agreed form” is to a
document agreed by the Parties and initialed by them for identification purposes as of
the date of this Contract.

 

 

  7

	 	(h)  	Each attachment and appendix hereunder shall constitute an integral part of
this Contract.
	 
	 	(i)  	Any reference to “the PRC”, “China” or “the Territory”
shall mean the People’s Republic of China, which for the purposes of this Contract
shall exclude Taiwan and the Hong Kong and Macau Special Administrative Regions.

	2.  	Parties to Joint Venture Company
	 
	2.1.  	Parties to the Contract

	 	(a)  	Party A

	 	 	 	 	 
	Name:	 	Sinopec Yizheng Chemical Fibre Company Limited
	 
	 	 	 	 
	Nature & Place of
Registration:	 	A company limited by shares registered in
accordance with the laws of the PRC.
	 
	 	 	 	 
	Legal Address:	 	Yizheng, Jiangsu Province, PRC 211900
	 
	 	 	 	 
	Legal Representative:

	 	Name:
	 	Xu Zhengning
	

	 	Position:
	 	Chairman
	

	 	Nationality:
	 	PRC

	 	(b)  	Party B

	 	 	 	 	 
	Name:	 	UNIFI Asia Holding SRL
	 
	 	 	 	 
	Nature & Place of Registration:	 	A limited liability company registered
in accordance with the laws of Barbados.
	 
	 	 	 	 
	Legal Address:	 	Alphonzo House,
	 	 	Cr. 2nd Avenue & George Street
	 	 	Belleville, St. Michael
	 	 	Barbados
	 
	 	 	 	 
	Legal Representative:

	 	Name:
	 	Brian Parke
	

	 	Position:
	 	President
	

	 	Nationality:
	 	Ireland

	2.2.  	Representations, Warranties and Covenants

	 	(a)  	Each Party represents, warrants and covenants to the other Party, with respect
to itself, as follows:

	 	(i)  	Such Party is a company duly organized, validly existing and in
good legal standing as an independent legal person under the laws of the
jurisdiction of its incorporation, and has the corporate power and lawful
authority to conduct its business in accordance with its business

 

 

  8

	 	   	license, articles of association, company ordinance or other similar
corporate constitutional documents;
	 
	 	(ii)  	Such Party has the full right, power and authority to enter
into this Contract and the Relevant Contracts to which it is a party, and to
perform fully its obligations hereunder and thereunder;
	 
	 	(iii)  	This Contract has been duly authorized, executed and delivered
by such Party and, assuming the due authorization, execution and delivery by
the other Party and approval by the Examination and Approval Authority,
constitutes the valid and binding obligation of such Party enforceable against
it in accordance with its terms;
	 
	 	(iv)  	Neither the execution of this Contract or any Relevant
Contract, nor the performance of such Party’s obligations hereunder or
thereunder will conflict with, or result in a breach of or constitute a default
under any provisions of the business license, resolutions of the shareholders’
meetings or Board, certificate of incorporation, articles of association,
company ordinance or similar constitutional documents of such Party, as the
case may be, or any law, regulation, rule, authorization or approval of any
government agency or authority or any contract or agreement to which such Party
is a party or by which it is bound;
	 
	 	(v)  	Such Party is, has been and, during the JV Term, will continue
to be in compliance in all material respects with all applicable Law of its
jurisdiction of incorporation and is not aware of any circumstances that would
be a breach of any such Law;
	 
	 	(vi)  	As of the date of this Contract, there is no lawsuit,
arbitration or legal, administrative or other proceeding or governmental
investigation pending or, to the best knowledge of such Party, threatened
against such Party with respect to the subject matter of this Contract or that
would negatively affect in any way such Party’s ability to enter into or
perform this Contract, and if any such lawsuit, arbitration or legal,
administrative or other proceeding or governmental investigation should come to
the knowledge of such Party after the date of this Contract it shall promptly
notify the other Party and provide the other Party with detailed information
with respect to such matter;
	 
	 	(vii)  	All documents, statements and information of, or derived from,
any governmental body in the possession of such Party relating to the
transactions contemplated in this Contract have been disclosed to the other
Party or will be promptly disclosed to the other Party to the extent that they
first come to the attention to such Party after the date of this Contract, and
no document previously provided by such Party to the other Party contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not misleading; and
	 
	 	(viii)  	Such Party has the full right and power to grant the licenses respectively
set forth in the Asset Contribution and Purchase Contract

 

 

  9

	 	   	and the Party B Technology License and Support Contract identified in
Section 6.1(e) and Section 6.1(f), as the case may be.

	 	(b)  	Party A further represents and warrants to Party B as follows:

	 	(i)  	Party A has procured all requisite permits and approvals from
the relevant governmental departments to cooperate with the Company and Party B
in accordance with the provisions of this Contract and the Related Contracts to
which it is a party, including all requisite permits and approvals in relation
to the contribution of State-owned assets, and that such permits and approvals
shall be valid and in full force and effect during the JV Term;
	 
	 	(ii)  	Party A is the lawful owner of the Contributed Assets and the
Purchased Assets (collectively with the Contributed Assets, the
“Transferred Assets”), free and clear of all Encumbrances. Party A has
the right to contribute the Contributed Assets and to sell the Purchased Assets
to the Company and subsequent to the contribution of the Contributed Assets and
the sale of the Purchased Assets to the Company such assets shall be owned by
the Company free and clear of all Encumbrances. The Company will not be liable
for any import duties, grant fees or any other fees, charges or expenses in
connection with the contribution of the Contributed Assets and the purchase of
the Purchased Assets except for the deed tax and stamp duty required to be paid
by the Company pursuant to the Laws of the PRC in connection with the
contribution or purchase of the machinery and structures by Party A to the
Company. The Transferred Assets together with those assets specified in
Appendix IV attached hereto (the “Excluded Assets”) comprise of all the
assets, used and usable, that are associated with Plant Number 5;
	 
	 	(iii)  	Party A has been duly issued a Land Use Right Approval and
Land Use Rights Certificate with respect to the Land, and Party A has the full
legal right to lease the Land to the Company as contemplated in the Lease
Contract identified in Section 6.1(c);
	 
	 	(iv)  	Party A has been duly issued building ownership certificates
with respect to all of the buildings located on the Land in connection with
Plant Number 5 and has the full legal right to contribute or sell, as the case
may be, such buildings as contemplated in the Asset Contribution and Purchase
Contract identified in Section 6.1(e); and
	 
	 	(v)  	All of the JV Products that are currently manufactured by Party
A in Plant Number 5 and which will be manufactured by the Company have received
all necessary environmental approvals from relevant Chinese governmental
authorities, and shall meet all environmental requirements under the Laws of
the PRC.

 

 

  10

	3.  	Establishment of Joint Venture Company
	 
	3.1.  	Establishment of the Company
	 
	   	The Parties hereby agree to jointly establish the Company at Yizheng, Jiangsu Province, PRC
in accordance with the Law of the People’s Republic of China on Chinese-Foreign Equity Joint
Ventures, the Regulations for the Implementation of the Law of the People’s Republic of
China on Chinese-Foreign Equity Joint Ventures, other applicable Law of the PRC, this
Contract and the Articles of Association.
	 
	3.2.  	Name and Legal Address

	 	(a)  	The name of the Company shall be [Chinese text] in Chinese and Yihua
Unifi Fibre Industry Company Limited in English.
	 
	 	(b)  	The legal address of the Company shall be: Yangzhou Chemical Industry Park,
Jiangsu Province, PRC 211900.

	3.3.  	Application
	 
	   	This Contract, the Articles of Association and the Feasibility Study Report shall be
submitted by Party A to the Examination and Approval Authority for approval (the
“Application”) as soon as possible after all of the following conditions have been
fulfilled:

	 	(a)  	The board of directors of each Party has adopted a resolution approving the
transactions contemplated in this Contract;
	 
	 	(b)  	The transactions contemplated in this Contract have been duly approved by the
shareholders of Party A voting at a duly convened shareholders’ meeting in accordance
with Party A’s charter documents;
	 
	 	(c)  	This Contract, the Articles of Association and the Feasibility Study Report
have been executed by the duly authorized representative of each Party hereto; and
	 
	 	(d)  	Each Party has initialed all of the Relevant Contracts specified in Section 6.1
as indication of its agreement with the form and content of each such Relevant
Contract.

	   	Party B shall have the right to review and approve all documents to be submitted in
connection with the Application prior to such submission and no document shall be submitted
until it is satisfactory to Party B.
	 
	3.4.  	Approval

	 	(a)  	Party A shall notify Party B by facsimile within three (3) days after the
Examination and Approval Authority issues the preliminary approval related to the
establishment of the Company (the “Preliminary Approval”); Party A shall
simultaneously deliver a copy of the Preliminary Approval to Party B together with such
notification.

 

 

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	 	(b)  	If the Parties accept both the format and content of the Preliminary Approval,
Party A shall, within seven (7) days after issuance of the Preliminary Approval, apply
to the Examination and Approval Authority for issuance of the “Certificate of Approval
for Establishment of Enterprises with Foreign Investment in the PRC” (the
“Certificate of Approval”).
	 
	 	(c)  	If the Examination and Approval Authority requires any amendments to this
Contract, the Articles of Association or the Feasibility Report Study Report or any of
their attachments or appendixes with respect to the Application, the Parties shall
promptly consult with each other and decide whether to make such amendments as required
by the Examination and Approval Authority. If the Parties agree to make such amendment
as required, they shall, as soon as practicable, execute an amended version of the
relevant document, reflecting the amendments agreed by the Parties, and Party A shall
apply to the Examination and Approval Authority for the Certificate of Approval within
five (5) days after execution of such amended version of such document.

	3.5.  	Business License
	 
	   	The Parties shall, within five (5) days after the Examination and Approval Authority issues
the Certificate of Approval, jointly file copies of this Contract, the Articles of
Association and the Feasibility Study Report, and an application with the SAIC for
registration of the Company as a limited liability company and obtain the Business License
for the Company. The date on which the first Business License of the Company is issued shall
be hereinafter referred to as the “Establishment Date.”
	 
	3.6.  	PRC Laws
	 
	   	All activities of the Company shall be in compliance with all applicable Laws of the PRC and
shall be subject to the jurisdiction and protection of all such Laws.
	 
	3.7.  	Limited Liability
	 
	   	The Company shall be a limited liability company with enterprise legal person status. The
liability of each Party with respect to the Company shall be limited to the amount it has
subscribed to contribute to the registered capital of the Company (the “Registered
Capital”) in accordance with Section 5.2. Neither Party shall have any liability to any
third party in respect of the debts, liabilities or obligations of the Company.
	 
	4.  	Goals and Scope of Business Operations
	 
	4.1.  	Goals
	 
	   	The goals of the Parties in the establishment of the Company are to: (a) strengthen economic
cooperation and technical exchange between the Parties in the field of manufacturing
differentiated polyester filament in the PRC; (b) to operate a manufacturing plant in line
with world class practices and standards by adopting advanced and appropriate technologies
and scientific management methods; and (c) to earn favorable returns for the shareholders by
producing high-quality products as designated by the Parties.

 

 

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	4.2.  	Business Scope
	 
	   	The initial Business Scope of the Company shall be the following:
	 
	   	To primarily engage in the manufacturing, processing and marketing of high value-added
differentiated polyester textile filament products, including fine denier yarn and other
polyester textile filament products; to engage in further value-added processing of
polyester textile filament products, including by means of twisting, dyeing, covering,
warping and beaming; to engage in polyester textile weaving, manufacturing and marketing; to
conduct research and engage in development activities related to polyester textile products;
to engage in the sale of self-produced products; and to provide after-sales service.
	 
	4.3.  	Project Scale

	 	(a)  	The initial scale of production for the first year of the Company after its
establishment is estimated to be:
	 
	 	   	DTY 80,000 tons
	 
	 	   	FDY 8,000 tons
	 
	 	   	POY 10,000 tons
	 
	 	(b)  	As more fully described in the Feasibility Study Report, the Parties wish to
expand the scale of production to an annual sales of US$500,000,000 to US$600,000,000
within five (5) years after establishment of the Company, increasing from the current
scale of approximately US$130,000,000 at Plant Number 5. During such five (5) year
expansion period, the Company shall maintain an acceptable return on investment for the
Parties. Accordingly, the Parties agree that the appropriate course of development for
the Company shall include:

	 	(i)  	optimizing the existing business of Plant Number 5 by higher
yields and productivity, higher-value product mix and increased sales;
	 
	 	(ii)  	building additional processing capacity to absorb Party A’s
surplus POY capacity;
	 
	 	(iii)  	introducing further value-added processes such as textured
yarn package dyeing; and
	 
	 	(iv)  	investing in new polymerization and POY capacity for the
Company’s use to expand the business.

	 	(c)  	Subject to Section 4.3(b) above, the development plan and implementation
schedule of the Company shall be decided by the Board based on domestic and
international market conditions. In addition, the Company may expand or reduce
production capacity, increase or decrease product varieties based on the capacity of
the Company, the domestic and foreign market demand and other factors as decided by the
Board.

 

 

  13

	5.  	Total Investment, Registered Capital and Method of Contribution
	 
	5.1.  	Total Amount of Investment, Registered Capital and Loans

	 	(a)  	The total amount of investment of the Company (the “Total Investment”)
shall be US$90,000,000.
	 
	 	(b)  	The Registered Capital shall be US$30,000,000.
	 
	 	(c)  	The difference between the Total Investment and the Registered Capital may be
raised by the Company through loans as determined by the Board. If required by any
financial institutions, the assets of the Company shall be mortgaged in accordance with
Law as security for such loans.
	 
	 	(d)  	In order to realize the goals set forth in Section 4.3, the Parties agree that,
within one year after the Establishment Date, upon approval of the Board, the Parties
shall increase the Registered Capital to US$60,000,000 and the Total Investment to
US$180,000,000.

	5.2.  	Proportion of Investment, Method of Contribution, Currency

	 	(a)  	The contribution to the Registered Capital subscribed by Party A shall be equal
to US$15,000,000, representing a 50% equity interest in the Company. Subject to
Section 5.4, Party A shall make its contribution to the Registered Capital in the form
of certain assets located within or otherwise associated with Plant Number 5 (the
“Contributed Assets”), and pursuant to an asset contribution and purchase
contract between the Company, Party A and Party B (the “Asset Contribution and
Purchase Contract”). At the time of their contribution, the Contributed Assets
shall be free of all Encumbrances.
	 
	 	(b)  	The contribution to the Registered Capital subscribed by Party B shall be
US$15,000,000, representing a 50% equity interest in the Company. Subject to Section
5.4, Party B’s contribution shall be made in cash in US Dollars.
	 
	 	(c)  	Party A shall sell to the Company, as mutually agreed by the Parties, certain
assets located within or otherwise associated with Plant Number 5 with a total value
equal to RMB367,469,836 (the “Purchased Assets”) pursuant to the Asset
Contribution and Purchase Contract.
	 
	 	(d)  	The Transferred Assets, having a total value of RMB491,669,836 are listed in
Appendix III attached hereto.

	5.3.  	Procedure of Contribution

	 	(a)  	Subject to Section 5.4(a), Party A shall, within thirty (30) days after the
Establishment Date, complete the procedures for transfer of title to the Transferred
Assets to the Company and shall, within sixty (60) days after the Closing Date, as
defined in the Asset Contribution and Purchase Contract, provide the Company with a
valid title certificate or statement in writing certifying that the Company holds valid
title to and ownership in all Transferred Assets. The capital contribution shall be
deemed completed when the Company obtains such title certificate or written
certification. For the

 

 

  14

	 	   	purpose of calculating the US Dollar equivalent of Party A’s capital contribution,
the applicable exchange rate shall be the average of the buying and selling rates
for US Dollars quoted by the People’s Bank of China on the date on which the
contribution is made.
	 
	 	(b)  	Subject to Section 5.4(b), Party B’s contribution specified in Section 5.2
shall be made in cash and shall be paid in a single lump sum within seven (7) days
after the Establishment Date.
	 
	 	(c)  	Party B’s capital contribution to the Company as specified in Section 5.3(b)
above shall be deemed completed when such payment of contribution is remitted into the
bank account of the Company.
	 
	 	(d)  	Within fifteen (15) days after each Party has made its respective capital
contributions in accordance with this Section 5, a certified public accountant
registered in the PRC shall be engaged by the Company to verify the contributions made
and issue a capital verification report to such effect. Within fifteen (15) days after
receipt of each such capital verification report, the Company shall issue to such Party
an investment certificate signed by the Chairman of the Board evidencing payment of
such contributions as of the date of the issuance of the investment certificate.

	5.4.  	Conditions for Contribution

	 	(a)  	Party A shall not be obligated to make any contribution to the Registered
Capital until each of the following conditions has been satisfied or waived in writing
by Party A:

	 	(i)  	following execution by the Parties, this Contract, the Articles
of Association and other relevant documents have been approved by the
Examination and Approval Authority without substantive amendments thereto;
	 
	 	(ii)  	the Business License has been issued without altering in any
material respect the Company’s initial Business Scope as set forth in Section
4.2;
	 
	 	(iii)  	the Company has received all of the Company Approvals;
	 
	 	(iv)  	Party B or its Affiliate has executed each of the Relevant
Contracts to which it is a party;
	 
	 	(v)  	the Company has secured working capital financing on terms
satisfactory to the Parties; and
	 
	 	(vi)  	there has been no breach of any provision of this Contract by
Party B.

	 	(b)  	Party B shall not be obligated to make any contribution to the Registered
Capital until each of the following conditions has been satisfied or waived in writing
by Party B:

 

 

  15

	 	(i)  	following execution by the Parties, this Contract, the Articles
of Association and other relevant documents have been approved by the
Examination and Approval Authority without substantive amendments thereto;
	 
	 	(ii)  	the Business License has been issued without altering in any
material respect the Company’s initial Business Scope as set forth in Section
4.2;
	 
	 	(iii)  	the Company has received all of the Company Approvals;
	 
	 	(iv)  	Party A or its Affiliate has executed each of the Relevant
Contracts to which it is a party;
	 
	 	(v)  	Party A and the Company have entered into the Assignment and
Assumption Contract in a form acceptable to Party B, and any and all third
party consents in connection therewith have been obtained;
	 
	 	(vi)  	Party A has obtained all approvals necessary for the
contribution of the Contributed Assets and the sale of the Purchased Assets;
	 
	 	(vii)  	the Company has secured working capital financing on terms
satisfactory to the Parties; and
	 
	 	(viii)  	there has been no breach of any provision of this Contract by Party A.

	 	(c)  	The Parties shall make all reasonable efforts to ensure the fulfillment of each
of the conditions set forth in Sections 5.4(a) and 5.4(b) as soon as possible after the
execution of this Contract. Such reasonable efforts shall include taking all measures,
which are necessary or required for obtaining the Company Approvals (including delivery
of notices, registration and filing) as soon as possible.

	5.5.  	Increase and Reduction of Registered Capital

	 	(a)  	The Company shall not increase or reduce the Registered Capital during the JV
Term unless approved by the Board in accordance with this Contract and the Articles of
Association and approved by the Examination and Approval Authority. The amount, mode
and ratio of any capital increase or reduction shall be negotiated by the Parties and
decided by the Board.
	 
	 	(b)  	In case of any increase or reduction in the Registered Capital, the Parties
shall make amendments to the relevant provisions of this Contract and, upon the
approval of the Examination and Approval Authority, register such change with SAIC. In
the case of an additional subscription of increased Registered Capital, the Company
shall issue to such Party a new investment certificate evidencing payment of the
additional amount of contribution made by such party as of the date of the issuance of
the new investment certificate, and cancel the original investment certificate issued
to such Party.

 

 

  16

	5.6.  	Transfer of Equity Interest

	 	(a)  	Neither Party A nor Party B shall sell, give, assign, transfer or otherwise
dispose of any Equity Interest or any right, title or interest therein or thereto
(each, a “Transfer”) to any third party (a “Transferee”) without the
prior written consent of the other Party, except as expressly permitted by this Section
5.6. Any purported Transfer in violation of this Section 5.6 shall be null and void ab
initio, and the Company and the Parties shall not register or recognize any such
Transfer.
	 
	 	(b)  	Except as otherwise permitted in Sections 5.6(g), 5.7, 8.4 or 16.3 of this
Contract, neither Party shall Transfer any Equity Interest to any Transferee during the
period commencing on the Establishment Date and ending on the tenth anniversary of the
Establishment Date.
	 
	 	(c)  	During the JV Term, neither Party may Transfer any Equity Interest to any
Transferee, including an Affiliate of such Party, that directly or indirectly through
its Affiliates, produces, markets or sells any products in competition with the JV
Products.
	 
	 	(d)  	Notwithstanding any other provisions of this Contract and except if such
Transfer is pursuant to Section 5.7, 8.4 or 16.3 of this Contract, no Transfer may be
made unless (i) the Transferee has agreed in writing to be bound by the terms and
conditions of this Contract and the Articles of Association, which may be amended and
restated to the extent that the Parties and the Transferee agree to such amendments;
and (ii) the Transfer complies in all respects with the other applicable provisions of
this Contract, the Articles of Association and other relevant documents designated by
the non-Transferring Party, including any Relevant Contract to which the Transferring
Party or its Affiliate is a party.
	 
	 	(e)  	Subject to the restrictions set forth in Sections 5.6(b) and (c), if a Party
wishes to Transfer all or any portion of its Equity Interest to a Transferee, such
Party (the “Transferring Party”) shall provide a written notice (the
“Transfer Notice”) to the other Party stating its wish to make such Transfer,
the interest it wishes to Transfer, the price of such interest and the identity of the
proposed Transferee. The other Party shall have the right of first refusal to purchase
such Equity Interest on terms no less favorable than those offered to or by such
Transferee. Within thirty (30) days of receipt of the Transfer Notice from the
Transferring Party, the other Party shall deliver its response stating whether it
chooses to exercise its right to purchase the Equity Interest that the Transferring
Party wishes to Transfer. If the other Party fails to respond within such thirty (30)
day period, it shall be deemed to have given its prior written consent to the
Transferring Party’s Transfer of the Equity Interest on the terms set forth in the
Transfer Notice.
	 
	 	(f)  	The Transferring Party and the Transferee shall enter into an equity interest
transfer contract with respect to the Transfer of the relevant Equity Interest. The
Parties shall thereafter amend this Contract and the Articles of Association to reflect
the respective equity interests in the Company held by the Parties and the Transferee,
subsequent to the completion of such equity

 

 

  17

	 	   	interest transfer contract and to reflect changes in the composition of the Board in
accordance with Section 8.2(c). The Parties shall (i) cause the Company to apply to
the relevant governmental authorities for approval of the Transfer and the
amendments to this Contract and Articles of Association, (ii) cause the Company to
apply for the issuance of a new Business License reflecting the relevant changes in
the particulars of the Company set forth in the amendments to this Contract and
Articles of Association, and (iii) use their best efforts to assist the Company to
obtain all such approvals and the issuance of such license. The Parties shall, and
shall cause the Company to, promptly execute all such further documents and perform
all such further acts as the Transferring Party may reasonably require to constitute
the Transferee, as the legal and beneficial owner of the equity interest Transferred
pursuant to the Transfer free from any and all Encumbrances.
	 
	 	(g)  	Subject to the restriction set forth in Section 5.6(c), Party A may Transfer
all or any portion of its Equity Interest to one or more Party A Affiliates (a
“Party A Affiliate Transferee”), and Party B may Transfer all or any portion of
its Equity Interest to one or more of its Affiliates (a “Party B Affiliate
Transferee”) and the other Party hereby gives its prior consent to any such
Transfer; provided that such Party A Affiliate Transferee or Party B
Affiliate Transferee, as the case may be, has substantial assets and operating
capacities relative to the scale of the Company’s business operations at the time of
such Transfer. In case of a Transfer under this Section 5.6(g), the Transferring Party
shall provide the other Party documents supporting the status of the relevant Affiliate
Transferee, as a Party A Affiliate, in the case of a Transfer by Party A, or an
Affiliate of Party B, in the case of a Transfer by Party B, and information on the
businesses and commercial activities of the relevant Affiliate Transferee, including
information related to the financial status and economic health of the relevant
Affiliate Transferee and information on whether the relevant Affiliate Transferee
produces, markets or sells any products in competition with the Company.
	 
	 	(h)  	In case of a Transfer by a Party A to a Party A Affiliate Transferee or Party B
to a Party B Affiliate Transferee in accordance with Section 5.6(g), the Transferring
Party and the relevant Affiliate Transferee shall enter into an equity interest
transfer contract with respect to the Transfer of the relevant Equity Interest. The
Parties shall thereafter amend this Contract and the Articles of Association to reflect
the respective equity interests in the Company held by the Parties and the relevant
Affiliate Transferee subsequent to the completion of such equity interest transfer
contract and to reflect changes in the composition of the Board in accordance with
Section 8.2(c). The Parties shall (i) cause the Company to apply to the relevant
governmental authorities for approval of the Transfer and the amendments to this
Contract and Articles of Association, (ii) cause the Company to apply for the issuance
of a new Business License reflecting the relevant changes in the particulars of the
Company set forth in the amendments to this Contract and Articles of Association, and
(iii) use their best efforts to assist the Company to obtain all such approvals and the
issuance of such license. The Parties shall, and shall cause the Company to, promptly
execute all such further documents and perform all such further acts as the
Transferring Party may reasonably require

 

 

  18

	 	   	to constitute the relevant Affiliate Transferee as the legal and beneficial owner of
the Equity Interest Transferred pursuant to the Transfer free from any and all
Encumbrances.
	 
	 	(i)  	If a Party A Affiliate Transferee or Party B Affiliate Transferee at any time
ceases to be a Party A Affiliate, in the case of a Transfer by Party A, or an Affiliate
of Party B, in the case of a Transfer by Party B, the Transferring Party shall ensure
that the relevant Affiliate Transferee shall forthwith Transfer the Equity Interest
back to such Transferring Party. The equity interest transfer contract to be entered
into by the Transferring Party and the relevant Affiliate Transferee in accordance with
Section 5.6(h) shall require that if such Affiliate Transferee at any time ceases to be
a Party A Affiliate, in the case of a Transfer by Party A, or an Affiliate of Party B,
in the case of a Transfer by Party B, the Transferring Party shall ensure that the
relevant Affiliate Transferee shall forthwith Transfer the Equity Interest back to such
Transferring Party.

	5.7.  	Party B Put Option

	 	(a)  	Party A hereby grants Party B an irrevocable option (the “Party B Put
Option”), pursuant to which Party B shall have the right (but not the obligation)
to sell all (but not less than all) of its Equity Interest to Party A, and Party A
shall directly, or cause another Person to, purchase all the Equity Interest of Party B
in accordance with the provisions of this Section 5.7. Party B shall have the right to
exercise the Party B Put Option under either of the following circumstances:

	 	(i)  	at any time during the period starting on the fourth (4th)
anniversary of the Establishment Date and ending on the date that is six months
after the fourth (4th) anniversary of the Establishment Date, at Party B’s
discretion; or
	 
	 	(ii)  	in accordance with the provisions of Section 8.4(d).

	 	(b)  	In accordance with the provisions of Section 5.7(a), Party B may exercise the
Party B Put Option by delivering a notice (the “Valuation Notice”) to Party A
and invoking the valuation procedures set forth in Section 17.
	 
	 	(c)  	After the determination of the Final FMV pursuant to Section 17, Party B shall
have the right, within thirty (30) Business Days after such date of determination, to
issue a notice (the “Put Exercise Notice”) to Party A stating that it intends
to exercise its right to sell its entire Equity Interest to Party A at a purchase price
equal to the Final FMV multiplied by the percentage of the Company’s total equity
interests held by Party B at such time (the “Put Exercise Price”). Party A
shall have the right to designate a third party to purchase the Equity Interest from
Party B (the “Third Party Buyer”) by notifying Party B of the identity of such
third party within thirty (30) Business Days after its receipt of the Put Exercise
Notice.
	 
	 	(d)  	Within forty-five (45) Business Days after the date of delivery of the Put
Exercise Notice, Party A or the Third Party Buyer, as the case may be, and

 

 

  19

	 	   	Party B shall execute an equity interest transfer contract with respect to the
Transfer by Party B of its entire Equity Interest to Party A or the Third Party
Buyer, as the case may be, for a total consideration of the Put Exercise Price.
Unless otherwise agreed by the Parties, the terms of such equity interest transfer
contract shall consist only of the Put Exercise Price, the date by which payment of
the Put Exercise Price must be made by Party A or the Third Party Buyer, as the case
may be, and any other terms required by Law, and shall not contain any other terms
or conditions, including any representations or warranties by either Party. Party A
agrees and covenants that, in the event that it designates a Third Party Buyer to
acquire the Equity Interest from Party B, it shall guaranty the due performance of
the Third Party Buyer’s obligations in connection with the Transfer of Party B’s
Equity Interest. Each Party shall promptly cause the directors on the Board
appointed by it to vote in favor of a resolution approving the Transfer. If any
director does not vote in favor of such resolution, the Party that appointed such
director shall promptly remove and replace such director and cause the newly
appointed director to vote in favor of the resolution approving the Transfer.
	 
	 	(e)  	The Parties shall thereafter terminate this Contract and amend the Articles of
Association to reflect the change in the equity interests in the Company subsequent to
the completion of the relevant equity interest transfer contract and to reflect changes
in the composition of the Board. Each Party shall promptly cause the directors on the
Board appointed by it to vote in favor of any resolution approving any change in the
size and/or composition of the Board resulting from the above sentence, and if any
director does not vote in favor of such resolution, the Party that appointed such
director shall promptly remove and replace such director and cause the newly appointed
director to vote in favor of the resolution approving the proposed change of the Board.
The Parties shall (i) cause the Company to apply to the relevant governmental
authorities for approval of the Transfer and the amendments to the Articles of
Association, (ii) cause the Company to apply to be converted from a Chinese-foreign
equity joint venture company into a non-foreign invested domestic enterprise, if
applicable (iii) cause the Company to apply for the issuance of a new Business License
reflecting the relevant changes in the particulars of the Company set forth in the
amendments to the Articles of Association, and (iv) use their respective best efforts
to assist the Company to obtain all such approvals and the issuance of such Business
License.
	 
	 	(f)  	If (i) Party B exercises the Party B Put Option or the Party B Deadlock Put
Option, and (ii) following the exercise of either such option by Party B, the Company
is converted from a Chinese-foreign equity joint venture company to a wholly
domestically-owned company, then subject to the conditions and limitations set forth in
this Section 5.7(f), Party B shall pay Party A or the Company, as the case may be, for
the amounts of additional tax obligations payable by Party A or the Company, as the
case may be, as specifically set forth in this Section 5.7(f). Party B shall only be
liable under this Section 5.7(f) with respect to the following three taxes, being
value-added tax, import tax and enterprise income taxes that (1) are directly
attributable to the conversion of the Company from a Chinese-foreign equity joint
venture company to a wholly domestically-owned company; (2) are required to be

 

 

  20

	 	   	paid by Party A or the Company, as the case may be, under the Laws of the PRC; (3)
relate to the period beginning on the Establishment Date and ending on the date on
which Party A received the relevant Option Notice from Party B; and (4) are actually
paid by Party A or the Company, as the case may be, within six (6) months after the
date on which the wholly domestically-owned company receives its business license.
Party B’s liability for payment of such taxes that meet all of the conditions set
forth in the preceding sentence shall be limited to the following amount: (i) fifty
percent (50%) of the additional tax obligations of Party A or the Company, as the
case may be, for the valued-added tax and import taxes, plus (ii) the amount that is
the lesser of (a) fifty percent (50%) of enterprise income taxes and (b) the
cumulative total of dividends that have been paid by the Company to Party B. As
evidence of its payment of such additional tax obligations specified in this Section
5.7(f), Party A or the Company, as the case may be, shall provide to Party B: (1) a
copy of the official receipt in respect of the payment of such additional tax
obligations, and (2) a document setting forth the amount and type of taxes paid and
the specific legal basis on which Party A or the Company, as the case may be, is
required to pay each such tax, each issued to Party A or the Company, as the case
may be, and affixed with the seal of the relevant tax authorities of the PRC. Party
B shall pay the amount for which it is liable under this Section 5.7(f) within
thirty (30) days after receipt of documents, in a form acceptable to Party B,
evidencing payment by Party A or the Company, as the case may be, of such additional
tax obligations. Party A shall, and shall ensure that the Company shall, take all
reasonable actions to reduce its liability for the additional tax obligations
specified under this Section 5.7(f).

	6.  	Relevant Contracts
	 
	6.1.  	Execution of Relevant Contracts
	 
	   	Within seven (7) days of the Establishment Date, each Party shall execute each of the
following contracts (collectively, the “Relevant Contracts”) to which it is a party,
and shall cause its Affiliate and/or the Company, as the case may be, to execute each of the
following contracts to which such Affiliate and/or the Company is a party:

	 	(a)  	Utilities Supply Contract between Party A and the Company (the “Utilities
Supply Contract”), pursuant to which Party A shall provide the Company with
electricity, steam, nitrogen gas, water, compressed air, waste water treatment service
and other utilities, in the agreed form;
	 
	 	(b)  	Comprehensive Services Contract between Party A and the Company and its
Affiliates (the “Services Contract”), pursuant to which Party A and its
Affiliates shall provide the Company with property management, road maintenance, fire
control, environmental protection and certain other corporate services, as well as
services related to the welfare and benefits of employees, in the agreed form;
	 
	 	(c)  	Lease Contract between Party A and the Company (the “Lease Contract ”),
pursuant to which Party A shall lease the Land to the Company for its use, in the
agreed form;

 

 

  21

	 	(d)  	Raw Material Supply Contract between Party A and the Company (the “Raw
Material Supply Contract”), pursuant to which Party A shall provide the Company
with raw materials for use in the production of the JV Products, in the agreed form;
	 
	 	(e)  	Asset Contribution and Purchase Contract between the Company, Party A and Party
B, pursuant to which Party A shall contribute the Contributed Assets and sell the
Purchased Assets to the Company and license to the Company certain proprietary
information and technology in connection with the manufacture and sale of the JV
Products, in the agreed form;
	 
	 	(f)  	Technology License and Support Contract between Party B and/or its Affiliate
and the Company (the “Party B Technology License and Support Contract”),
pursuant to which Party B and/or its Affiliate shall license to the Company certain
proprietary information and technology in connection with the manufacture and sale of
the JV Products, in the agreed form;
	 
	 	(g)  	Trademark License Contract between Party A and the Company (the “Party A
Trademark License Contract”), pursuant to which Party A shall license to the
Company certain of its trademarks for use on the JV Products, in the agreed form;
	 
	 	(h)  	Trademark License Contract between Party B and/or its Affiliate and the Company
(the “Party B Trademark License Contract”), pursuant to which Party B and/or
its Affiliate shall license to the Company certain of its trademarks for use on the JV
Products, in the agreed form;
	 
	 	(i)  	Sales Agency Contract between Party B and/or its Affiliate and the Company (the
“Sales Agency Contract”), pursuant to which the Company shall pay Party B
and/or its Affiliate certain commission fees for any customer referred to the Company
by Party B or its Affiliates, as the case may be, in the agreed form;
	 
	 	(j)  	Assignment and Assumption Contract between Party A and the Company (the
“Assignment and Assumption Contract”), pursuant to which Party A shall assign
to the Company, and the Company shall assume, all of Party A’s rights and obligations
under certain sales contracts entered into by Party A, in the agreed form;
	 
	 	(k)  	Other documents and agreements necessary for the full accomplishment of the
transactions contemplated in this Contract.

	7.  	Responsibilities of the Parties
	 
	7.1.  	Responsibilities of Party A
	 
	   	Party A shall be responsible for performing the following duties in addition to the other
responsibilities set forth elsewhere in this Contract:

	 	(a)  	strictly performing its obligations under this Contract, the Articles of
Association and each Relevant Contract to which it is a party, and ensuring

 

 

  22

	 	   	that each of its Affiliates performs its obligations under each Relevant Contract to
which such Affiliate is a party;
	 
	 	(b)  	filing all documents required for the establishment of the Company with the
relevant Governmental Authorities, obtaining all necessary Company Approvals for the
establishment of the Company and assisting the Company in obtaining and maintaining in
force throughout the JV Term all Company Approvals and agreements that are necessary
for the Company to achieve its goals and business objectives;
	 
	 	(c)  	assisting the Company in applying for and obtaining any existing preferential
treatment in tax, customs, foreign exchange and other fields that are available or may
be available under any preferential policy in accordance with Law;
	 
	 	(d)  	appointing in a timely manner members of the Board as specified in Section 8.2
hereunder;
	 
	 	(e)  	nominating in a timely manner candidates for Senior Management Staff as
specified in this Contract and the Articles of Association;
	 
	 	(f)  	assisting the Company in obtaining financing deemed necessary by the Board,
including the initial working capital financing referred to in Section 5.4(a)(v);
	 
	 	(g)  	assisting the Company in liaising with PRC government authorities and other PRC
companies with which the Company wishes to cooperate (including Affiliates of Party A);
	 
	 	(h)  	causing its directors to exercise their voting rights in accordance with this
Contract and the Articles of Association;
	 
	 	(i)  	assisting the Company in obtaining all necessary visas, travel documents and/or
work permits for its expatriate employees and their families, including Party B’s
secondees so as to enable them to enter, leave and stay in PRC for their work in the
Company and other activities;
	 
	 	(j)  	providing and causing the Company to provide Party B and its Affiliates with
all necessary assistance and cooperation in order for Party B and its Affiliates to
comply with applicable Laws;
	 
	 	(k)  	assisting the Company in matters related to the employees of the Company;
	 
	 	(l)  	if requested by the General Manager, and to such extent as is necessary and
convenient, supporting and assisting the Company in its production activities;
	 
	 	(m)  	if requested by the General Manager, assisting the Company in marketing the JV
Products within PRC; and
	 
	 	(n)  	assisting the Company in other matters as requested by the Board from time to
time.

 

 

  23

	7.2.  	Responsibilities of Party B
	 
	   	Party B shall be responsible for performing the following duties in addition to the other
responsibilities set forth elsewhere in this Contract:

	 	(a)  	strictly performing its obligations under this Contract, the Articles of
Association and each Relevant Contract to which it is a party and ensuring that each of
its Affiliates performs its obligations under each Relevant Contract to which such
Affiliate is a Party;
	 
	 	(b)  	appointing in a timely manner members of the Board as specified in Section 8.2
hereunder;
	 
	 	(c)  	nominating in a timely manner candidates for Senior Management Staff as
specified in this Contract and the Articles of Association;
	 
	 	(d)  	assisting in obtaining the approvals, permits, licenses and tax registration
necessary for the establishment and legal operation of the Company and providing all
necessary documents for such applications on a timely basis;
	 
	 	(e)  	assisting the Company in developing advanced management systems;
	 
	 	(f)  	assisting the Company with respect to developing systems for operation of the
Company’s production lines in an efficient and effective manner;
	 
	 	(g)  	assisting the Company in preparing efficient staffing plans;
	 
	 	(h)  	assisting the Company in obtaining financing deemed necessary by the Board;
	 
	 	(i)  	causing its directors to exercise their voting rights in accordance with this
Contract and the Articles of Association;
	 
	 	(j)  	assisting the Company in obtaining all necessary visas, travel documents and/or
work permits for its Chinese employees so as to enable them to come in and out of and
stay in the United States for technical training, carrying out work responsibilities
and conducting other activities on behalf of the Company as requested by the Board;
	 
	 	(k)  	if requested by the General Manager, and to such extent as is necessary and
convenient, supporting and assisting the Company in its production activities;
	 
	 	(l)  	assisting the Company in marketing the JV Products outside the PRC in
accordance with the Sales Agency Contract; and
	 
	 	(m)  	assisting the Company in other matters as requested by the Board from time to
time.

	8.  	Board of Directors
	 
	8.1.  	Establishment of the Board
	 
	   	The Board shall be established on the Establishment Date.

 

 

  24

	8.2.  	Composition of the Board; Appointment, Dismissal and Remuneration of Directors

	 	(a)  	The Board shall consist of six (6) directors, three (3) of whom shall be
appointed by Party A and three (3) by Party B. The term of office for each director
shall be four (4) years, renewable upon reappointment by the appointing Party. The
term of the directors of the first Board shall commence on the Establishment Date.
There is no restriction on the number of times a director may be reappointed.
	 
	 	(b)  	The Board shall have one (1) chairman (the “Chairman”) and one (1) vice
chairman (the “Vice Chairman”), who shall be appointed by the Parties on a
four-year rotating basis during the JV Term. During the first four (4) years of the
Company upon its establishment, the Chairman shall be appointed by Party A and the Vice
Chairman shall be appointed by Party B.
	 
	 	(c)  	In case of any change to the Equity Interests of the Parties, the composition
of the Board shall be adjusted according to the following principles:

	 	(i)  	In the case of a Transfer of Equity Interest by either Party to
the other Party, the Party increasing its Equity Interest shall have the right
to appoint one additional director for each incremental ten percent (10%)
increase in its Equity Interest; provided that (1) at any time that either
Party possesses an Equity Interest equal to or in excess of fifty-one percent
(51%) of the Registered Capital, such Party shall be entitled to appoint a
majority of the directors of the Company, and (2) at any time that a Party
holds any Equity Interest in the Company equal to or greater than five percent
(5%), such Party shall retain the right to appoint at least one (1) director;
	 
	 	(ii)  	In the case of a Transfer of Equity Interest by a Party to a
Transferee or an Affiliate Transferee in accordance with the terms of Section
5.6 hereto, such Transferee or Affiliate Transferee, as the case may be, shall
have the right to appoint one (1) director for each sixteen percent (16%) of
the Registered Capital acquired through such Transfer, and the Transferring
Party shall lose the right to appoint one (1) director for each incremental
sixteen percent (16%) Transferred by such Party.

	 	(d)  	Either Party shall have the right, at any time, to remove with or without cause
and replace any director appointed by it before the expiration of his or her term. If
a director is removed, becomes incapacitated, dies, resigns or otherwise ceases to be a
director, the Party that appointed such director shall appoint a new director to serve
for the remainder of the term of office of such director.
	 
	 	(e)  	The appointment or dismissal of a director shall take effect fifteen (15) days
following the delivery of a written notice by the Party implementing such appointment
or dismissal to the other Party.
	 
	 	(f)  	Directors of the Company shall serve without remuneration but may receive
remuneration as Senior Management Staff when concurrently employed as a member of the
Senior Management Staff.

 

 

  25

	 	(g)  	A director shall not engage in the daily operation of the Company, unless
engaged in the daily operation as Senior Management Staff when concurrently employed as
a member of the Senior Management Staff.
	 
	 	(h)  	The Parties agree to cause the Company to file for the record with the
Examination and Approval Authority and/or SAIC any change of director appointed by
either Party, if required by law.
	 
	 	(i)  	The Company shall indemnify each director against all claims and liabilities
incurred by reason of his being a director of the Company; provided that the director’s
acts or omissions giving rise to such claim or liability did not constitute intentional
misconduct or a violation of criminal law. In addition, the Company reserves the right
to pursue any claims against directors who cause the Company to incur unauthorized
claims or liabilities.

	8.3.  	Functions and Powers of the Board

	 	(a)  	The Board shall be the highest authority of the Company, and shall direct the
overall management, supervision and control of the business of the Company; provided
that the Board shall delegate authority over day-to-day operational and managerial
matters to the General Manager as set forth in Section 9.2. The resolutions of the
Board shall be adopted in accordance with this Contract, the Articles of Association
and applicable Law.
	 
	 	(b)  	Decisions with respect to the following matters shall require the unanimous
approval of all directors present and voting in person or by proxy at a duly convened
meeting of the Board or by unanimous written resolution of all of the members of the
Board:

	 	(i)  	increases or decreases in the Registered Capital or any
Transfer of either Party’s Equity Interest;
	 
	 	(ii)  	merger with other companies, division of the Company or change
in the form of organization of the Company;
	 
	 	(iii)  	suspension of the business operations of the Company,
termination or dissolution of the Company or extension of the JV Term; and
	 
	 	(iv)  	amendment of the Articles of Association.

	 	(c)  	Affirmative vote of at least four (4) or more directors, present at a duly
convened meeting of the Board or a unanimous written resolution of all of the members
of the Board shall be required before any decision is made concerning the following
matters:

	 	(i)  	any transaction between the Company and a related party of
Party A or Party B;
	 
	 	(ii)  	determination of the Company’s strategy, development direction
and short-term and long-term development plans within the approved Business
Scope of the Company;

 

 

  26

	 	(iii)  	determination and amendment of the Company’s Annual Plan (as
defined herein);
	 
	 	(iv)  	examination and determination of the Company’s basic management
system proposed by the General Manager;
	 
	 	(v)  	entering into an amendment of any Relevant Contract to which
the Company is a party;
	 
	 	(vi)  	in accordance with Section 9.3, appointment or dismissal of
Senior Management Staff pursuant to nomination by the Parties and determination
of the terms of employment and remuneration policy of the Senior Management
Staff;
	 
	 	(vii)  	determination of the engagement and dismissal, performance
evaluation, remuneration policy and other matters related to the Independent
Auditor;
	 
	 	(viii)  	determination of the wages and welfare policies of the Company’s employees
and adoption of the annual human resource recruitment plan formulated by the
General Manager;
	 
	 	(ix)  	determination of the establishment of bank accounts within or
outside the PRC or the development of any financial or banking relationships;
	 
	 	(x)  	determination of the entering into, revision or termination of
any business contract to which the Company is a party and with a value greater
than or equal to US$1,000,000, if such contract is within the scope of the
Annual Plan, or greater than or equal to US$10,000, if such contract is outside
the scope of the Annual Plan;
	 
	 	(xi)  	determination of the amount and timing to allocate funds to, or
draw funds from, the employee bonus and welfare fund, the enterprise expansion
fund and reserve fund (collectively, the “Three Funds”) set forth in
Section 10.8;
	 
	 	(xii)  	determination of the entering into, revision or termination of
any agreement with respect to or that includes any provision with respect to
any loan or guarantee not covered by the annual development plan or financial
plan adopted by the Board;
	 
	 	(xiii)  	approval of the purchase, disposal or expenditure of the Company’s assets
that are not included in (1) the regular business of the Company; or (2) the
Annual Plan approved by the Board; and
	 
	 	(xiv)  	exercise of other rights and duties authorized by the
Company’s Articles of Association or Laws of the PRC.

	 	(d)  	Decisions with respect to taking any legal action or proceedings against either
Party (the “Interested Party”) or any of such Party’s Affiliates in connection
with the breach by the Interested Party or any of its Affiliates of any Relevant
Contract to which it is a party or any other contract entered into by the

 

 

  27

	 	   	Interested Party or any of its Affiliates with the Company shall only require the
affirmative vote of all of the directors appointed by the Party who is not the
Interested Party present at a duly convened meeting of the Board or a written
resolution of all such directors.

	8.4.  	Deadlocked Matters

	 	(a)  	If the Board is unable to pass a resolution on the matters described in
Sections 8.3(b)(i), 8.3(b)(ii), 8.3(b)(iii) or 8.3(c)(ii) (the “Deadlocked
Matter”) in any two (2) successive meetings of the Board or within sixty (60) days
after any one Board meeting at which the Deadlocked Matter is proposed and no
resolution is passed, whichever is shorter, the disagreement with respect to such
matter shall be resolved pursuant to the procedures set forth in this Section 8.4.
	 
	 	(b)  	Within (i) ten (10) Business Days after the date of the second successive
meeting of the Board at which the Board failed to pass a resolution with respect to any
Deadlocked Matter or (ii) the end of the sixty (60) day period referred to in Section
8.4(a), whichever is earlier, either Party (the “Electing Party”) may deliver a
deadlock notice (the “Deadlock Notice”) to the other Party (the
“Non-Electing Party”) stating that it has elected to invoke the escalation
procedures with respect to the relevant Deadlocked Matter and setting forth the name
and contact details of the senior executive of the Electing Party to whom the
resolution of the Deadlocked Matter will be escalated.
	 
	 	(c)  	Within ten (10) Business Days after the date of delivery of the Deadlock Notice
(the “Deadlock Notice Date”), the Non-Electing Party shall deliver a notice to
the Electing Party setting forth the name and contact details of the senior executive
of the Non-Electing Party to whom the resolution of the Deadlocked Matter will be
escalated. Within twenty (20) Business Days after the date of delivery of a Deadlock
Notice, the designated senior executives of Party A and Party B shall meet, either in
person or by telephone, to attempt to resolve the relevant Deadlocked Matter.
	 
	 	(d)  	If the designated senior executives are unable to reach an agreement on the
relevant Deadlocked Matter within a period of forty (40) Business Days after the
Deadlock Notice Date and the failure to resolve such Deadlocked Matter materially
impairs the operation of the Company, the following procedures shall apply:

	 	(i)  	During the period commencing forty-five (45) Business Days
after the Deadlock Notice Date and ending ninety (90) Business Days after the
Deadlock Notice Date (the “Deadlock Put Option Period”), Party B shall
have the right to exercise the Party B Put Option in accordance with the
procedures set forth in Section 5.7; and
	 
	 	(ii)  	If Party B elects not to exercise the Party B Put Option during
the Deadlock Put Option Period, both Parties shall cause the directors
appointed by them to the Board to vote unanimously to terminate and liquidate
the Company pursuant to Sections 16.2, 16.3 and 16.4.

 

 

  28

	8.5.  	Legal Representative and Performance on Behalf of Legal Representative

	 	(a)  	The Chairman shall be the legal representative of the Company. The Chairman
shall have the powers and responsibilities set forth in this Contract and the Articles
of Association, shall have the scope of authority expressly authorized by the Board,
and shall represent the Company for service of process.
	 
	 	(b)  	If the Chairman is temporarily unable to perform his or her duties for any
reason, the Vice Chairman shall perform the duties of the Chairman on his or her
behalf. Should both the Chairman and the Vice Chairman be temporarily unable to
perform their duties for any reason, the remaining directors shall choose a director to
perform the duties of the Chairman by simple majority vote. If the remaining directors
are unable to agree as to which director shall perform the duties of the Chairman
within ten (10) Business Days, the Party who appointed the current Chairman shall have
the right to choose the director who shall perform the duties of the Chairman during
such time.

	8.6.  	Board Meetings and Board Resolutions

	 	(a)  	Regular meetings of the Board shall be held at least once a year and shall be
convened and presided over by the Chairman. The Chairman shall send a written notice to
all directors specifying the subject matter for discussion, date and venue of each
regular meeting one (1) month prior to the scheduled date of such regular meeting, or a
shorter period of time prior to such date upon the approval of the Chairman and the
Vice Chairman in case of emergency.
	 
	 	(b)  	Special meetings of the Board shall be convened by the Chairman at any time on
his own motion or on the written request of any two directors (a “Special Meeting
Request”). The Chairman shall send a notice of a special Board meeting to all
other directors within three (3) days after receipt of a Special Meeting Request. Such
meeting shall be convened within fifteen (15) days after receipt of such Special
Meeting Request by all other directors.
	 
	 	(c)  	Two-thirds (2/3) or more of all the directors (including those appointed by
proxy) shall constitute a quorum for any board meeting. If such a quorum is not
present within two (2) hours after the time appointed for the commencement of the
meeting, the meeting shall be adjourned to such place and time (which is at least ten
(10) days later or such earlier date as shall be agreed by all the directors on the
Board in writing) as the directors who did attend shall decide. If a quorum is not
present within two (2) hours after the time appointed for the commencement of such
adjourned meeting, any number of directors present shall be constitute a quorum. A
director who is unable to attend a meeting in person may entrust in writing a proxy to
attend and to vote at the meeting on his or her behalf. Such proxy shall have the same
rights and powers as the director by whom he or she has been entrusted. Delivery of a
proxy by facsimile shall be effective for this purpose. A proxy need not be a director
of the Company. A director may be appointed as proxy for another director, and the
same person may be appointed as proxy for more than one director. A proxy shall have
one vote for each director whom he represents,

 

 

  29

	 	   	and shall also be entitled to cast one vote in his own behalf if he is, in addition,
a director in his own right.
	 
	 	(d)  	Any director who wishes to add subject matters to the agenda of a Board meeting
upon receipt of such meeting notice as specified in paragraph (a) shall notify the
Chairman in writing at least three (3) Business Days prior to the date of the meeting.
	 
	 	(e)  	Board meetings shall in principle be held at the legal address of the Company,
but may be held at any other location upon the approval of two-thirds (2/3) or more of
all directors.
	 
	 	(f)  	Minutes of the Board meetings shall be recorded in both English and Chinese.
All resolutions of the Board shall be included in the minutes, which shall be kept by
the Company for ten (10) years. Directors and proxies present at the meeting shall
sign their names on the minutes for such meeting.
	 
	 	(g)  	Any action that may be taken at any Board meeting may be taken without a
meeting if all directors consent to such action in writing. For any such action to be
taken in writing in accordance with this Section 8.6(g), a draft resolution shall be
formulated by the Chairman and the Vice Chairman and circulated to all directors for
review. All the directors, within three (3) days of receipt after such draft
resolution, shall date, approve or disapprove, sign such draft resolution and return
the same to the Chairman. All written resolutions shall be passed only by a unanimous
affirmative vote of all the directors.
	 
	 	(h)  	Board meetings may be held by telephone, videoconference or any other means of
contemporaneous communication so long as all directors taking part in a meeting so held
are able to hear each other at all times. Participation by a director or his proxy at
a meeting by such means shall be deemed to constitute presence of such director or his
proxy in person at a meeting.
	 
	 	(i)  	Reasonable expenses incurred by directors and their proxies for travel,
accommodation, and meals in connection with any Board meeting, and all expenses in
connection with the meeting, shall be borne by the Company.

	9.  	Business Management
	 
	9.1.  	Establishment and Composition of the Management Organization of the Company

	 	(a)  	The Company shall establish a management organization under the Board in charge
of the daily business operation and management of the Company.
	 
	 	(b)  	The management organization shall consist of one (1) of each of the following
positions: General Manager, Deputy General Manager, Human Resources Manager, Finance
Manager, Purchasing and Service Manager, Manufacturing Manager, Sales and Marketing
Manager and Internal Audit Manager (collectively, the “Senior Management
Staff”).
	 
	 	(c)  	The General Manager and the Deputy General Manager shall be appointed by Party
A and Party B on a rotating basis at the end of every fourth year during

 

 

  30

	 	   	the JV Term. During the first four (4) years of the JV Term commencing on the
Establishment Date, Party B shall have the right to nominate the General Manager and
Party A shall have the right to nominate the Deputy General Manager. The Board shall
appoint the General Manager and the Deputy Manager pursuant the nominations of the
Parties.
	 
	 	(d)  	If Party A, through its appointed directors, proposes a Board resolution
canceling the General Manager rotation system and granting Party B the right to appoint
the General Manager for the entirety of the JV Term, each Party shall cause its
respective directors to vote in favor of such resolution. Upon the adoption of such
resolution by the Board and the completion by the Parties and the Company of all
actions required to fully implement such resolution (including amending this Contract
and the Articles of Association and obtaining all governmental approval for such
amendments), then Party B’s right to exercise the Party B Put Option in accordance with
Section 5.7(a)(i) shall terminate.
	 
	 	(e)  	The General Manager and the Deputy General Manager shall not concurrently serve
as the General Manager or the Deputy General Manager of any other enterprise within the
PRC, and shall not engage, either on his or her own or through any third party, in the
production, marketing, sale or export of any products in competition with the Company.
	 
	 	(f)  	Any member of the Senior Management Staff may resign or quit his or her office
by giving one (1) month prior written notice to the Company. In such instance, the
original appointing Party shall appoint a replacement to serve the remainder of the
term of such member of the Senior Management Staff.

	9.2.  	Rights and Responsibilities of the General Manager

	 	(a)  	Under the leadership of the Board, the General Manager shall be responsible for
the day-to-day operations of the Company. Not less than three (3) months prior to the
end of each Financial Year (the “Current Financial Year”) during the JV Term,
or such other time as agreed by the Board, the General Manager shall submit an annual
budget and business plan (the “Annual Plan”) for the next Financial Year (the
“Relevant Financial Year”) to the Board for its approval. The General Manager
shall collaborate with the Deputy General Manager and the other Senior Management Staff
in the formulation of the Annual Plan. The Annual Plan shall set forth in detail with
respect to the Relevant Financial Year (a) the annual operating and capital budgets for
the Company, (b) the Company’s marketing strategy and (c) analysis of any other issues
relevant to the operation and performance of the Company for the Relevant Financial
Year as requested by the Board or determined by the General Manager in collaboration
with the Deputy General Manager and the other Senior Management Staff.
	 
	 	(b)  	The General Manager shall exercise the rights and responsibilities conferred
upon him by this Contract, the Articles of Association and/or the Board. The rights
and responsibilities that may be exercised by the General Manager on behalf of the
Company without Board approval include the following:

 

 

  31

	 	(i)  	leading the Company’s production operations, marketing, sales
and management and implementing the resolutions of the Board with respect
thereto;
	 
	 	(ii)  	implementing the Company’s Annual Plan as approved by the
Board;
	 
	 	(iii)  	supervising and overseeing the other members of the Senior
Management Staff;
	 
	 	(iv)  	formulating the Company’s detailed rules and regulations;
	 
	 	(v)  	appointing or dismissing management personnel other than those
required to be appointed or dismissed by the Board or the Parties;
	 
	 	(vi)  	determining the Company’s day-to-day internal management
system, organization and standing rules;
	 
	 	(vii)  	determining the entering into, revision or termination of any
business contract to which the Company is a party and with a value less than
US$1,000,000, if such contract is within the scope of the Annual Plan, or less
than US$10,000, if such contract is outside the scope of the Annual Plan;
provided that the General Manager shall report to the Board of Directors
regarding the entering into, revision or termination of any contract that is
outside the scope of the Annual Plan at the first Board meeting occurring after
the entering into, revision or termination of such contract;
	 
	 	(viii)  	other rights and responsibilities conferred by the Articles of Association or
the Board.

	 	(c)  	In exercising the rights and responsibilities conferred upon him by this
Contract, the Articles of Association and/or the Board, the General Manager shall
regularly and actively collaborate and consult with the Deputy General Manager and the
other Senior Management Staff.
	 
	 	(d)  	Following such collaboration and consultation, the General Manager shall reach
a decision and shall be responsible for the day-to-day implementation of such decision.
	 
	 	(e)  	If the Deputy General Manager, acting in good faith and in exercising his
fiduciary duty, disagrees with the decision of the General Manager, the Deputy General
Manager may bring such decision to the Board for review.
	 
	 	(f)  	If the Board determines that the decision reached by the General Manager which
has been brought to its attention by the Deputy General Manager requires any action by
the Board, the Board may undertake such action in accordance with Section 8.6 of this
Contract.
	 
	 	(g)  	Until such time that the Board adopts a resolution modifying, amending,
reversing or otherwise acting upon a decision of the General Manager made within the
scope of the rights and responsibilities conferred upon him by this Contract, the
Articles of Association and/or the Board, such decision of the

 

 

  32

	 	   	General Manager shall remain valid and in effect, and the Deputy General Manager and
other members of the Senior Management Staff shall implement such decision in good
faith. In the event the Board modifies, amends or reverses any decision made by the
General Manager which was made within the scope of the rights and responsibilities
conferred upon him by this Contract, the Articles of Association and/or the Board,
the General Manager shall have no liability to the Company with respect to such
decision.
	 
	 	(h)  	The General Manager and the Deputy Manager shall have the right to attend all
meetings of the Board. If the General Manager or the Deputy Manager has been appointed
as a member of the Board, he or she shall have the right to vote at such Board meeting.
	 
	 	(i)  	The Party appointing the General Manager or the Deputy General Manager may
replace such General Manager or Deputy General Manager by giving written notice to the
Board. A successor shall then be appointed by the original appointing Party pursuant
to Section 9.1 to serve the remainder of the term of the dismissed General Manager or
Deputy General Manager.

	9.3.  	Appointment of Senior Management Staff

	 	(a)  	The Human Resources Manager, the Finance Manager and the Purchasing and Service
Manager shall be nominated by Party A and appointed by the Board.
	 
	 	(b)  	The Manufacturing and Operation Manager, Sales and Marketing Manager and
Internal Audit Manager shall be nominated by Party B and appointed by the Board.

	9.4.  	Changes to Senior Management Staff

	 	(a)  	At the first meeting of the Board convened during each calendar year, each
Party shall have the right (but not the obligation) to submit a written notice to the
Board directing that the other Party replace certain members of the Senior Management
Staff, including the General Manager and the Deputy General Manager, appointed by such
other Party. In such case, the Board shall dismiss each member of the Senior
Management Staff named in the notice, and the original appointing Party shall have the
right to nominate a successor to complete the term of each such dismissed member of the
Senior Management Staff. All such appointments of successors shall occur as soon as is
reasonably possible following such Board meeting, and in no case longer than ninety
(90) days following such Board meeting.
	 
	 	(b)  	In addition to each of the Parties’ right to direct the removal of any Senior
Management Staff set forth in Section 9.4(a) above, the Board may terminate the
employment of any Senior Management Staff at any time under the following
circumstances:

	 	(i)  	such Senior Management Staff has committed a criminal offense
and has been found guilty by a court of law having the appropriate
jurisdiction;

 

 

  33

	 	(ii)  	such Senior Management Staff: (1) is in serious dereliction of
duty; (2) engages in wanton or reckless behavior that causes, or threatens to
cause, serious injury to persons or damage to property; or (3) engages in
deceitful behavior for personal interests;
	 
	 	(iii)  	such Senior Management Staff is prohibited by Law from
fulfilling his her duties;
	 
	 	(iv)  	such Senior Management Staff fails to comply with the terms of
his employment contract; or
	 
	 	(v)  	such Senior Management Staff fails to perform the required
duties as a result of illness or other reasons.

	 	   	Upon dismissal of any Senior Management Staff in accordance with this Section 9.4, a
successor shall be appointed by the original appointing Party to serve the remainder
of the term of the dismissed Senior Management Staff.

	9.5.  	Remuneration of Senior Management Staff
	 
	   	The Company shall compensate the Senior Management Staff in accordance with the then
applicable local compensation standards, taking into account the standards of other foreign
invested enterprises engaging in an industry similar to the Company in Yizheng and Beijing.
	 
	10.  	Financial Management
	 
	10.1.  	Financial Accounting System

	 	(a)  	The Company shall establish an independent financial and accounting system and
shall prepare financial statements in accordance with the Enterprise Accounting System
Regulations (enacted by the Ministry of Finance on December 29, 2000), other relevant
Law, the particular circumstances of the Company, and, to the extent permitted by
applicable PRC Laws, those methods and principles that are consistent with the
generally accepted accounting principles in the United States of America and the
operating and financial procedures and requirements of the Parties.
	 
	 	(b)  	The Company’s financial management rules shall be formulated and adopted by the
Board based on the recommendations of the General Manager.

	10.2.  	Financial Year
	 
	   	The financial year of the Company (the “Financial Year”) shall be the calendar year.
The first Financial Year shall commence from the Establishment Date of the Company and end
on December 31 of the same year. The last Financial Year shall end on the date of
dissolution of the Company.
	 
	10.3.  	Financial Reporting

	 	(a)  	The Company shall use RMB as the base currency in its bookkeeping, and US
Dollars may be used concurrently with RMB.

 

 

  34

	 	(b)  	The Company shall maintain accounts in accordance with the generally accepted
accounting principles in the PRC and concurrently prepare another set of account books
adjusted in accordance with the generally accepted accounting principles in the United
States of America.
	 
	 	(c)  	All vouchers, book accounts, financial statements and other accounting records
of the Company shall be prepared and kept in Chinese. Accounting reports and annual
financial statements to be submitted to the Parties or the Board shall be prepared and
kept in both Chinese and English.
	 
	 	(d)  	The Company shall, within five (5) days after the beginning of each calendar
month, report its monthly business status (sales, production, inventory, profit and
loss, etc.) of the preceding month to the Parties in both Chinese and English.
	 
	 	(e)  	The Company shall, within five (5) days after the beginning of each calendar
month, report its monthly financial statements for the preceding month to the Parties
in English and Chinese.
	 
	 	(f)  	The Company shall, within five (5) days after the beginning of each financial
quarter, report its quarterly financial statements of the preceding financial quarter
to the Parties, and to the relevant government department for finance, if necessary.
	 
	 	(g)  	Within fifteen (15) days after the end of each Financial Year, the Company
shall submit its pre-audited annual financial statements to the Parties. Within four
(4) months after the end of each Financial Year, the Company shall submit to the
Parties and relevant government financial departments, its formal financial statements
and audit report issued by a certified public accountant registered in PRC.
	 
	 	(h)  	The Company shall for the entire JV Term keep all annual accounting reports,
annual financial statements and audit reports.

	10.4.  	Internal Audit Manager
	 
	   	The Internal Audit Manager of the Company shall:

	 	(a)  	report to the General Manager;
	 
	 	(b)  	have unrestricted access to all the books and accounting records of the
Company, whether historical or present;
	 
	 	(c)  	have the right to review and comment upon all financial statements of the
Company prior to the provision of such statements to the Board or the independent
auditor of the Company (the “Independent Auditor”) and to present his audit
opinion to the General Manager and/or the Board; and
	 
	 	(d)  	have the right to present opinions to the General Manger and/or the Board
regarding whether business transactions entered into by the Company are fair and
balanced for the Company and the Parties.

 

 

  35

	10.5.  	Independent Auditor

	 	(a)  	The Independent Auditor shall be selected by the Board, and shall be an
individual (i) associated with an accounting firm established and registered in the PRC
by one of the four major international accounting firms, (ii) authorized to practice in
the PRC, and (iii) capable of performing accounting work meeting both PRC domestic
accounting standards and international standards and the procedures and requirements of
the Parties. The initial Independent Auditor shall be selected based upon the
affirmative vote of at least four (4) Board members present at the first Board meeting
of the Company. If the Board determines that the Independent Auditor is unable to meet
such standards, it may replace such Independent Auditor or retain another auditor, at
the Company’s expense, to supplement or adjust the work of the Independent Auditor or
to perform specific accounting or auditing tasks.
	 
	 	(b)  	Each Party shall have the right at any time to retain independent accountants
to audit the books and records of the Company at its own expense (unless the results of
any such audit are significantly different from that conducted by the Independent
Auditor and are accepted by the Board, in which case the expense shall be borne by the
Company). The Company shall extend full cooperation to any such accountants and shall
allow them full access to the books and records of the Company.

	10.6.  	Determination of Annual Budget in the Absence of a Board Resolution
	 
	   	If at a duly convened Board meeting, the Board is unable to pass a resolution on the
proposed Annual Plan submitted to it by the General Manager in accordance with Section
9.2(a), then within thirty (30) days of such meeting at which the Annual Plan for the
following Financial Year is proposed and no resolution is adopted, the Board shall convene a
second meeting to consider the proposed Annual Plan. If at such second meeting the Board is
unable to reach agreement with respect to the proposed Annual Plan, each Party shall cause
its respective directors to vote at such second meeting in favor of the adoption of an
Annual Plan pursuant to which the Company shall be operated in the following Financial Year
in accordance with the capital and operating budgets under which the Company was operated in
the current Financial Year, with an increase of ten percent (10%) in all approved
expenditures over those that appear in such capital and operating budgets.
	 
	10.7.  	Approval of Final Accounts
	 
	   	Within four (4) months after the end of each Financial Year, the General Manager shall
submit the following documents to the Board for approval: the financial statements,
statements of financial status, and plans for profit distribution or loss make-up of the
previous year, attached with the audit report of the Independent Auditor.
	 
	10.8.  	Profit Distribution
	 
	   	The Company shall adopt the following principles with respect to the distribution of
profits:

 

 

  36

	 	(a)  	The Company may not distribute profits until all losses from previous years
have been made up and the principal of, and all accrued interests on, any shareholder
loans have been repaid in full.
	 
	 	(b)  	The remaining amount after making up prior losses pursuant to the forgoing
provision shall be the pretax profits of the current year. The enterprise income tax
shall be paid from the pretax profits as required by relevant laws and regulations.
	 
	 	(c)  	The remaining amount after payment of the enterprise income tax pursuant to the
forgoing provision shall be the after-tax profits of the current year. Payments to the
Three Funds shall be made from the after-tax profits. The amount of payments to the
Three Funds shall be determined by the Board, but in no case shall exceed ten percent
(10%) of the after-tax profits. No payments shall be made to the Three Funds in years
where the Company does not realize a profit.
	 
	 	(d)  	Amounts remaining following the fulfillment of the requirements set forth in
paragraphs (a), (b) and (c) plus the profit brought forward from previous years shall
be the distributable profits, which shall be distributed in full to the Parties unless
otherwise decided by the Board.
	 
	 	(e)  	Distribution of profits specified in paragraph (d) shall be made in proportion
to the ratio of each Party’s respective actual contributions in the paid-up capital.
The Company shall remit such distribution into the bank accounts designated by the
Parties within one (1) month after the Board makes its determination regarding profit
distribution. Distributions to Party B shall be made in US Dollars. In case of a
shortage of foreign exchange reserves of the Company, the Company shall be responsible
for converting the dividends in Renminbi into US Dollars for Party B and shall remit
the same to Party B. Any loss in the exchange rate and charges accrued in the foreign
exchange conversion shall be borne by the Company.

	10.9.  	Loans
	 
	   	The Company may, based on business requirements and pursuant to applicable Law, open
Renminbi account(s) and foreign exchange account(s) with PRC or foreign financial
institutions that are authorized by the relevant authorities to conduct foreign exchange
business within PRC. The Company may also apply to borrow foreign exchange or Renminbi
within or outside China pursuant to relevant Law.
	 
	10.10.  	Insurance
	 
	   	All types of insurance of the Company shall be purchased from insurance companies authorized
to do business in the PRC, unless adequate coverage as determined by the Board cannot at any
time be obtained from such companies on internationally competitive terms, in which case the
Company shall apply to purchase such insurance from other insurance companies outside of the
PRC in accordance with Laws. The types of insurance, the insurance value, the insurance
term and other insurance matters shall, in accordance with relevant Law, be decided by the
Board.

 

 

  37

	10.11.  	Taxes
	 
	   	The Company shall pay taxes in accordance with relevant officially published Law. The
Parties shall assist the Company in applying to obtain the benefits for the Company, the
Parties and all of their personnel of all of the applicable tax exemptions, reductions,
privileges and preferences that are now or in the future become available under Law and
under any applicable treaties or international agreements to which the PRC may now be or may
hereafter become a party.
	 
	10.12.  	Individual Income Tax
	 
	   	The employees of the Company shall pay their individual income tax in accordance with
applicable PRC Law governing individual income taxes.
	 
	11.  	Foreign Exchange
	 
	11.1.  	Matters Relating to Foreign Exchange
	 
	   	All foreign exchange matters of the Company shall be handled in accordance with the
provisions of the Foreign Exchange Regulations and relevant officially published Laws.
	 
	11.2.  	Foreign Exchange Accounts
	 
	   	The foreign exchange funds of the Company shall be transferable into and outside of the PRC
and deposited in the foreign exchange account(s) established by the Company with approved
financial institutions within or outside of the PRC in accordance with the Foreign Exchange
Regulations. All foreign exchange payments of the Company shall be paid out of the
above-mentioned foreign exchange accounts in accordance with the Foreign Exchange
Regulations after the payment of any PRC taxes that may be applicable. Any fees or costs
(other than taxes) relating to the remittance abroad of such payments shall be borne by the
Company.
	 
	12.  	Labor Management
	 
	12.1.  	Labor Policies of the Company

	 	(a)  	All matters related to the employment, transfer, dismissal, resignation, wages,
welfare benefits, labor insurance, labor protection and labor discipline of labor
management by the Company shall be handled in accordance with applicable PRC Law and
the labor management policies and procedures approved by the Board. The estimated
number of employees necessary for the Company’s initial business operation shall be
stipulated in the Feasibility Study Report.
	 
	 	(b)  	The Company shall sign an individual labor contract with each of its staff and
workers (including the Plant Number 5 Employees). The form of the individual labor
contract shall be filed with the local labor department for the record if required by
applicable Law.

 

 

  38

	 	(c)  	The Company has the right to directly recruit, employ and dismiss all of its
employees. All employees of the Company shall be recruited through examination.
	 
	 	(d)  	The Company shall give priority to the recruitment of the employees of Party A
working in Plant Number 5 on or prior to the date of execution of this Contract (the
“Plant Number 5 Employees”). Those Plant Number 5 Employees who qualify for
employment by the Company and pass the examinations of the Company shall first
terminate their employment and labor contracts with Party A prior to being employed by
the Company. Party A shall be solely responsible for the payment of, and the Company
shall have no obligation with respect to the payment of, any and all of the employment
costs or severance payments to the Plant Number 5 Employees to be employed by the
Company which are associated with their employment by Party A prior to their employment
by the Company.
	 
	 	(e)  	During the JV Term:

	 	(i)  	Neither Party shall, without the prior written consent of the
other Party or the Company (as the case may be), directly or indirectly, (1)
hire or make any offer of employment, or cause others to hire or make any offer
of employment, to any person who is employed by the other Party, the Company or
any of their respective Affiliates, or (2) solicit or cause others to solicit,
attempt to influence, persuade or induce any employee of the other Party, the
Company or any of their respective Affiliates to terminate or leave his or her
employment or engagement thereby.
	 
	 	(ii)  	Except with respect to the Company’s employment of the Plant
Number 5 Employees pursuant to Section 12.1(d), the Parties shall ensure that
the Company shall not, without the prior written consent of the relevant Party
or its Affiliates, as the case may be, directly or indirectly, (1) hire or make
any offer of employment or cause others to hire or make any offer of
employment, to any person who is employed by such Party or any of its
Affiliates, or (2) solicit or cause others to solicit, attempt to influence,
persuade or induce any employee of such Party or any of its Affiliates to
terminate or leave his or her employment or engagement with such Party or any
of its Affiliates (as the case may be).

	12.2.  	Labor Productivity
	 
	   	After establishment of the Company, the Company shall increase per employee output so that
the productivity levels of the Company’s employees will be upgraded to globally competitive
levels as soon as reasonably possible.
	 
	12.3.  	Labor Protection, Environment, Health and Safety
	 
	   	The Company shall conduct regular examinations on the implementation of its labor
protection, environment, health and safety policies and report the results of such

 

 

  39

	   	examinations to the Board. The Company shall also carry out any necessary and appropriate
improvements and corrections to comply with such policies.
	 
	12.4.  	Labor Union

	 	(a)  	For so long as required by Law, the staff and workers of the Company shall have
the right to establish a trade union organization and conduct trade union activities in
accordance with applicable PRC Law.
	 
	 	(b)  	For so long as required by applicable Law, the Company shall pay each month an
amount equal to two (2) percent of the total amount of the actual wages received by the
PRC staff and workers of the Company for such month into the Company’s trade union fund
for such trade union’s use in accordance with the relevant procedures of the PRC for
the management of trade union funds.

	13.  	Technology Transfer
	 
	13.1.  	Party A Technology License
	 
	   	Within seven (7) days after the Establishment Date, Party A shall enter into the Asset
Contribution and Purchase Contract with the Company and Party B, whereby Party A shall grant
to the Company a license to use certain proprietary information and technology to
manufacture, produce, market and sell the JV Products during the JV Term and Party A shall
provide ongoing technical assistance with respect to the JV Products during the JV Term.
The terms and conditions of such license shall be specified in the Asset Contribution and
Purchase Contract.
	 
	13.2.  	Party B Technology License
	 
	   	Within seven (7) days after the Establishment Date, Party B and/or its Affiliate shall enter
into the Party B Technology License and Support Contract with the Company, whereby Party B
and/or its Affiliate shall grant to the Company a license to use certain proprietary
information and technology to manufacture and produce the JV Products at Plant Number 5 and
to market and sell the JV Products and Party B and/or its Affiliate shall provide ongoing
technical assistance with respect to the JV Products during the JV Term. The terms and
conditions of such license shall be specified in the Party B Technology License and Support
Contract.
	 
	14.  	Sales and Marketing of Products, Restrictions on Competition
	 
	14.1.  	Sales and Marketing
	 
	   	The Company shall be responsible for the sale of the JV Products within and outside China.
The Company shall directly enter into contracts with overseas clients and perform such
contracts concerning the export of the JV Products. The Company shall, in accordance with
the Sales Agency Contract stated in Section 6.1(i) of this Contract, appoint Party B or its
Affiliate, as the case may be, as the sales agent for the sale of the JV Products in Party
B’s Home Markets, as listed in Schedule 2 attached hereto, and shall pay a
commission to Party B or its Affiliate, as the case may be, which introduces purchasers of
the JV Products to the Company.

 

 

  40

	14.2.  	Restrictions on Competition; Right of First Refusal

	 	(a)  	Neither Party nor any Subsidiary of such Party other than the Company shall
produce, market or sell any POY, FDY or DTY products in the PRC (such limitation, the
“Restriction”), except under the following circumstances:

	 	(i)  	The Subsidiaries of Party A engaged in the production of POY,
FDY or DTY products on the Establishment Date shall not be subject to the
Restriction; provided that each such Subsidiary shall not be
permitted to increase its aggregate level of production of such products above
its original design capacity level (“Capacity Level”). Party A shall
provide to Party B on the date hereof a list (the “List,” attached as
Schedule 1 hereto ) of all Party A Subsidiaries engaged in production of POY,
FDY or DTY products and the relevant Capacity Level of each such Subsidiary as
of the date of the List, and shall cause such Subsidiaries not to produce such
products above the Capacity Level. Except in accordance with Section
14.2(a)(ii), increase by any Subsidiary of Party A of the aggregate production
level of such products above the Capacity Level for such Subsidiary shall be
deemed to be a material breach of this Contract by Party A.
	 
	 	(ii)  	Where either Party (the “Proposing Party”) wishes the
Company to increase the production level of any JV Products or to produce any
new POY, FDY or DTY products that are not JV Products (the
“Proposition”), it shall deliver a written notice (the “Production
Offer Notice”) to the other Party stating such desire and setting forth in
detail the Proposition, including the type of products included in the
Proposition, whether the product is a JV Product (if an increase in production
is desired) or a new product, the proposed terms and scope of the product to be
produced, the costs associated with such Proposition and the projected economic
benefits of such Proposition. The Production Offer Notice shall constitute a
binding offer by the Proposing Party as detailed therein. For a period of
sixty (60) days following receipt of the Production Offer Notice by the
non-Proposing Party, or such extended period as agreed in writing by both
Parties (the “Production Offer Negotiation Period”), the Parties shall
negotiate in good faith with respect to the proposal set forth in the
Production Offer Notice. If the Parties are unable to reach agreement during
the Production Offer Negotiation Period with respect to the Proposition, the
Proposing Party shall have the right to produce, market and/or sell the
products identified in the Production Offer Notice itself or through its
Affiliates and shall not be bound by the Restriction with respect to such
Proposition. If the Parties reach agreement with respect to the Proposition
pursuant to this Section 14.2(a)(ii), each Party shall cause its directors on
the Board to adopt such resolutions and take such necessary actions to
implement such agreement. The Restriction shall continue in effect for such
product included in the Proposition for which the Parties agree for the Company
to implement.

	 	(b)  	Where Party B desires, either directly or indirectly or through any Subsidiary
other than the Company, to sell any POY, FDY or DTY products in the PRC

 

 

  41

	 	   	produced by any Person other than the Company, it shall first provide a written
notice to the Company (i) stating its desire to sell such POY, FDY or DTY products
in the PRC, and (ii) setting forth the terms and conditions of such sale, including
quantity, price, product specifications and delivery date. The Company shall have a
right of first refusal to produce such POY, FDY or DTY products in accordance with
all material terms and conditions set forth in such written notice. If within ten
(10) Business Days of receipt of such written notice, the Company has not exercised
its right of first refusal, Party B shall have the right to sell such POY, FDY or
DTY products in the PRC in accordance with the terms and conditions set forth in
such written notice independent of the Company and the other Party.
	 
	 	(c)  	The Company shall not market or sell any POY, DTY or FDY products in the home
markets of Party B identified in Schedule 2 hereto without the prior written consent of
Party B.

	15.  	The Joint Venture Term
	 
	15.1.  	Initial Term
	 
	   	The term of operations of the Company (as extended from time to time, the “JV Term”)
shall initially be forty (40) years (the “Initial Term”), commencing from the
Establishment Date.
	 
	15.2.  	Extension
	 
	   	Prior to the expiry of the JV Term, including the Initial Term or any extension thereof, the
Parties may agree to extend such term, subject to the approval of the Examination and
Approval Authority and the relevant requirements of Laws. Negotiations for such extension
shall begin not later than one (1) year prior to the expiration of the JV Term. If the
Parties agree to extend the JV Term, an application for extension shall be filed with the
Examination and Approval Authority not later than six (6) months prior to the expiration of
the JV Term.
	 
	16.  	Termination and Liquidation
	 
	16.1.  	Termination as Agreed by Both Parties
	 
	   	The Parties may mutually agree in writing to terminate this Contract and dissolve the
Company at any time.
	 
	16.2.  	Events of Termination
	 
	   	The Company shall be dissolved upon the motion of a director appointed by either Party if
any of the conditions or events (each an “Event of Termination”) set forth below
shall occur and be continuing:

	 	(a)  	Upon the motion of a director appointed by either Party, if the Company is the
subject of proceedings for liquidation or dissolution required by Law or by a court or
initiated by a creditor(s) of the Company;

 

 

  42

	 	(b)  	Upon the motion of a director appointed by the solvent Party, if the other
Party becomes bankrupt or insolvent or file a petition seeking protection under any
bankruptcy, reorganization or insolvency Law;
	 
	 	(c)  	Upon the motion of a director appointed by either Party, if the Company has
sustained heavy losses for three (3) consecutive years, or the cumulative amount of
losses has exceeded fifty percent (50%) of the total registered capital of the Company,
whichever occurs first;
	 
	 	(d)  	Upon the motion of a director appointed by either Party, if all or any material
part of the key assets owned or leased by the Company are expropriated, causing an
adverse material effect on the operation and production of the Company;
	 
	 	(e)  	Upon the motion of a director appointed by either Party, if any government
authority with authority over either Party or the Company requires any provision of
this Contract or the Relevant Contracts to be revised in such a way that causes a
material adverse effect on the Company and, despite the best efforts of the Company to
remedy such situation, such material adverse effect cannot be cured within six (6)
months and at a cost not exceeding US$10,000,000;
	 
	 	(f)  	Upon the motion of a director appointed by the non-transferring Party, if any
Party transfers or attempts to transfer its Equity Interest in violation of the
provisions of this Contract;
	 
	 	(g)  	Upon the motion of a director appointed by either Party (the “Terminating
Party”), should any governmental authority having authority over either Party or
the Company issue any policy or Law or interpret any policy or Law in such a way that
may cause significant adverse consequences to the Company or the Terminating Party, if
the Terminating Party is unable to reach agreement with the other Party on amendments
to this Contract as are required to maintain the Terminating Party’s economic benefits;
	 
	 	(h)  	Upon the motion of a director appointed by the non-affected Party, should the
other Party not perform any of its material obligations under this Contract as the
result of an Event of Force Majeure affecting such Party that has continued for a
period of at least one hundred and eighty (180) days;
	 
	 	(i)  	Upon the motion of a director appointed by the non-breaching Party, if the
other Party breaches any of its material obligations under this Contract, or if the
other Party or any of its Affiliates breach any of the responsibilities or obligations
of such Party or its Affiliate set forth in any of the Relevant Contracts to which it
is a party, and such breach is not remedied within ninety (90) days after the date on
which a notice of such breach is delivered by the non-breaching Party to the breaching
Party;
	 
	 	(j)  	Upon the motion of a director appointed by the Party that has made its
contribution or has not been obligated to make its contribution because the conditions
precedent set forth in Section 5.4 have not been met or waived by the relevant Party,
if the relevant Party fails to make its contributions in

 

 

  43

	 	   	accordance with the provisions of Section 5 of this Contract, where such failure is
not remedied by the date that is ninety (90) days after the Establishment Date;
provided that the conditions precedent for such contribution set forth in Sections
5.4(a) and 5.4(b) have been met or waived by the relevant Party;
	 
	 	(k)  	Upon the motion of a director appointed by either Party, should any Deadlocked
Matter not be resolved pursuant to Section 8.4 and without resolution of such
Deadlocked Matter the operation of the Company will be materially impaired; or
	 
	 	(l)  	Upon the motion of a director appointed by either Party, if a relevant
government authority issues a binding order to cease operations because of serious
violations by the Company of PRC Law.

	   	If a director makes a motion to dissolve the Company pursuant to an Event of Termination
listed in this Section 16.2 or a right granted elsewhere in this Contract, each Party shall
cause the other directors appointed by it to adopt a resolution in favor of the dissolution
of the Company.
	 
	16.3.  	Buyout Option

	 	(a)  	If the Board adopts a resolution pursuant to Section 16.2 to dissolve the
Company, either Party shall have the right, within ten (10) Business Days after such
resolution, to deliver a Valuation Notice to the Other Party thereby invoking the
valuation procedures set forth in Section 17.
	 
	 	(b)  	After the determination of the Final FMV pursuant to Section 17, either Party
(whether or not such Party issued the Valuation Notice) (the “Purchasing
Party”) shall have the right within thirty (30) Business Days after such date of
determination to issue a notice (the “Buyout Notice”) to the other Party (the
“Selling Party”) stating that it intends to purchase the entire Equity Interest
of the Selling Party (the “Purchased Equity Interest”) at a purchase price
equal to the Final FMV multiplied by the percentage of the Company’s total equity
interests held by the Selling Party as of the date of the Buyout Notice (the
“Buyout Price”), and the Selling Party shall be obligated to sell the Purchased
Equity Interest to the Purchasing Party at the Buyout Price.
	 
	 	(c)  	In the event that each Party issues a Buyout Notice to the other Party, within
ten (10) Business Days from the date on which the second Buyout Notice was delivered,
the Parties shall negotiate in good faith the additional amount (the “Premium”)
that each Party is willing to pay for the Purchased Equity Interest. In the event the
Parties are unable to reach an agreement on the Premium payable for the Purchased
Equity Interest within such ten (10) Business Day period, the Parties shall each submit
a proposal for the Premium in a sealed envelope to the Independent Auditor on the
fifteenth (15) Business Day after the date on which the second Buyout Notice was
delivered. The Party offering the highest Premium shall have the right to purchase the
Purchased Equity Interest at the Buyout Price plus such Premium (the “Final Equity
Interest Purchase Price”).

 

 

  44

	 	(d)  	Within ten (10) Business Days (i) after the date of delivery of the Buyout
Notice pursuant to Section 16.3(a), if only one Buyout Notice was delivered or (ii)
after the date the Premium is determined as set forth in Section 16.3(c) above if two
Buyout Notices were delivered, the Purchasing Party and the Selling Party shall execute
an equity interest transfer contract with respect to the purchase by the Purchasing
Party of the Purchased Equity Interest at the Buyout Price or the Final Equity Interest
Purchase Price, as the case may be.
	 
	 	(e)  	The Parties shall thereafter terminate this Contract and amend the Articles of
Association to reflect the change in the equity interests in the Company subsequent to
the completion of the relevant equity interest transfer contract and to reflect changes
in the composition of the Board. Each Party shall promptly cause the directors on the
Board appointed by it to vote in favor of a resolution approving the Transfer. If any
director does not vote in favor of such resolution, the Party that appointed such
director shall promptly remove and replace such director and cause the newly appointed
director to vote in favor of the resolution approving the Transfer. The Parties shall
(i) cause the Company to apply to the relevant governmental authorities for approval of
the transfer and the amendments to the Articles of Association, (ii) in the case of a
Transfer by Party B to Party A, cause the Company to apply to be converted from a
Chinese-foreign equity joint venture company into a non-foreign invested domestic
enterprise, (iii) in the case of a Transfer by Party A to Party B, cause the Company to
apply to be converted from a Chinese-foreign equity joint venture into a wholly
foreign-owned enterprise, (iv) cause the Company to apply for the issuance of a new
Business License reflecting the relevant changes in the particulars of the Company set
forth in the amendments to the Articles of Association, and (v) use their respective
best efforts to assist the Company to obtain all such approvals and the issuance of
such license.
	 
	 	(f)  	In the event that neither Party issues a Buyout Notice in accordance with this
Section 16.3, the Company shall be dissolved in accordance with the provisions of
Section 16.4.

	16.4.  	Liquidation Procedures

	 	(a)  	The dissolution and liquidation of the Company shall be conducted in accordance
with then applicable PRC Law and the provisions of this Contract and the Articles of
Association.
	 
	 	(b)  	If the termination of the Company results from a merger, consolidation or other
business combination with another Person, the assets and liabilities of the Company
shall be transferred, assumed and valued as provided in the contractual arrangements
with respect to such merger, consolidation or other business combination and applicable
PRC Law.
	 
	 	(c)  	When the dissolution of the Company occurs otherwise than under the
circumstances set forth in Section 16.4(b), the Board shall formulate liquidation
procedures and principles, publish an announcement of the liquidation in accordance
with relevant regulations, provide written notice of the liquidation to creditors of
the Company and establish a liquidation committee (the “Liquidation
Committee”). The Liquidation Committee shall

 

 

  45

	 	   	be composed of four (4) members. Each Party shall have the right to appoint two (2)
members of the Liquidation Committee. Subject to the provisions of Section 16.3,
within ten (10) Business Days after the Board adopts a motion to dissolve the
Company, each Party shall deliver a notice to the other Party stating the names of
the members that it has appointed to the Liquidation Committee pursuant to its right
set forth in this Section 16.4(c) and shall attach to such notice documentation
evidencing that each such member has consented to serve on the Liquidation
Committee. If either Party (the “Non-Appointing Party”) fails to deliver
such notice within such ten (10) Business Day period, then the other Party shall
have the right to appoint each member that has not been appointed within such ten
(10) Business Day period by the Non-Appointing Party. Each member of the
Liquidation Committee shall have one (1) vote. A quorum for convening a meeting of
the Liquidation Committee shall be three (3) members. If such quorum is not present
within one (1) hour after the time appointed for the commencement of the meeting,
the meeting shall be adjourned to such place and time (which is at least ten (10)
days later or such earlier date as shall be agreed by all of the members of the
Liquidation Committee) as the members who did attend shall decide. If a quorum is
not present within one (1) hour after the time appointed for such adjourned meeting,
any number of members of the Liquidation Committee shall constitute a quorum. All
decisions of the Liquidation Committee shall be adopted by simple majority vote.
The Company shall deliver to each member of the Liquidation Committee written notice
of each meeting of the Liquidation Committee at least ten (10) Business Days prior
to the date of such meeting or such shorter period as agreed by all of the members
of the Liquidation Committee.
	 
	 	(d)  	The tasks of the Liquidation Committee shall be to conduct a thorough survey of
the property, claims and debts of the Company, draw up a balance sheet and inventory of
assets of the Company, propose a basis for the valuation of the Company and formulate a
liquidation plan, all of which shall be implemented after it has been submitted to and
adopted by the Board. The approved liquidation plan shall be submitted to the
Examination and Approval Authority for the record.
	 
	 	(e)  	During the period of liquidation, the Liquidation Committee shall represent the
Company in any legal proceeding.
	 
	 	(f)  	The expenses of liquidation and the remuneration of the members of the
Liquidation Committee shall be paid with priority from the existing assets of the
Company.
	 
	 	(g)  	After payment of third party claims, the balance of liquidation proceeds shall
be distributed to the Parties in proportion to their respective contributions to the
Registered Capital.
	 
	 	(h)  	After the liquidation of the Company is completed, the Liquidation Committee
shall promptly submit a report thereon to a meeting of the Board for approval and
submission to the Examination and Approval Authority for the record. The Liquidation
Committee shall then carry out the procedures for turning in

 

 

  46

	 	   	the Company’s Business License and canceling its registration at SAIC, and at the
same time, make a public announcement of such actions.

	17.  	Valuation
	 
	17.1.  	Valuation Procedures
	 
	   	Upon the delivery of the Valuation Notice by (i) Party B pursuant to Section 5.7 or (ii)
either Party pursuant to Section 16.3, the following procedures shall be used to determine
the fair market value of the Company:

	 	(a)  	Within ten (10) Business Days after the date of delivery of the Valuation
Notice, either Party may deliver a notice (an “Appointment Notice”) to the
other Party appointing China Enterprise Appraisals Co., Ltd. or its successor entity
(“CEA”) to conduct an appraisal of the Company to determine its fair market
value (the “Initial FMV”). CEA shall provide both Parties with an appraisal
report within thirty (30) days after the date of its Appointment Notice. The Company
shall bear all costs and expenses associated with such appraisal. Within five (5)
Business Days after the receipt of such appraisal report, each Party shall provide the
other Party with a written notice indicating whether such Party accepts the Initial FMV
as determined by CEA. If either Party fails to deliver such notice within such five
(5) Business Day period, it shall be deemed to have accepted the Initial FMV. If both
Parties accept the Initial FMV, then the Initial FMV shall be the final fair market
value of the Company (the “Final FMV”).
	 
	 	(b)  	If either Party does not accept the Initial FMV, then the Final FMV shall be
determined as follows:

	 	(i)  	The Party that does not accept the Initial FMV
shall promptly appoint an independent and reputable Chinese-foreign
joint venture accounting firm registered in the PRC (each an
“Appraiser”) to conduct a second appraisal of the fair market
value of the Company (the “Second FMV”). The Appraiser
selected to determine the Second FMV shall be referred to as the
“Second Appraiser.” The Second Appraiser shall provide both
Parties with an appraisal report within thirty (30) days after the date
of its appointment. The Party appointing the Second Appraiser shall
bear all costs and expenses associated with such appraisal.
	 
	 	(ii)  	If the difference between the Initial FMV and
the Second FMV is less than or equal to ten percent (10%) of the lower
of the Initial FMV and the Second FMV, then the Final FMV shall be
equal to the average of the Initial FMV and the Second FMV.
	 
	 	(iii)  	If the difference between the Initial FMV and
the Second FMV is greater than ten percent (10%) of the lower of the
Initial FMV and the Second FMV, then CEA and the Second Appraiser
appointed in accordance with Section 17.1(b)(i) shall, within five (5)
Business Days after the date on which the second appraisal report was
delivered to both Parties, jointly

 

 

  47

	 	   	appoint a third Appraiser (the “Third Appraiser”) to
undertake an appraisal of the fair market value of the Company (the
“Third FMV”).
	 
	 	(iv)  	If pursuant to Section 17.1(b)(ii), the two
firms are unable to agree on the Third Appraiser within such five (5)
Business Day period, the Independent Auditor of the Company shall
promptly select a third Appraiser to determine the Third FMV. Each
Party shall have the right to present its opinion to the Independent
Auditor regarding the selection of the Third Appraiser. The Third
Appraiser selected by the Independent Auditor must be a qualified
appraisal firm which has not had any significant prior relationship
with either Party or its Affiliates. The Third Appraiser shall provide
both Parties with an appraisal report within thirty (30) days after the
date of its appointment. The Company shall bear all costs and expenses
associated with such appraisal.
	 
	 	(v)  	If the Third FMV as determined in accordance
with Section 17.1(b)(iii) or 17.1(b)(iv), as the case may be, falls
within the range between the Initial FMV and the Second FMV, then the
Third FMV shall be the Final FMV. If the Third FMV falls outside the
range between the Initial FMV and the Second FMV, then the Final FMV
shall be equal to the average of (1) the Third FMV and whichever of (2)
the Initial FMV, or (3) the Second FMV, is closer to the Third FMV.

	 	(c)  	If neither Party A nor Party B accepts the Initial FMV as determined by CEA in
accordance with Section 17.1(a), then the Initial FMV shall be disregarded and the
Final FMV shall be determined as follows:

	 	(i)  	The Parties shall consult for a period of five (5) Business
Days to appoint an Appraiser to conduct an appraisal of the fair market value
of the Company. If the Parties agree upon an appraisal firm during such five
(5) Business Day period, the Parties shall promptly appoint such firm as the
Appraiser. The Company shall bear all costs and expenses associated with such
appraisal. The Appraiser shall provide both Parties with an appraisal report
within thirty (30) days after the date of its appointment. The fair market
value of the Company as determined by the Appraiser shall be the Final FMV.
	 
	 	(ii)  	If the Parties are not able to agree upon an appraisal firm
during the five (5) Business Day period set forth in Section 17.1(c)(i) above,
then each Party shall promptly deliver a notice to the other Party appointing
an Appraiser to determine the fair market value of the Company. If either
Party fails to deliver such a notice within fifteen (15) Business Days after
CEA has delivered its appraisal report to both Parties in accordance with
Section 17.1(a), it shall be deemed to have waived its right to appoint an
Appraiser, and the Appraiser appointed by the other Party shall be promptly
appointed by the Company to determine the Final FMV.

 

 

  48

	 	(iii)  	If each of Party A and Party B appoints an Appraiser pursuant
to Section 17.1(c)(ii), then each of the two Appraisers appointed shall
independently undertake an appraisal of the fair market value of the Company
(the “Preliminary FMV”) and shall provide both Parties with an
appraisal report specifying the Preliminary FMV as determined by such Appraiser
within thirty (30) days after the date of its appointment. Each Party shall
bear all of the costs and expenses associated with the appraisal undertaken by
its appointed Appraiser.
	 
	 	(iv)  	If the difference between the two Preliminary FMVs is less than
or equal to ten percent (10%) of the lower of the two Preliminary FMVs, then
the Final FMV shall be equal to the average of the two Preliminary FMVs.
	 
	 	(v)  	If the difference between the two Preliminary FMVs is greater
than ten percent (10%) of the lower of the two Preliminary FMVs, then the two
Appraisers shall, within five (5) Business Days after the date on which the
second appraisal report was delivered to both Parties, appoint a third
Appraiser to undertake an appraisal of the fair market value of the Company.
	 
	 	(vi)  	If the two Appraisers are unable to agree on a third Appraiser
within the five (5) Business Day period set forth in Section 17.1(c)(v) above,
the Independent Auditor of the Company shall promptly appoint an Appraiser to
conduct an appraisal of the fair market value of the Company. Each Party shall
have the right to present its opinion to the Independent Auditor regarding the
selection of such Appraiser. The Appraiser selected by the Independent Auditor
must be a qualified appraisal firm which has not had any significant prior
relationship with either Party or its Affiliates.
	 
	 	(vii)  	The Company shall promptly appoint the Appraiser selected in
accordance with Section 17.1(c)(vi) to undertake an appraisal of the fair
market value of the Company. Such Appraiser shall provide both Parties with an
appraisal report specifying the fair market value of the Company as determined
by such Appraiser (the “Third Appraiser’s FMV”) within thirty (30) days
after the date of its appointment. All of the costs and expenses associated
with such appraisal shall be borne by the Company.
	 
	 	(viii)  	If the Third Appraiser’s FMV falls within the range between the two
Preliminary FMVs, then the Third Appraiser’s FMV shall be the Final FMV. If
the Third Appraiser’s FMV falls outside the range between the two Preliminary
FMVs, then the Final FMV shall be equal to the average of (1) the Third
Appraiser’s FMV and (2) the Preliminary FMV whose value is closer to the value
of the Third Appraiser’s FMV.

	 	(d)  	Each Appraiser appointed shall calculate and present to each of the Parties its
appraisal of the fair market value of the Company. In determining the fair market
value of the Company, each Appraiser shall take into account the value of companies
that are operating businesses that are similar to the business

 

 

  49

	 		operated by the Company as of the date of the appraisal and shall take into account
the following valuation methods:

	 	(i)  	discounted cash flow of the Company;
	 
	 	(ii)  	industry comparables; and
	 
	 	(iii)  	the cost replacement value of the assets of the Company.

	 	(e)  	If at the time the appraisal is undertaken, the appraisal is required to be
conducted by a valuation company that is approved to issue valuations of State-owned
assets, each Appraiser appointed shall be such a valuation company.
	 
	 	(f)  	The determination of the Final FMV, in accordance with this Section 17 shall
(in the absence of fraud) be final and binding on the Parties for the purposes of this
Contract.

	18.  	Liability for Breach of Contract
	 
	18.1.  	Breach of Contract
	 
	   	A Party shall be in breach of this Contract if:

	 	(a)  	It has failed to fully perform or illegally ceased its performance of any
obligation under this Contract or any Relevant Contract to which it is a party, or any
of its Affiliates has failed to fully perform or illegally ceased its performance of
any obligations under any Relevant Contract to which such Affiliate is a party, and
such breach has not been remedied or rectified within thirty (30) days after receipt of
a written notice of such breach from the Company or the other Party;
	 
	 	(b)  	A representation or warranty made by such Party hereunder is untrue or
materially inaccurate;
	 
	 	(c)  	It fails to make its contributions to the Registered Capital when due as
stipulated in Section 5.3 of this Contract; provided that all conditions precedent to
making such contribution have been met or waived by the relevant Party;
	 
	 	(d)  	It fails to cause any director it appointed to vote for the approval of the
Party B Put Option or the Party B Deadlock Put Option in accordance with Section
5.7(d);
	 
	 	(e)  	It fails to cause any director it appointed either (i) to vote for the approval
of Transfer of either Party’s entire Equity Interest in the Registered Capital of the
Company to the other Party in accordance with Section 16.3; or (ii) to attend in person
or by proxy the meeting of the Board where such decision was included in the agenda,
thereby preventing the Board from making such decision;

 

 

  50

	 	(f)  	It ceases to carry on its business, or fails to pay its debts as and when they
fall due; or
	 
	 	(g)  	It effectively prevents the other Party from participating in the Board.

	18.2.  	Penalty for Breach Concerning Capital Contribution
	 
	   	If either Party fails to pay its committed contributions to the registered capital of the
Company in accordance with Section 5.3 of this Contract, then, notwithstanding any other
provision contained in this Contract, such Party shall pay the Company liquidated damages of
two hundredths of one percent (0.02%) of its outstanding payment for each day for the period
commencing from the date when such outstanding contribution is overdue until but not
inclusive of such date that the total outstanding payment is made; provided that all
conditions precedent to making such contribution have been met or waived by the relevant
Party.
	 
	18.3.  	Liability for Breach of Contract

	 	(a)  	Without prejudice to the rights of Party B pursuant to Section 5.7, if the
Company or a Party suffers any cost, liability or loss, including lost profits of the
Company, but not including any other consequential losses of whatsoever nature, as a
result of a breach of this Contract by any Party, the Party in breach shall indemnify
and hold the Company and the non-breaching Party harmless in respect of any such cost,
liability or loss, including interest paid or lost as a result thereof.
	 
	 	(b)  	Without limiting the generality of the foregoing, each Party (the
“Indemnifying Party”) shall indemnify, defend and hold harmless the other Party
and the Company (each, an “Indemnified Party”) from and against all claims,
losses, liabilities, damages, deficiencies, judgments, assessments, fines, settlements,
costs or expenses (including interest, penalties and fees, loss of profits by the
Company, expenses and disbursements incurred by any Indemnified Party in any action or
proceeding between the Indemnifying Party and any Indemnified Party or between any
Indemnified Party and any third party, or otherwise) based upon, arising out of,
relating to or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Indemnifying Party or its
Affiliate contained in this Contract, any Relevant Contract or in any other documents
delivered by the Indemnifying Party pursuant to this Contract.

	19.  	Force Majeure
	 
	19.1.  	Definition
	 
	   	In case of any unforeseeable event directly preventing a Party from performing all or part
of its obligations hereunder, the occurrence and consequences of which cannot be prevented
or avoided (an “Event of Force Majeure”), such as earthquakes, typhoons, floods,
fires and other natural disasters, wars, riots and similar military actions, civil unrest,
epidemics, embargoes, expropriation, injunctions or other restraints and actions of
government (provided that the government authority involved is not the department in charge
of such Party or its Affiliate), then the responsibilities and

 

 

  51

	  	obligations of such Party that is prevented by such Event of Force Majeure (the
“Prevented Party”) shall be handled in accordance with the provisions of Section
19.2 hereunder.
	 
	19.2.  	Consequences of Event of Force Majeure

	 	(a)  	In case of an Event of Force Majeure, the liabilities arising out of the
Prevented Party’s failure to perform its obligations hereunder shall be released in
whole or in part, provided that all of the following conditions are met: (i) the Event
of Force Majeure was the direct cause of the stoppage, impediment or delay encountered
by the Prevented Party in performing its obligations under this Contract; the Prevented
Party (ii) notifies the other Party in writing immediately after such Event of Force
Majeure occurs, but in no case shall be later than ten (10) Business Days after the
occurrence thereof; (iii) has made reasonable commercial efforts to mitigate the losses
and take remedial measures.
	 
	 	(b)  	Subject to the conditions set forth in paragraph (a) above, and within the
extent of the effect of an Event of Force Majeure, the Prevented Party shall not be
liable for any damages, losses or increase in costs which the other Party may sustain
due to its non-performance or delayed performance caused by such Event of Force
Majeure, and such non-performance or delayed performance shall not be deemed a breach
of this Contract.
	 
	 	(c)  	In case of an Event of Force Majeure, the Parties shall, based on the effect of
such event on the performance of this Contract, discuss and decide whether to revise
this Contract and whether the Prevented Party should be partially or fully released
from performing its obligations hereunder.

	20.  	Confidential Information
	 
	20.1.  	Confidentiality

	 	(a)  	Any Party that receives any Confidential Information during the JV Term (the
“Receiving Party”) shall:

	 	(i)  	keep the Confidential Information confidential;
	 
	 	(ii)  	not disclose the Confidential Information to any Person other
than with the prior written consent of the Company or the Party that disclosed
such Confidential Information, as the case may be, or in accordance with
Sections 20.1(b) and 20.1(c); and
	 
	 	(iii)  	not use the Confidential Information for any purpose other
than the performance of its obligations under this Contract or in accordance
with Section 20.1(a).

	 	(b)  	The Receiving Party may disclose the Confidential Information only to its
designated employees (the “Recipients”) whose duties require such disclosure
for the implementation of this Contract. The Receiving Party shall take all reasonable
precautions, including the execution of confidentiality contracts

 

 

  52

	 	   	with each such employee or the inclusion of confidentiality clauses in the
individual employment contract with each such employee, to prevent such employees
from using Confidential Information for their personal benefit and to prevent any
unauthorized disclosure of such Confidential Information to any third party.
	 
	 	(c)  	Each Party shall use its best efforts to ensure that the Company shall comply
with all of the Receiving Party’s confidentiality obligations herein as if the Company
were a party to this Contract, including the inclusion of confidentiality clauses in
all employment contracts between the Company and its employees.

	20.2.  	Exceptions

	 	(a)  	The provisions of Section 20.1 shall not apply to:

	 	(i)  	Confidential Information that is or becomes generally available
to the public other than as a result of disclosure by, or at the direction of,
a Party, any of its Recipients or the Company in violation of this Contract;
	 
	 	(ii)  	disclosure to the extent required under applicable Law or the
rules of any stock exchange applicable to a Party or any of its Affiliates;
provided that such disclosure shall be limited solely to the extent required by
applicable Law or the rules of any such stock exchange and, to the extent
practicable, the Party or the Company, as the case may be, that is the
proprietor of the Confidential Information subject to such disclosure shall be
given an opportunity to review and comment on the contents of the disclosure
before it is made;
	 
	 	(iii)  	disclosure to the extent required by applicable Law or
judicial or regulatory process or in connection with judicial or arbitration
process regarding any legal action, suit or proceeding arising out of, or
relating to, this Contract; provided that the Party required to make the
disclosure promptly notifies the Company or the other Party, as applicable, so
that the Company or such other Party may seek an appropriate protective order,
and if no such protective order is obtained, the disclosing Party will only
furnish that portion of the Confidential Information that it is advised by
counsel is legally required and will exercise all commercially reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded to the disclosed Confidential Information; and
	 
	 	(iv)  	use of Confidential Information concerning the Company by the
Receiving Party after the termination of this Contract in accordance with the
provisions hereof where the Receiving Party is legally permitted to continue to
operate, whether directly or indirectly, and whether or not in cooperation with
any other Person or any other Party, the business of the Company.

 

 

  53

	20.3.  	Publicity
	 
	   	Neither Party shall make any announcement about the Company, this Contract or the other
Party in relation to the Company, this cooperation or the business of the Company without
the prior written consent of the other Party. Either of the Parties may at any time make
announcements that are required by applicable Law or the rules of any stock exchange
applicable to such Party or any of its Affiliates, so long as the Party so required to make
the announcement, promptly upon learning of such requirement, notifies in writing the other
Party of such requirement and discusses with the other Party in good faith the exact wording
of any such announcement and takes precautionary measures to prevent disclosure of
Confidential Information to the maximum extent permitted.
	 
	21.  	Governing Law
	 
	   	The formation, validity, interpretation, performance, modification and termination of this
Contract and settlement of disputes under this Contract shall all be governed by the Laws of
the PRC. When the Laws of the PRC do not cover a certain matter, international legal
principles and practices shall apply.
	 
	22.  	Dispute Resolution
	 
	22.1.  	Consultation
	 
	   	Any dispute, controversy or claim arising out of or relating to this Contract, or the
performance, interpretation, breach, termination or validity hereof (a “Dispute”),
shall be resolved through friendly consultation. Such consultation shall begin immediately
after one Party has delivered to the other Party a written request for such consultation
stating specifically the nature of the Dispute (a “Dispute Notice”). If within
thirty (30) days following the date on which such Dispute Notice is received the Dispute has
not been resolved, on the thirty-first (31st) day after the date of the Dispute Notice, each
Party shall refer the Dispute to the Chairman of the parent company of such Party (the
“Parent’s Chairman”). The Parent’s Chairman of each Party shall discuss, and meet
in person if practicable, within ten (10) days thereafter (the “Commencement Date”).
If the Parent’s Chairman of the Parties are unable to resolve the Dispute within thirty
(30) days after the Commencement Date, after such thirty (30) day period, the Dispute may
be submitted to arbitration upon the request of any Party with notice to the other Party.
	 
	22.2.  	Arbitration

	 	(a)  	The arbitration shall be conducted in Singapore under the auspices of the
Arbitration Center.
	 
	 	(b)  	There shall be three (3) arbitrators. Each Party shall appoint one (1)
arbitrator. All selections shall be made within thirty (30) days after the selecting
Party gives or receives the demand for arbitration. Such arbitrators shall be freely
selected, and the Party shall not be limited in their selection to any prescribed list.
If any arbitrator to be appointed by a Party has not been appointed and consented to
participate within thirty (30) days after the selection of the first arbitrator, the
relevant appointment shall be made by the Chairman of the

 

 

  54

	 	   	Arbitration Center. The third arbitrator shall act as the presiding arbitrator and
shall be appointed by agreement of the Party-appointed arbitrators. If no agreement
on such appointment can be reached within ten (10) days after the date on which the
second of the first two arbitrations is appointed, the Chairman of the Arbitration
Center shall make the appointment. Absent the express written consent of the
Parties to the contrary, in no event shall the presiding arbitrator, regardless of
how appointed, be of the same nationality as either Party.
	 
	 	(c)  	The arbitration proceedings shall be conducted in English and Chinese. The
arbitration tribunal shall apply the rules of the Arbitration Centre in effect at the
time of the arbitration. However, if such rules are in conflict with the provisions of
this Section 22.2, upon agreement by the Arbitration Centre as provided in the rules of
the Arbitration Centre, the provisions of this Section 22.2 shall prevail.
	 
	 	(d)  	Each Party shall cooperate with the other Party in making full disclosure of
and providing complete access to all information and documents requested by the other
Party in connection with such proceedings, subject only to relevance, privilege and any
confidentiality obligations binding on such Party.
	 
	 	(e)  	The award of the arbitration tribunal shall be final and binding upon the
disputing Parties, and the winning Party may, at the cost and expenses of the losing
Party, apply to any court of competent jurisdiction for enforcement of such award.
	 
	 	(f)  	Each Party irrevocably consents to the service of process, notices or other
documents in connection with or in any way arising from the arbitration or the
enforcement of any arbitral award, by use of any of the methods and to the addresses
for the giving of notices set forth in Section 23. Nothing contained herein shall
affect the right of any Party to serve such processes, notices or other documents in
any other manner permitted by applicable law.
	 
	 	(g)  	Without prejudice to the provisions contained in this Section 22.2, in order to
preserve its rights and remedies, any Party shall be entitled to seek preservation of
property or evidence or any other emergency relief in accordance with law from any
court of competent jurisdiction, the Centre or the arbitration tribunal pending the
final decision or award of the arbitration tribunal.

	22.3.  	Continued Performance of this Contract
	 
	   	During the period when a Dispute is being resolved, except for the matter being disputed,
the Parties shall in all other respects continue to perform their obligations under this
Contract.

 

 

  55

	23.  	Miscellaneous
	 
	23.1.  	Articles of Association
	 
	   	The Articles of Association have been completed in accordance with the various principles
stipulated in this Contract and PRC Laws. If there is any inconsistency between this
Contract and the Articles of Association, this Contract shall govern.
	 
	23.2.  	Survival
	 
	   	The agreements of the Parties contained in Section 5.7(f), Section 16, Section 18, Section
20, Section 22 and this Section 23.2 shall continue to survive after the expiration or
termination of this Contract and the dissolution of the Company.
	 
	23.3.  	Language
	 
	   	This Contract is executed in Chinese and English. The two language texts shall have equal
validity and legal effect. Each Party hereby acknowledges that it has reviewed both
language texts of this Contract and that they are the same in all material respects.
	 
	23.4.  	Notices
	 
	   	Notices or other communications required to be given by either Party pursuant to this
Contract shall be provided in writing in both English and Chinese, and delivered by personal
delivery, international courier service or facsimile to the other Party’s address set forth
in Section 23.5 below, (or such other address or facsimile number as the addressee has by
ten (10) days prior written specified to the other Party). Dates on which the notices shall
be deemed as served shall be determined on the following principles:

	 	(a)  	if by personal delivery, on the date of delivery;
	 
	 	(b)  	if by international courier service on the seventh (7th) day after delivery to
an internationally accepted courier service (as indicated by the receipt issued by such
courier service); and
	 
	 	(c)  	if by facsimile, upon receipt of the notice confirming the delivery.

	23.5.  	Address and Fax Number for Notices
	 
	   	If to Party A: Sinopec Yizheng Chemical Fibre Co., Ltd.

	 	 	 	 	 
	 

	 	Address:
	 	Yizheng, Jiangsu Province
	

	 	 	 	PRC 211900
	 
	 	 	 	 
	

	 	Attention:
	 	Office of Sinopec Yizheng Chemical Fibre Company Limited
	 
	 	 	 	 
	

	 	Facsimile:
	 	[+86] (514) 323-3880

 

 

  56

	   	If to Party B: Unifi Asia Holding, SRL

	 	 	 	 	 
	

	 	Address:
	 	7201 West Friendly Avenue
	

	 	 	 	Greensboro, NC 27410
	

	 	 	 	USA
	 
	 	 	 	 
	

	 	Attention:
	 	Charles McCoy, Vice President
	 
	 	 	 	 
	

	 	Facsimile:
	 	[+1] (336) 856-4364

	23.6.  	Entire Agreement
	 
	   	This Contract (including the attachments, appendices and schedules hereto) and the Relevant
Contracts constitute the sole and entire agreement between the Parties on the subject matter
contained herein, and shall supersede all previous agreements, contracts, understandings and
communications, either written or oral, between the Parties on the subject matter.
	 
	23.7.  	Good Faith
	 
	   	The Parties shall use their best efforts to implement the terms of this Contract and carry
out their respective responsibilities hereunder in good faith and in accordance with Laws.
	 
	23.8.  	Waiver
	 
	   	No waiver of any provision of this Contract shall be effective unless set forth in a written
instrument signed by the Party waiving such provision. No failure or delay by a Party in
executing any right, power or remedy under this Contract shall operate as a waiver thereof,
nor shall any single or partial exercise of the same preclude any further exercise thereof
or the exercise of any other right, power or remedy. Without limiting the foregoing, no
waiver by a Party of any breach by any other Party of any provision hereof shall be deemed
to be a waiver of any subsequent breach of that or any other provision hereof.
	 
	23.9.  	Severability
	 
	   	In the event any one or more of the provisions contained in this Contract is held under any
applicable PRC Law to be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations
to replace the invalid, illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
	 
	23.10.  	Non-assignment
	 
	   	This Contract shall be binding upon and shall inure to the benefit of both Parties and their
respective successors and permitted transferees. Unless otherwise permitted

 

 

  57

	   	herein, neither Party shall assign any of its rights and obligations hereunder to any third
party without the other Party’s prior written consent.
	 
	23.11.  	Counterparts
	 
	   	This Contract and any amended versions hereof or any other agreements delivered pursuant to
this Contract may be executed in one or more counterparts. All of these counterparts shall
constitute the same agreement, and shall take effect upon each Party’s execution of one or
more of such counterparts and delivery to the other Party (unless otherwise stipulated in
such agreement).
	 
	   	This Contract shall be executed in 8 English and 8 Chinese counterparts. One counterpart of
each language text shall be retained by each Party, two counterparts of each language text
shall be submitted to the Examination and Approval Authority and one counterpart of each
language text shall be submitted to SAIC. Three counterparts of each language text shall be
retained in the records of the Company and, if required, shall be provided to other
governmental authorities.
	 
	23.12.  	Amendment
	 
	   	Amendments to this Contract may only be made by a written agreement signed by each Party in
both Chinese and English texts, each of which shall have equal validity and legal effect,
and which shall be submitted to the Examination and Approval Authority (or its successor)
for approval before they can become effective.
	 
	23.13.  	Changes in Law
	 
	   	If, after the date this Contract is signed, any central or local government agency of the
PRC makes any change in any provision of any Law, including amendment, supplementation or
repeal of an existing Law, or introduction of a different interpretation or method of
implementation of an existing Law (each, a “Change”), or promulgates a new Law
(each, a “New Provision”), the following shall apply:

	 	(a)  	If a Change or a New Provision is more favorable to the Company or any of the
Parties than the relevant Law in effect on the date this Contract was signed (and the
other Party is not materially and adversely affected thereby), the Company and the
Parties shall promptly apply to receive the benefits of such Change or New Provision.
The Company and the Parties shall use their best efforts to cause such application to
be approved.
	 
	 	(b)  	If, after the Approval Date and because of such Change or New Provision, the
economic benefits of the Company or of any Party under this Contract are materially and
adversely affected, directly or indirectly, then this Contract shall continue to be
implemented in accordance with its original terms. If the adverse effect on the
Company’s or on any Party’s economic interests cannot be resolved pursuant hereto, upon
notice by the affected Party to the other Party, the Parties shall consult promptly and
make all such amendments to this Contract as are required to maintain the affected
Party’s economic benefits hereunder.

 

 

  58

[The remainder of this page is left intentionally blank]

 

 

The Parties hereto have caused this Contract to be executed as of the date first above written by
their duly authorized representatives in Yizheng, Jiangsu Province, PRC.

	 	 	 	 	 	 	 
	Party A:

	 	 	 	Party B:	 	 
	 
	 	 	 	 	 	 
	Sinopec Yizheng Chemical Fibre Company Limited	 	UNIFI Asia Holding SRL
	 
	 	 	 	 	 	 
	Signature:

	 	/s/ Xu Zheng-ning
	 	Signature:
	 	/s/ Brian R. Parke
	

	 	 
	 	 	 	 
	Name:

	 	Xu Zheng-ning
	 	Name:
	 	Brian R. ParkeEX. 4(A)

 

Exhibit 4(a)

CHECKFREE CORPORATION

THIRD AMENDED AND RESTATED ASSOCIATE STOCK PURCHASE PLAN

	1.  	Purpose.

     The CheckFree Corporation Associate Stock Purchase Plan (the “Plan”) is being established for
the benefit of employees of CheckFree Corporation, a Delaware corporation (the “Company”), and
certain affiliated companies. The Plan is intended to provide eligible employees with an
opportunity to purchase shares of common stock, $0.01 par value, of the Company (the “Shares”),
through accumulated payroll deductions. It is the intention of the Company that the Plan qualify
as an “employee stock purchase plan” within the meaning of Section 423 of the Code, and the
provisions of the Plan shall be construed in a manner consistent with the requirements of such
Section of the Code.

	2.  	Definitions.

     (a) “Board” shall mean the Board of Directors of the Company.

     (b) “Change in Capitalization” shall mean any increase, reduction, or change or exchange of
Shares for a different number or kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, share dividend, share
split or reverse share split, combination or exchange of shares, repurchase of Shares, change in
corporate structure or otherwise.

     (c) “Change in Control” of the Company shall have the meaning given in Section 16(b) hereof.

     (d) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (e) “Committee” shall mean Compensation Committee or any other committee of members of the
Board appointed by the Board to administer the Plan and to perform the functions set forth herein.

     (f) “Company” shall mean CheckFree Corporation, a corporation organized under the laws of the
State of Delaware, or any successor corporation.

     (g) “Compensation” shall mean the fixed salary, wages, commissions, overtime pay and bonuses
paid by an Employer to an Employee, including an Employee’s portion of compensation deferral
contributions pursuant to Section 401(k) of the Code, any amount excludable pursuant to Section 125
of the Code, and/or any non-qualified compensation deferrals, but excluding any foreign service
allowance, severance pay, expense reimbursement, or any benefit paid by a third-party payer under
any employee benefit plan maintained by the Employer.

     (h) “Continuous Status as an Employee” shall mean the absence of any interruption or
termination of service as an Employee. Continuous Status as an Employee shall not be considered
interrupted in the case of a leave of absence taken pursuant to the Employer’s written leave of
absence policy if such leave is for a continuous period of not more than one year.

     (i) “Designated Subsidiaries” shall mean the Subsidiaries of the Company as of the Effective
Date, and corporations which become Subsidiaries of the Company after the Effective Date.

     (j) “Effective Date” shall have the meaning set forth in Section 22 hereof.

     (k) “Employee” shall mean any person, including an officer, who as of an Offering Date is (i)
regularly employed by the Company or a Designated Subsidiary of the Company for more than twenty
(20) hours per week, and (ii) who has been employed by such Employer for a period of at least
ninety (90) days.

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     (l) “Employer” shall mean, as to any particular Employee, the corporation which employs such
Employee, whether it is the Company or a Designated Subsidiary of the Company.

     (m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (n) “Exercise Date” shall mean the last business day of each Offering Period, except as the
Committee may otherwise provide. For purposes of the Plan, the term “business day” means a day on
which there is permitted trading of the Shares on the NASDAQ National Market or on a national
securities exchange, whichever is applicable; and if neither is applicable, a day that is not a
Saturday, Sunday or legal holiday in the State of Delaware.

     (o) “Fair Market Value” per Share as of a particular date shall mean:

(i) the closing sales price, regular way for the Shares on any national securities
exchange on which the Shares are actively traded on such date (or if such exchange
was not open for trading on such date, the next preceding date on which it was
open); or

(ii) if there is no price as specified in (i), the mean of the last reported
bid-and-asked quotations regular way, for the Shares on such exchange on such date
(or if there was no such quotations on such date, the next preceding date); or

(iii) if there also is no price as specified in (ii), the closing sales price,
regular way, or in the absence thereof the mean of the last reported bid-and-asked
quotations, for the Shares on the other exchange on which the Shares are permitted
to trade having the greatest volume of trading in the Shares during the 30-day
period preceding such date, on such date (or if there were no such quotations on
such date, the next preceding date); or

(iv) if there also is no price as specified in (iii), the final reported sales
price, or if not reported in the following manner, the highest bid quotation, in the
over-the-counter market for the Shares as reported by the National Association of
Securities Dealers Automatic Quotation System, or if not so reported, then as
reported by the National Quotation Bureau Incorporated, or if such organization is
not in existence, by an organization providing similar services, on such date (or if
such date is not a date for which such system or organization generally provides
reports, then on the next preceding date for which it does so); or

(v) if there also is no price as specified in (iv), the price determined by the
Committee by reference to the bid-and-asked quotations for the Shares provided by
members of an association of brokers and dealers registered pursuant to subsection
15(b) of the Exchange Act, which members make a market in the Shares, for such
recent dates as the Committee shall determine to be appropriate for fairly
determining current fair market value; or

(vi) if there also is no price as specified in (v), the price determined by the
Committee for the date in question.

     (p) “Offering Date” shall mean the first business day of each Offering Period. In the event
that the Board specifies the maximum number of Shares that a Participant may be permitted to
acquire during an Offering Period pursuant to Section 5(b) hereof, the Offering Date of an
Offering Period will be the grant date for the options offered in such Offering Period. If no such
maximum number of Shares has been specified by the Board pursuant to Section 5(b) hereof, the
Exercise Date of an Offering Period will be the grant date for the options offered in such Offering
Period. Notwithstanding the foregoing, the first Offering Date following the adoption of the Plan
shall be the first business day on or after the Effective Date.

     (q) “Offering Period” shall mean each six (6) month period commencing on January 1 and July 1,
respectively, which periods shall end on June 30 and December 31, respectively; provided, however,
that the

A-2

 

Committee shall have the power to change the duration of Offering Periods; provided further,
however, that no option granted under the Plan shall be exercisable more than twenty-seven (27)
months from its date of grant. Notwithstanding the foregoing, the first Offering Period following
the adoption of the Plan shall begin on the Effective Date and end on June 30, 1997.

     (r) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if, at the time of granting an option, each of the
corporations other than the Company owns shares possessing fifty percent (50%) or more of the total
combined voting power of all classes of shares in one of the other corporations in such chain.

     (s) “Participant” shall mean an Employee who participates in the Plan.

     (t) “Participant’s Account” shall mean the account established for a Participant pursuant to
the Plan to which his or her payroll deductions, Shares acquired under the Plan, dividends received
from such Shares, and dividend reinvestments shall be credited and from which cash distributions,
cash used to purchase Shares and distributions of Shares will be debited.

     (u) “Plan” shall mean the CheckFree Corporation Associate Stock Purchase Plan, as amended from
time to time.

     (v) “Shares” shall mean common stock, $0.01 par value, of the Company.

     (w) “Subsidiary” shall mean any corporation (other than the Company) or other business
organization in an unbroken chain of corporations or business organizations beginning with the
Company, if, at the time of granting an option, each of the corporations or other business
organizations other than the last corporation or such other business organization in the unbroken
chain owns shares or other voting securities possessing fifty percent (50%) or more of the total
combined voting power of all classes of shares or other voting securities in one of the other
corporations or such business organizations in such chain.

	3.  	Eligibility.

     (a) Subject to the requirements of Sections 4(b) and 20(d) hereof, any person who is an
eligible Employee as of an Offering Date shall be eligible to participate in the Plan and be
granted an option for the Offering Period commencing on such Offering Date.

     (b) Notwithstanding any provisions of the Plan to the contrary, no Employee shall be granted
an option under the Plan (i) if, immediately after the grant, such Employee (or any other person
whose shares would be attributed to such Employee pursuant to Section 424(d) of the Code) would own
shares and/or hold outstanding options to purchase shares possessing five percent (5%) or more of
the total combined voting power or value of all classes of shares of the Company or of any
Subsidiary or Parent of the Company, or (ii) which permits such Employee’s right to purchase shares
under all employee stock purchase plans (as described in Section 423 of the Code) of the Company
and any Subsidiary or Parent of the Company to accrue at a rate which exceeds twenty-five thousand
dollars ($25,000) of Fair Market Value of such shares (determined at the time such option is
granted) for any calendar year in which such option would be outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If
the Employee’s accumulated payroll deductions on the last day of the Offering Period would
otherwise enable the Employee to purchase Shares in excess of the Section 423(b)(8) limitation
described in this Section, the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the Shares actually purchased shall be refunded to the Employee by the
Company, without interest, as soon after the Offering Period as reasonably possible. In the event
the Employee elects to discontinue participation in the Plan, such amount shall be promptly
refunded to the Employee by the Company, without interest.

A-3

 

	4.  	Grant of Option; Participation; Price.

     (a) On each Offering Date, the Company shall commence an offering by granting each eligible
Employee an option to purchase Shares, subject to the limitations set forth in Section 3(b) and
Section 10 hereof.

     (b) Each eligible Employee may elect to become a Participant in the Plan with respect to an
Offering Period, by filing an agreement with his or her Employer authorizing payroll deductions in
accordance with Section 5 hereof. Such authorization will remain in effect for subsequent Offering
Periods, until modified or terminated by the Participant by giving written notice to his or her
Employer prior to the next occurring Exercise Date. Such authorization to make payroll deductions
must be received by the Company at least twenty (20) days before the next succeeding Offering Date.

     (c) The option price per Share subject to an offering shall be 85% of the Fair Market Value of
the Shares on the Exercise Date of reference; and, provided further that the option price per Share
shall never be less than the par value per Share.

	5.  	Payroll Deductions.

     (a) Subject to Section 4(b) hereof, a Participant may, in accordance with rules and procedures
adopted by the Committee, authorize an after-tax payroll deduction of any whole percentage from one
percent (1%) to fifteen percent (15%) of such Participant’s Compensation each pay period. A
Participant may not increase such payroll deduction during an Offering Period for purchases to be
made on the Exercise Date at the end of the current Offering Period. However, a Participant may
increase the payroll deduction for purchases to be made in the subsequent Offering Period by giving
written notice to the Company at any time prior to the beginning of an Offering Period (unless
otherwise not permitted by the Committee in its sole discretion). A Participant may decrease a
payroll deduction only once during each Offering Period for purchases to be made on the Exercise
Date at the end of the current Offering Period, and such decrease must be made in writing to the
Company at least thirty (30) days prior to the next occurring Exercise Date. A Participant may
decrease such payroll deduction for purchases to be made in the subsequent Offering Period by
giving written notice to the Company at any time prior to the beginning of an Offering Period
(unless otherwise not permitted by the Committee in its sole discretion). All payroll deductions
made by a Participant shall be credited to such Participant’s Account.

     (b) The Board may, but need not, specify by notice to all Employees prior to the first day of
any Offering Period, a maximum number of Shares that any Participant shall be permitted to acquire
pursuant to the Plan in any Offering Period, which maximum need not be the same for every Offering
Period.

	6.  	Exercise of Option.

     (a) Unless a Participant terminates his or her payroll deduction election and withdraws his or
her accumulated payroll deductions from the Plan in accordance with Section 8(a) hereof, or unless
the Committee otherwise provides, such Participant’s election to purchase Shares shall be exercised
automatically on the Exercise Date, and the maximum number of Shares (excluding any fractional
Share, for which purposes the purchase amount shall be rounded to the next lower whole number of
Shares) subject to such option will be purchased for such Participant at the applicable option
price with the accumulated payroll deductions.

     (b) Any cash balance remaining in a Participant’s Account after the termination of an Offering
Period (an “Excess Amount”) shall be dispensed with as follows:

          (i) if the Excess Amount is equal to or exceeds the applicable option price described in
Section 6(a) hereof, such Excess Amount shall be refunded to the Participant by the Company,
without interest, as soon as reasonably possible;

A-4

 

          (ii) if the Excess Amount is less than the applicable option price described in Section 6(a)
hereof, and the Participant has elected to continue participation in the Plan for the next
succeeding Offering Period, such Excess Amount shall be carried forward to the Participant’s
Account for the purchase of Shares during the next succeeding Offering Period; and

          (iii) if the Excess Amount is less than the applicable option price described in Section 6(a)
hereof, and the Participant has elected to discontinue participation in the Plan for the next
succeeding Offering Period, such Excess Amount shall be refunded to the Participant by the Company,
without interest, as soon as reasonably possible following the termination of next succeeding
Offering Period.

     (c) The Shares purchased upon exercise of an option hereunder shall be credited to the
Participant’s Account under the Plan within ten (10) business days after the Exercise Date and
shall be deemed to be transferred to the Participant as of such crediting date. Except as
otherwise provided herein, the Participant shall have all rights of a shareholder with respect to
credited Shares.

	7.  	Delivery of Shares.

     (a) As promptly as practicable after receipt by the Company of a written request for
withdrawal of Shares from any Participant’s Account (or, in the discretion of the Committee, at any
time after the termination of employment of any Participant), subject to Section 20(d) hereof, the
Company shall arrange the delivery to such Participant of a share certificate representing the
whole Shares credited to the Participant’s Account which the Participant requests to withdraw.
Subject to Section 7(b) hereof, withdrawals may be made no more frequently than once each Offering
Period. Shares received upon share dividends or share splits shall be treated as having been
purchased on the Exercise Date of the Shares to which they relate.

     (b) Notwithstanding anything in Section 7(a) hereof to the contrary, Shares may be withdrawn
by a Participant more than once during an Offering Period under the following circumstances: (i)
within sixty (60) days following a Change in Control of the Company or (ii) upon the approval of
the Committee, in its sole discretion.

	8.  	Election to Terminate Payroll Deductions; Termination of Employment.

     (a) A Participant may terminate his or her payroll deductions elected pursuant to Section 5(a)
hereof by giving written notice to the Company at least thirty (30) days prior to the next
occurring Exercise Date or otherwise as may be approved by the Committee in its sole discretion.
If such an election has been made, no further payroll deductions for the purchase of Shares will be
permitted to be made for the Participant during such Offering Period. A Participant who has
elected to terminate his or her payroll deductions in accordance with this Section 8(a) shall have
the option with respect to all payroll deductions credited to such Participant’s Account during the
Offering Period either to (i) have such accumulated payroll deductions returned to the Participant
or (ii) leave such accumulated payroll deductions in the Participant’s Account to be used for the
purchase of Shares on the Exercise Date occurring in such Offering Period. Unless a Participant
who elects to terminate his or her payroll deductions in accordance with this Section 8(a) gives
written notice to the Company at least thirty (30) days prior to the Exercise Date of the
Participant’s desire to have his or her accumulated payroll deductions returned to him or her, such
Participant will be deemed to have elected to leave such accumulated payroll deductions in his or
her Participant Account to be used for the purchase of Shares on the Exercise Date occurring in
such Offering Period.

     (b) Upon termination of a Participant’s Continuous Status as an Employee during an Offering
Period for any reason, including voluntary termination, retirement or death, the payroll deductions
credited to such Participant’s Account that have not been used to purchase Shares shall be returned
to such Participant or, in the case of such Participant’s death, to the person or persons entitled
thereto under Section 12 hereof, and such Participant’s option will be automatically terminated.
If the termination of a Participant’s Continuous Status as an Employee occurs on an Exercise Date,
then such Participant’s election to purchase Shares shall be exercised as provided under this Plan.
Notwithstanding the foregoing, upon the termination of a Participant’s employment because of the
Participant’s death, the Participant’s beneficiary (designated by the Participant in accordance
with Section 12 hereof) shall have the right to elect, by written notice given to the Company prior
to the earlier of thirty (30) days prior to

A-5

 

the next occurring Exercise Date (or otherwise as may be determined by the Committee in its
sole discretion) under the Plan or the sixtieth (60th) day after the Participant’s death, to
exercise the Participant’s option for the purchase of Shares on such Exercise Date for the purchase
of the number of full Shares which the accumulated payroll deductions in the Participant’s Account
at the date of the Participant’s death will purchase at the applicable option price, and any excess
in such account will be paid to the Participant’s estate. If no such written notice of election is
duly received by the Company, the first sentence of this Section 8(b) shall control.

     (c)  Except as provided in Section 20(d) hereof, a Participant’s withdrawal from an offering
will not have any effect upon such Participant’s eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.

9. Interest.

     No interest shall accrue on or be payable with respect to the payroll deductions of a
Participant credited to the Participant’s Account.

	10.  	Shares.

     The maximum number of Shares which shall be reserved and available for sale under the Plan
shall be 2,000,000 Shares, which number shall be subject to adjustment upon Changes in
Capitalization of the Company as provided in Section 16 hereof. Such Shares shall be either
authorized and unissued Shares or Shares which have been reacquired by the Company. If the total
number of Shares which would otherwise be subject to options granted pursuant to Section 4 hereof
on an Offering Date exceeds the number of Shares then available under the Plan (after deduction of
all Shares for which options have been exercised or are then outstanding), the Committee shall make
a pro rata allocation of the Shares remaining available for option grant in as uniform a manner as
shall be practicable and as it shall determine to be equitable. In such event, the Committee shall
give written notice to each Participant of such reduction of the number of option Shares affected
thereby and shall similarly reduce the rate of payroll deductions, if necessary.

	11.  	Administration.

     The Plan shall be administered by the Committee, and the Committee may select administrator(s)
to whom its duties and responsibilities hereunder may be delegated. The Committee shall have full
power and authority, subject to the provisions of the Plan, to promulgate such rules and
regulations as it deems necessary for the proper administration of the Plan, to interpret the
provisions and supervise the administration of the Plan, and to take all action in connection
therewith or in relation thereto as it deems necessary or advisable. Any decision evidenced by the
unanimous written consent of the members of the Committee shall be fully effective as if it had
been made at a meeting duly held. Except as otherwise provided by the Committee, each Employer
shall be charged with all expenses incurred in the administration of the Plan with respect to such
Employer’s Employees. No member of the Committee shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan, and all members of
the Committee shall be fully indemnified by the Company with respect to any such action,
determination or interpretation. All decisions, determinations and interpretations of the
Committee shall be final and binding on all persons, including the Company, the Participant (or any
person claiming any rights under the Plan from or through any Participant) and any shareholder.

	12.  	Designation of Beneficiary.

     (a) A Participant may file with the Company, on forms supplied by the Company, a written
designation of a beneficiary who is to receive any Shares and cash remaining in such Participant’s
Account under the Plan in the event of the Participant’s death.

     (b) Such designation of beneficiary may be changed by the Participant at any time by written
notice to the Company, on forms supplied by the Company. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant’s death, the Company shall

A-6

 

deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of
the Participant in accordance with the applicable laws of descent and distribution, or if no
spouse, dependent or relative is known to the Company, then to such other person as the Company may
designate.

	13.  	Transferability.

     Neither payroll deductions credited to a Participant’s Account nor any rights with regard to
the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged
or otherwise disposed of in any way by the Participant (other than by will, the laws of descent and
distribution or as provided in Section 12 hereof). Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may treat such act as
an election to withdraw funds in accordance with Section 8 hereof.

	14.  	Use of Funds.

     All payroll deductions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to segregate such funds.

	15.  	Reports; Participants’ Accounts.

     The Company shall establish a Participant’s Account for each Participant in the Plan to which
each Participant’s payroll deductions, Shares acquired under the Plan, dividends received from
such Shares, and dividend reinvestments shall be credited, and from which cash distributions, cash
used to purchase Shares and distributions of Shares will be debited (“Participant’s Accounts”).
Statements with respect to each Participant’s Account will be given to Participants as soon as
practicable following each Offering Period, which statements will set forth the amounts of payroll
deductions, dividends, dividend reinvestments and additional cash payments, the per Share purchase
price, the number of shares purchased, the aggregate Shares in the Participant’s Account and the
remaining cash balance, if any.

	16.  	Effect of Certain Changes.

     (a) In the event of a Change in Capitalization or the distribution of an extraordinary
dividend, the Committee shall conclusively determine the appropriate equitable adjustments, if any,
to be made under the Plan, including without limitation adjustments to the number of Shares which
have been authorized for issuance under the Plan but have not yet been placed under option, as well
as the price per Share covered by each option under the Plan which has not yet been exercised. In
the event of a Change in Control of the Company, the Offering Period shall terminate unless
otherwise provided by the Committee. For purposes of the preceding sentence, (i) the Committee may
establish the date of the event constituting the Change in Control and such date shall be the
Exercise Date for such Offering Period, or (ii) the Committee may terminate the Plan in which case
all Shares and cash amounts in a Participant’s Account shall be refunded as elsewhere provided
herein.

     (b) “Change in Control” shall be deemed to have occurred if (i) a tender offer shall be made
and consummated for the ownership of 50% or more of the outstanding voting securities of the
Company, (ii) the Company shall be merged or consolidated with another corporation and as a result
of such merger or consolidation less than 50% of the outstanding voting securities of the surviving
or resulting corporation shall be owned in the aggregate by the former shareholders of the Company,
(iii) the Company shall sell at least 75% of its assets by value in a single transaction or in a
series of transactions to another corporation which is not a wholly owned subsidiary of the
Company, or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in
effect on the date hereof) of the Exchange Act, shall acquire 50% or more of the outstanding voting
securities of the Company (whether directly, indirectly, beneficially or of record). For purposes
hereof, ownership of voting securities shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1) (as in effect on the date hereof)
pursuant to the Exchange Act.

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	17.  	Term of Plan.

     Subject to the Board’s right to discontinue the Plan (and thereby end its Term) pursuant to
Section 18 hereof, the Term of the Plan (and its last Offering Period) shall end on December 31,
2006. Upon any discontinuance of the Plan, unless the Committee shall determine otherwise, any
assets remaining in the Participants’ accounts under the Plan shall be delivered to the respective
Participant (or the Participant’s legal representative) as soon as practicable.

	18.  	Amendment to and Discontinuance of Plan.

     (a) Subject to Section 18(b) hereof, the Board may at any time amend, suspend or discontinue
the Plan. Except as provided in Section 16 hereof, no such suspension or discontinuance may
adversely affect options previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant which accrued prior to
the date of effectiveness of such amendment without the consent of such Participant. No amendment
shall be effective unless it receives the requisite approval of the shareholders of the Company if
such shareholder approval of such amendment is required to comply with Rule 16b-3 under the
Exchange Act or Section 423 of the Code or to comply with any other applicable law, regulation or
stock exchange rule.

     (b) For the purpose of complying with changes in the Code or ERISA, the Board may amend,
modify, suspend or terminate the Plan at any time. For the purpose of meeting or addressing any
other changes in legal requirements or any other purpose, the Board may amend, modify, suspend or
terminate the Plan only once every six months. Subject to changes in law or other legal
requirements, including any provisions of Rule 16b-3 under the Exchange Act that would permit
otherwise, the Plan may not be amended without the consent of the holders of a majority of the
shares of Common Stock then outstanding or the vote of the shareholders of the Company as provided
in Section 20(c) hereof, to (i) any increase in the aggregate number of shares of common stock that
may be issued under the Plan (except for adjustments pursuant to Section 16 of the Plan); (ii)
increase materially the benefits accruing to Participants under the Plan; or (iii) modify
materially the requirements as to eligibility for participation in the Plan.

	19.  	Notices.

     All notices or other communications by a Participant to the Company under or in connection
with the Plan shall be deemed to have been duly given when received in the form specified by the
Company at the location, or by the person, designated by the Company for the receipt thereof.

	20.  	Regulations and other Approvals; Governing Law; Section 16 Compliance.

     (a) This Plan and the rights of all persons claiming hereunder shall be construed and
determined in accordance with the laws of the State of Delaware without giving effect to the choice
of law principles thereof, except to the extent that such law is preempted by federal law.

     (b) The obligation of the Company to sell or deliver Shares with respect to options granted
under the Plan shall be subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the Committee.

     (c) To the extent applicable hereto, the Plan is intended to comply with Rule 16b-3 under the
Exchange Act, and the Committee shall interpret and administer the provisions of the Plan in a
manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and
shall not affect the validity of the Plan. This Plan shall be subject to approval by shareholders
of the Company present or represented and entitled to vote at a meeting duly held in accordance
with applicable law.

A-8

 

     (d) For any Participants subject to Section 16 of the Exchange Act, (i) such Participants who
cease participation in the Plan may not participate again for at least six (6) months, and (ii)
unless the Committee otherwise determines after due regard for Rule 16b-3(d)(2)(i), any Shares
purchased by such Participant shall remain in such Participant’s Account for six (6) months from
the Exercise Date for such Shares.

     (e) Shares shall not be issued unless such issuance and delivery shall comply with all
applicable provisions of law, domestic or foreign, and the requirements of any stock exchange upon
which the Shares may then be listed, including, in each case the rules and regulations promulgated
thereunder, and shall be further subject to the approval of counsel for the Company with respect to
such compliance, which may include a representation and warranty from the Participant that the
Shares are being purchased only for investment and without any present intention to sell or
distribute such Shares.

     (f) Nothing contained in this Plan, or any modification or amendment to the Plan, or in the
creation of any account, or the execution of any subscription agreement, or the issuance of any
Shares under the Plan, shall give any Employee any right to continue employment or any legal or
equitable right against the Company or any Subsidiary, or any officer, director, or employee
thereof, except as expressly provided by the Plan.

	21.  	Withholding of Taxes.

     By electing to participate in the Plan, each Employee acknowledges that the Company and its
participating Subsidiaries are required to withhold taxes with respect to the amounts deducted from
the Employee’s Compensation and accumulated for the benefit of the Employee under the Plan, and
each Employee agrees that the Company and its participating Subsidiaries may deduct additional
amounts from the Employee’s Compensation, when amounts are added to the Employee’s Account, used to
purchase common stock or refunded, in order to satisfy such withholding obligations. If the
Participant makes a disposition, within the meaning of Section 424(c) of the Code and the
regulations promulgated thereunder, of any Share or Shares issued to such Participant pursuant to
such Participant’s exercise of an option, and such disposition occurs within the two-year period
commencing on the day after the option is being treated as granted for purposes of Section 423 of
the Code or within the one-year period commencing on the day after the Exercise Date, such
Participant shall, within ten (10) days of such disposition, notify the Company thereof and
thereafter immediately deliver to the Participant’s Employer any amount of federal, state or local
income taxes and other amounts which the Company informs the Participant the Company is required to
withhold. The Participant’s Employer may also satisfy any applicable withholding amounts by
deducting the necessary amounts of withholding from the Participant’s wages and, in the Committee’s
sole discretion, any other amounts owed to or held for the account of the Participant.

	22.  	Effective Date.

     The Plan shall be effective (the “Effective Date”) as of the latter to occur of (a) January 1,
1997, or (b) the date on which this Plan shall have been approved by the shareholders as set forth
in Section 20(c) hereof.

A-9

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