JOINT VENTURE CONTRACT
SHANGHAI INTERFACE CARPET CO. LTD.
March 20, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 GENERAL STATEMENT 1
ARTICLE 2 THE PARTIES TO THE JOINT VENTURE 1
ARTICLE 3 DEFINITIONS 3
ARTICLE 4 ESTABLISHMENT OF THE JOINT VENTURE COMPANY 7
ARTICLE 5 PURPOSE, SCOPE OF OPERATIONS AND SCALE OF PRODUCTION OF
THE JOINT VENTURE COMPANY 10
ARTICLE 6 TOTAL INVESTMENT, REGISTERED CAPITAL, AND BORROWED
CAPITAL 11
ARTICLE 7 RESPONSIBILITIES OF THE PARTIES 19
ARTICLE 8 TECHNOLOGY LICENSE AND TRADEMARK 25
ARTICLE 9 CONFIDENTIAL INFORMATION 25
ARTICLE 10 NONCOMPETITION 27
ARTICLE 11 DISTRIBUTION OF PRODUCTS 27
ARTICLE 12 BOARD OF DIRECTORS 30
ARTICLE 13 OPERATIONS MANAGEMENT STRUCTURE 38
ARTICLE 14 PURCHASE OF EQUIPMENT AND MATERIALS 40
ARTICLE 15 PREPARATION AND CONSTRUCTION 41
ARTICLE 16 LABOUR MANAGEMENT AND TRADE UNION ORGANIZATION 42
ARTICLE 17 FOREIGN EXCHANGE 45
ARTICLE 18 FINANCE AND AUDITING 47
ARTICLE 19 TAXATION 51
ARTICLE 20 LAND USE 51
ARTICLE 21 WARRANTIES 52
i
ARTICLE 22 TERM 55
ARTICLE 23 DISSOLUTION, LIQUIDATION AND BUYOUT 56
ARTICLE 24 INSURANCE 60
ARTICLE 25 AMENDMENTS 60
ARTICLE 26 LIABILITIES FOR BREACH OF CONTRACT 60
ARTICLE 27 FORCE MAJEURE 61
ARTICLE 28 GOVERNING LAW 62
ARTICLE 29 DISPUTE RESOLUTION 62
ARTICLE 30 COUNTERPARTS AND LANGUAGE 63
ARTICLE 31 EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS 63
ARTICLE 32 TERMINATION 67
ARTICLE 33 DEFAULTS 67
ARTICLE 34 SEVERABILITY 69
ARTICLE 35 NO INADVERTENT WAIVER OF RIGHTS 70
ARTICLE 36 NECESSARY MEASURES AND GOOD FAITH, NO AGENCY 70
ARTICLE 37 ASSIGNMENT OF THIS CONTRACT 70
ii
APPENDICES
Appendix I Schedule of Contributions to Registered Capital
Appendix II Technology License Agreement
Appendix III Trademark License Agreement
Appendix IV Site Plan
Appendix V Equipment List
iii ARTICLE 1 GENERAL STATEMENT
This Contract is entered into this twentieth day of March, 1996 in Shanghai, the People's Republic of China (the "PRC") by and between:
A) SHANGHAI CHINA TEXTILE INTERNATIONAL SCIENCE & TECHNOLOGICAL
INDUSTRIAL CITY DEVELOPMENT COMPANY, an enterprise
established in accordance with the laws of the PRC and a
legal person registered with the Shanghai Qingpu
Administrative Bureau of Industry and Commerce;
B) INTERFACE ASIA-PACIFIC, INC., an enterprise established in
accordance with the laws of the State of Georgia, the United
States of America;
C) BASF CORPORATION, a corporation established in accordance
with the laws of the State of Delaware, the United States of
America.
After friendly consultations and in accordance with the spirit of equality and mutual benefit, Shanghai China Textile International Science & Technological Industrial City Development Company, Interface Asia-Pacific, Inc. and BASF Corporation hereby agree to invest in and operate an equity joint venture in China Textile International Science & Technological Industrial City, Qingpu County, Shanghai and therefore agree as follows:
ARTICLE 2 THE PARTIES TO THE JOINT VENTURE
2.1 Party A
-------
Shanghai China Textile International Science &
Technological Industrial City Development Company
(hereinafter "Party A") was established in accordance with
the laws of the PRC and is a legal person registered with
Shanghai Qingpu Administrative Bureau of Industry and
Commerce.
-1-
Address : No. 4502 Hu Qing Ping Road,
Qingpu County,
Shanghai 20170O,
The People's Republic of China
Legal Representative : Zhou Yu Cheng
Position : President
Nationality : Chinese
2.2 Party B
-------
Interface Asia-Pacific, Inc. (hereinafter "Party B") is a
company incorporated under the laws of the State of
Georgia, the United States of America.
Address : Overlook III
2859 Paces Ferry Road,
Suite 2000,
Atlanta,
Georgia 30339,
The United States of America
Legal representative : David Milton
Position : President
Nationality : American
2.3 Party C
-------
BASF Corporation (hereinafter "Party C") is a corporation
incorporated under the laws of the State of Delaware, the
United States of America.
-2-
Address : 3000 Continental Drive - North,
Mount Olive, New Jersey 07828-1234,
The United States of America
Legal representative : Walter Hubbard
Position : Group Vice President
Fiber Products Division
Nationality : American
ARTICLE 3 DEFINITIONS
The following terms used in this Contract shall have the respective meanings set forth below:
3.1 "AFFILIATE" means in relation to any Party its parent
or holding corporation, or any legal entity at least
50% of the voting rights in which are controlled
directly or indirectly by such Party or its parent or
holding corporation.
3.2 "ARTICLES OF ASSOCIATION" means the Articles of
Association of the Joint Venture Company signed by the
Parties on March 20, 1996, with such amendments thereto
as may from time to time be duly adopted and approved
in accordance with the provisions thereof.
3.3 "BOARD OF DIRECTORS" means the Board of Directors of
the Joint Venture Company.
3.4 "CONFIDENTIAL INFORMATION" means all Technology (as
defined in the Technology License Agreement) as well as
all information, knowledge, codes, information
pertinent to the acquisition or use of raw materials,
machinery, tools or equipment, trade practices, know-
how, and secrets which if divulged or disclosed might
be detrimental to the commercial well-being of the
Joint Venture Company and/or the protection of the
Technology in any way communicated to the Joint Venture
Company by Interface or its Affiliates under the
Technology License Agreement, or by Party A or Party C,
save to the extent that such information is in or
becomes part of the public domain or is or becomes
known to the Joint Venture Company prior to its
disclosure to the Joint Venture Company by Interface or
its Affiliates or by Party A or Party C, or is at any
time disclosed to the Joint Venture Company by a third
party entitled to disclose it.
-3- 3.5 "CONTRACT" means this joint venture contract between
the Parties, including the appendices hereto (including
the Related Contracts), providing for the establishment
of the Joint Venture Company.
3.6 "EFFECTIVE DATE" means the date on which the
Examination and Approval Authority approves this
Contract and the Articles of Association of the Joint
Venture Company.
3.7 "ESTABLISHMENT DATE" means the date on which the
business license of the Joint Venture Company is issued
by the Shanghai Municipal Administrative Bureau of
Industry and Commerce.
3.8 "EVENT OF FORCE MAJEURE" means an earthquake, typhoon,
flood, fire, war declared or not, civil war, embargo or
any other unforeseeable, unpreventable or unavoidable
event whatsoever and without limitation, including any
event usually considered as an event of force majeure
under normal international commercial practice.
3.9 "EXAMINATION AND APPROVAL AUTHORITY" means the Shanghai
Foreign Investment Commission.
3.10 "FACILITY" means the factory to be constructed and the
equipment to be installed by the Joint Venture Company
for the production of the Products, and related
buildings and structures on the Land.
3.11 "FEASIBILITY STUDY" means the Feasibility Study Report
jointly prepared by the Parties.
3.12 "INDEPENDENT AUDITOR" means the independent registered
public accountant or firm of registered public
accountants registered in the PRC and selected by the
Board of Directors to perform auditing tasks required
by the Board of Directors and PRC law.
-4- 3.13 "INTERFACE" means Interface, Inc., a corporation
organized and existing under the laws of the State of
Georgia, the United States of America, having its
principal office at Overlook III, Paces Ferry Road,
Suite 2000, Atlanta, Georgia 30339, the United States
of America, which is the parent company of Party B, and
is the licensor of Technology and the trademark
"INTERFACE" to the Joint Venture Company.
3.14 "INTERNATIONAL MARKET" means the markets in all
countries and regions outside of the PRC. For the
purpose of this definition, the territories of Taiwan,
Hong Kong and Macau shall be regarded as part of the
International Market.
3.15 "DOMESTIC MARKET" means the continental portion of the
PRC, excluding Hong Kong, Macao and Taiwan.
3.16 "JOINT VENTURE COMPANY" means the joint venture company
to be established by the Parties in accordance with
this Contract.
3.17 "JOINT VENTURE LAW" means the Law of the People's
Republic of China on Chinese-foreign Joint Ventures
adopted on July 1, 1979 and amended on 4th April 1990
by the National People's Congress.
3.28 "LAND" means the land to be used by the Joint Venture
Company.
3.19 "LAND USE CONTRACT" means the contract to be concluded
between the Joint Venture Company and the relevant
Shanghai land department providing for the transfer to
the Joint Venture Company of the land use rights to the
Land.
3.20 "NET BOOK VALUE" means the value of the net assets of
the Joint Venture Company as shown in the latest
audited accounts of the Joint Venture Company, and the
Net Book Value of any Shares will be the Net Book Value
divided by the total number of Shares, issued and
outstanding.
-5- 3.21 "PARTIES" means Party A, Party B and Party C or any two
of the parties, and a "PARTY" means Party A or Party B
or Party C.
3.22 "PRC" means the People's Republic of China.
3.23 "PRODUCTS" means carpet tile and roll goods of up to 2
meters wide with nylon face fibres and a polymeric
plastisol compound backing structure, together with any
new products manufactured and sold by the Joint Venture
Company.
3.24 "RELATED CONTRACTS" means the Trademark License
Agreement and the Technology License Agreement.
3.25 "RENMINBI" or "RMB" means currency of the PRC.
3.26 "SHARES" means the shares in the registered capital of
the Joint Venture Company from time to time.
3.27 "SITE PLAN" means the plan indicating the layout of the
Facility on the Land attached as Appendix IV hereto.
3.28 "TRADEMARK LICENSE AGREEMENT" means the agreement to be
concluded between Interface and the Joint Venture
Company providing for the license to the Joint Venture
Company by Interface for use of the trademark
"INTERFACE".
3.29 "TECHNOLOGY" means the technology to be licensed by
Interface to the Joint Venture Company in the form set
forth in the Technology License Agreement.
3.30 "TECHNOLOGY LICENSE AGREEMENT" means the agreement to
be concluded between Interface and the Joint Venture
Company whereby Interface grants a license for the use
of the Technology, as defined in the Technology License
Agreement, to the Joint Venture Company on the terms
and conditions set forth therein.
3.31 "THE THREE FUNDS" means collectively the Reserve Fund,
the Venture Expansion Fund, and the Staff and Workers
Bonus and Welfare Fund to be established by the Joint
Venture Company pursuant to the Joint Venture Law.
-6-
3.32 "US DOLLARS" or "US$" means dollars of currency of the
United States of America.
ARTICLE 4 ESTABLISHMENT OF THE JOINT VENTURE COMPANY
4.1 ESTABLISHMENT
In accordance with the Joint Venture Law and other
related laws and regulations of the PRC and the
provisions of this Contract, the Parties agree to
establish the Joint Venture Company as soon as
reasonably possible after the fulfillment of all the
conditions mentioned in Article 31.1 hereafter for
implementing this Contract in Shanghai.
4.2 APPROVAL AND REGISTRATION
After this Contract is signed, the Parties shall submit
it to the Examination and Approval Authority for
examination and approval, and shall within 30 days of
receipt of the final approval document carry out
registration procedures with the Shanghai
Administrative Bureau of Industry and Commerce.
4.3 NAME
4.3.1 The Joint Venture Company shall be named
"[Chinese symbols appear here]" in Chinese and "Shanghai
Interface Carpet Co. Ltd." in English.
4.3.2 Party B shall have the right by giving notice
to the Joint Venture Company to cause the Joint
Venture Company to change its name to a name
not including the word "[Chinese symbols appear here]" in
Chinese and "Interface" in English in the following
circumstances:
(a) The combined effective shareholding of
Party B and its Affiliates of the
registered capital of the Joint Venture
Company shall have been reduced to less
than 51 percent of the then registered
capital of the Joint Venture Company; or
-7-
(b) Liquidation of the Joint Venture Company
is completed pursuant to Article 23
hereof; or
(c) Party B requests in writing that change to
the Joint Venture Company.
4.4 ADDRESS
The legal address of the Joint Venture Company shall
be: China Textile International Science Technological
Industrial City, Qingpu County, Shanghai, the PRC.
4.5 LEGAL NATURE
4.5.1 The Joint Venture Company will be a Chinese
legal person and an autonomous economic entity.
4.5.2 All the activities of the Joint Venture Company
shall respect the laws, decrees and pertinent
rules and regulations of the PRC, and its
lawful rights and interests shall receive the
protection of such laws, decrees, and pertinent
rules and regulations.
4.5.3 The structure of the Joint Venture Company
shall be a limited liability company. The
liability of each Party with regard to the
risks and losses of the Joint Venture Company
shall be limited to the making of their
respective contributions to its registered
capital. None of the Parties shall bear any
liability for any of the debts or obligations
of the Joint Venture Company, other than each
Party's subscribed but unpaid contributions to
the Joint Venture Company's registered capital.
4.5.4 The Parties shall share profits of the Joint
Venture Company in proportion to their
contributions to the Joint Venture Company's
registered capital.
-8- ARTICLE 5 PURPOSE, SCOPE OF OPERATIONS AND SCALE OF
PRODUCTION OF THE JOINT VENTURE COMPANY
5.1 PURPOSE
The purpose of the Joint Venture Company shall be, with
the desire of increasing the mutual economic
cooperation and technical exchange between the Parties,
and to further the PRC's economic development, to
import Party B's advanced equipment, scientific and
useful technology and production, operating and
management expertise relating to the Products, and to
produce and/or deal in the Products with a view to
earning satisfactory economic benefits for the Parties.
5.2 SCOPE OF BUSINESS
The scope of business of the Joint Venture Company
shall be to manufacture, market and sell carpet tile
and roll goods of up to 2 meters wide with nylon face
fibre and a polymeric plastisol compound backing
structure.
5.3 SCALE OF OPERATIONS
The initial annual production capacity of the Joint
Venture Company may reach approximately 3 million
square metres, which will be increased in phases to
approximately 10 million square metres per year.
ARTICLE 6 TOTAL INVESTMENT, REGISTERED CAPITAL, AND BORROWED CAPITAL
6.1 TOTAL INVESTMENT, REGISTERED CAPITAL AND BORROWED CAPITAL
6.1.1 The total amount of investment in the Joint
Venture Company is approximately US$12 million.
6.1.2 The registered capital of the Joint Venture
Company is US$5 million. The registration
currency is US Dollars.
-9-
6.1.3 Party A shall contribute 25%, i.e.
US$1,250,000, Party B shall contribute 70%,
i.e. US$3,500,000 and Party C shall contribute
5%, i.e. US$250,000, of the Joint Venture
Company's registered capital.
6.1.4 The balance of the investment, i.e. US$7
million, shall be met by interest free
shareholders' loans provided by the Parties in
respect to their share in the registered
capital of the Joint Venture Company, or by
obtaining loans from one or more financial
institutions inside or outside the PRC as
determined by the Board of Directors.
6.1.5 The working capital requirements of the Joint
Venture Company will be met by obtaining loans
from one or more financial institutions inside
or outside the PRC. Such loans may be secured
by the assets of the Joint Venture Company or
by guarantee provided severally by the Parties
in respect to their share in the registered
capital of the Joint Venture Company.
6.1.6 If required, additional working capital
requirements of the Joint Venture Company may
be met by shareholders' loans provided by the
Parties in respect to their share in the
registered capital of the Joint Venture Company
or by bank loans or as the Board of Directors
otherwise may determine.
6.2 FORM AND SCHEDULE OF CONTRIBUTIONS TO REGISTERED CAPITAL
6.2.1 The Parties' contributions to the registered
capital of the Joint Venture Company shall be
made in cash in accordance with the schedule
set out in Appendix I hereto. Party A's
contribution to the registered capital of the
Joint Venture Company shall be made in US
Dollars or its Renminbi equivalent. The
contribution of Party B and Party C to the
registered capital of the Joint Venture Company
shall be made in US Dollars.
6.2.2 Contributions to the registered capital of the
Joint Venture Company shall only be made after
the Joint Venture Company has received its
business license for carrying out the
activities as contemplated herein and the Joint
Venture Company has formally come into
existence as a legal person under PRC laws.
-10-
6.2.3 The first contribution to the registered
capital of the Joint Venture Company by each of
the Parties shall be 15 % of their respective
interest in the Joint Venture Company, and such
contribution shall be made within three months
of the issuance of the business license to the
Joint Venture Company by the Shanghai Municipal
Administrative Bureau of Industry and Commerce.
The details of further contributions are set
out in Appendix I of this Contract, with the
last contribution to be made not later than
twelve months from the date of the issuance of
the Joint Venture Company's business license.
6.3 VERIFICATION OF CONTRIBUTIONS
After the Parties have made particular contributions to
the registered capital in accordance with Appendix I
hereto, and after the Independent Auditor has verified
them and issued the verification certificates relating
thereto, the Board of Directors shall issue investment
certificates relating thereto in accordance with the
method set forth in Article 11 of the Articles of
Association. No Party may use an investment
certificate issued in the name of the Joint Venture
Company as security for a loan from a bank or financial
institution.
6.4 LATE CONTRIBUTIONS
If any Party fails to make its contribution to the
registered capital as required by Articles 6.1 and 6.2
hereof in the manner and in accordance with the
schedule set forth in Appendix I hereto, the matter
shall be handled in accordance with the Several
Provisions on Capital Contributions by Parties to
Chinese-foreign Joint Ventures. In addition, should
the breaching Party fail to make its contributions or
fail to make its contributions in full within thirty
(30) days from the scheduled contribution date, the
breaching Party shall pay to the Joint Venture Company
interest on the value of each late contribution until
the date when such contribution is actually made. The
rate of interest shall be equal to two percent (2%)
over the prime rate quoted by the Hong Kong and
Shanghai Banking Corporation for overdraft borrowings
in US Dollars duri ...
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