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Sino-American Equity Joint Venture Contract

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SINO-AMERICAN


EQUITY JOINT VENTURE CONTRACT


BETWEEN


FUJIAN FUFA COMPANY LIMITED


AND


MAGNETEK, INC.


FOR THE ESTABLISHMENT OF


MAGNETEK FUZHOU GENERATOR


COMPANY LIMITED


CONTENTS


CHAPTER I GENERAL PROVISIONS 1 CHAPTER II PARTIES TO THE CONTRACT 1 CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY 2 CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS 4 CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 5 CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY 9 CHAPTER VII PROVISIONS OF TECHNOLOGY 12 CHAPTER VIII SELLING OF PRODUCTS 16 CHAPTER IX THE BOARD OF DIRECTORS 17 CHAPTER X BUSINESS MANAGEMENT STAFF 18 CHAPTER XI PURCHASE OF EQUIPMENT 20 CHAPTER XII LABOR MANAGEMENT 20 CHAPTER XIII ACCOUNTING, AUDITING AND TAXATION 21 CHAPTER XIV DURATION AND TERMINATION OF THE CONTRACT 22 CHAPTER XV INSURANCE 26 CHAPTER XVI THE AMENDMENT OF THE CONTRACT 27 CHAPTER XVII LIABILITIES FOR BREACH OF CONTRACT 27 CHAPTER XVIII FORCE MAJEURE 28 CHAPTER XIX APPLICABLE LAW 28 CHAPTER XX SETTLEMENT OF DISPUTES 28 CHAPTER XXI LANGUAGE 30 CHAPTER XXII EFFECTIVENESS OF THE CONTRACT AND MISCELLANY 30


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SINO-AMERICAN
EQUITY JOINT VENTURE CONTRACT
BETWEEN
FUJIAN FUFA COMPANY LIMITED
AND
MAGNETEK, INC.
FOR THE ESTABLISHMENT OF
MAGNETEK FUZHOU GENERATOR COMPANY LIMITED


This Contract (hereinafter referred to as the "Contract") for the Establishment of MAGNETEK FUZHOU GENERATOR COMPANY LIMITED (hereinafter referred to as the "Company") is entered into by and between FUJIAN FUFA COMPANY LIMITED (hereinafter referred to as "Party A"), and MAGNETEK, INC. (hereinafter referred to as "Party B", and together with Party A, the "Parties" or "Party" if the context so requires) and shall be effective as of the date that the Contract, including its Schedules attached hereto, receives approval by the Fuzhou Foreign Trade and Economic Cooperation Bureau of the People's Republic of China ("PRC") or its relevant examination and approval authority having due authority to approve this Contract (the "Approving Authorities"). Such date is hereinafter referred to as the "Effective Date". References to the PRC in this Contract shall not be applicable to Hong Kong, Macau or Taiwan.


CHAPTER I GENERAL PROVISIONS


In accordance with "The Company Law of the People's Republic of China" and "The Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment", as well as other relevant promulgated and publicly available Chinese laws and regulations, Party A and Party B, adhering to the principle of equality and mutual benefit and through friendly consultations, agree to jointly invest in, and to set up the Company, as an equity joint venture limited liability enterprise in Fuzhou, Fujian, PRC, in accordance with the following terms and conditions:


CHAPTER II PARTIES TO THE CONTRACT


Article 1


The Parties to this Contract are as follows:


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1.1 Party A: FUJIAN FUFA COMPANY LIMITED, a duly established and registered
Company under the laws of the PRC, whose legal address is at 223 Gong Ye
Road, Fuzhou, Fujian, PRC 350004. The designated legal representative for
Party A is :


Name: Chen Guo Xiang
Position: Chairman of the Board and General Manager
Nationality: Chinese Citizen


1.2 Party B: MAGNETEK, INC., a duly established and registered corporation
under the laws of the State of Delaware in the United States of America,
whose legal address is at 26 Century Blvd., P.O. Box 290159, Nashville,
Tennessee 37229-0159. The designated authorized representative for
Party B is:


Name: Gary R.Wolfe
Position: Vice-president of the Generator Business
Nationality: USA Citizen


1.3 The Parties reserve the right to change their respective legal or
authorized representatives from time-to-time upon prior written notice to
the other Party.


CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY


ARTICLE 2


2.1 In accordance with "The Company Law of the People's Republic of China"
and "The Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment" as well as other relevant promulgated and
publicly available Chinese laws and regulations, both Parties to this
Contract agree to establish MagneTek Fuzhou Generator Company Limited, a
Sino-American equity joint venture limited liability enterprise.


2.2 Contemporaneously with the execution of this Contract, the Parties have
approved and adopted the "Articles of Association" for the Company, which
shall come into effect together with the Contract upon the grant of
approvals by the Approving Authorities.


ARTICLE 3


3.1 The name of the Company in English is MagneTek Fuzhou Generator Company Limited.


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3.2 The name of the Company in Chinese is "______________________________".


3.3 The name of the Company shall be used to identify the Company in
connection with any and all of its activities. The legal address of the
Company is at 223 Gong Ye Road, Fuzhou, Fujian, PRC 350004.


ARTICLE 4


4.1 The activities of the Company shall be governed, where applicable, by
this Contract and the relevant promulgated and publicly available laws,
decrees, rules and regulations of the PRC.


ARTICLE 5


5.1 The organization form of the Company is a limited liability company.


5.2 The Company shall be responsible for all its liabilities up to the
amount of its assets. Each Party's individual liability to the Company is
limited to and shall not exceed its respective capital contribution to the
Company's registered capital, such capital contribution hereinafter
sometimes being referred to as a Party's "Equity Interest" in the Company.


5.3 Neither Party A nor Party B shall be individually liable for any other
debt or obligation of any nature whatsoever of the Company, or of the other
Party, unless otherwise stated in writing and signed by a designated legal
representative (in the case of Party A) or a designated authorized
representative (in the case of Party B) of the Party to be charged with
such liability.


5.4 The Company shall not, and does not have the authority to bind or
obligate either Party A or Party B in their individual capacities, unless
otherwise provided in the Contract.


5.5 The profits of the Company shall be shared by the Parties in proportion
to their respective contributions to the registered capital of the Company.


5.6 The risks and losses of the Company shall be shared by the Parties in
proportion, but not to exceed their respective subscribed contribution to
the Company's registered capital.


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CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS


ARTICLE 6


6.1 The purpose of the Parties in entering into this Contract and
forming the Company is to enhance economic cooperation and technical
exchange, to elevate the product posture in the market, elevate the
process and management technology of the Company, improve the product
quality, develop new products, and gain and maintain a competitive
position in its world marketplace and enhance overall business
capabilities, quality, service and price, by adopting internationally
advanced and appropriate technology and scientific management methods, so
as to generate satisfactory economic returns to the Company and achieve
satisfactory economic profits for the Parties.


ARTICLE 7


7.1 The production and business scope of the Company shall include the
production of the generator products set forth in Schedule A of the
Contract, as may be amended from time-to-time by the Board of Directors,
and to include all related accessories and attachments for such generator
products (hereinafter referred to as the "Products").


7.2 The production and business scope of the Company will also include
aftermarket maintenance service and replacement parts sales for the
Products. Party A, including its direct and indirect subsidiaries and
affiliates, shall discontinue generator aftermarket maintenance service
and replacement parts sales within the PRC on a time schedule to be
agreed upon by the Company's Board of Directors, and upon authorization
by the Company, Party A may conduct replacement parts sales for the Party
A Products set forth in Section 2.1 of Schedule A sold outside the PRC,
exclusive of the Nippon Sharyo Generators, defined in Schedules A and D.


ARTICLE 8


8.1 The present estimated scale of production is approximately 7,000 units by
the end of calendar year 1998. Actual production levels are to be
determined by the Board of Directors based upon market demand and
conditions.


8.2 Within five (5) years from the Effective Date of this Contract, the
Parties shall review the production capacity and determine whether the
capacity of Products should be expanded or adjusted to match market
demand or other circumstances.


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CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL


ARTICLE 9


9.1 The total amount of investment of the Company will be 13,700,000.00
U.S. Dollars ("USD").


ARTICLE 10


10.1 The registered capital of the Company will be 10,548,332.00 USD.


ARTICLE 11


11.1 Each Party's cash and non-cash contribution to the registered capital of
the Company, shall be:


(a) Party A shall inject cash and non-cash contributions of 4,746,749.00
USD to the Company which shall constitute 45% of the registered
capital of the Company;


(b) Party B shall inject cash and non-cash contributions of 5,801,583.00
USD to the Company which shall constitute 55% of the registered
capital of the Company.


11.2 The Parties shall make their respective contributions to the registered
capital of the Company in the following manner:


PARTY A'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION


Party A's contribution of non-cash assets shall be in accordance with the
terms of the form of Capital Contribution Schedule set forth in Schedule
B, (hereinafter the "Contribution Schedule" or "Schedule B") and the form
of Deed of Generator Business Transfer and Technology License, a form of
which is attached hereto as Schedule D (the "Deed of Generator Business
Transfer and Technology License")


(i) Existing generator business ("Party A's Generator Business"), as
described in Schedule D
(ii) Rights to use the existing technology of Party A's Generator
Business
(iii) Rights to use the "Fufa" trademark on the Products


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equivalent in value to 424,000 USD


(iv) Cash 4,322,749 USD


PARTY B'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION


(i) Rights to use generator and automatic voltage regulator technology
(ii) Rights to use the "MagneTek" trademark on the Products

equivalent in value to 1,613,000 USD


(iii) Cash 4,188,583 USD


TOTAL REGISTERED CAPITAL 10,548,332 USD

The terms and conditions in accordance with which Parties A and B shall
make their respective contributions to the Company's registered capital
are set forth in Schedule B.


11.3 Immediately after the Business License Date (as hereinafter defined),
Party A shall enter into the Generator Business Transfer and Technology
License and Party B shall enter into the Deed of Technology License in
order to effect their respective contributions to the registered capital
of the Company as provided in Articles 11.1 and 11.2 herein. For purpose
of this Contract, the Business License Date shall be the date of the
initial business license for the establishment of the Company, as issued
by the relevant government authority.


11.4 Party A may use Renminbi of the PRC (RMB) as its cash contribution. The
exchange rate of RMB for USD will be the mid-rate of exchange for buying
and selling USD quoted by the People's Bank of China for the day when the
contribution of cash is received by the Company.


ARTICLE 12


12.1 Total contribution by the Parties to the registered capital of the
Company shall be made in predetermined installments on a timely basis
in accordance with Schedule B.


12.2 As soon as each Party has contributed an installment of its subscribed
capital, a PRC registered accountancy firm appointed by the Company shall
verify the actual contribution and issue an interim investment
verification report for such


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installment. A formal investment verification report shall be issued by
such registered accountancy firm when all the registered capital has been
fully paid-up. According to this investment verification report, the
Company shall issue to such relevant Party a certificate of capital
contribution which shall include the following items:


(i) name of the Company;


(ii) date of establishment of the Company;


(iii) name of the Party and total amount of registered capital subscribed
by that Party;


(iv) amount of capital contribution made by the Party to-date, and the
date of making the same;


(v) date of issuance of the certificate of capital contribution.


12.3 Within 90 days of signing the Contract by the respective, duly
authorized representatives of the Parties, Party A shall enter into the
form of Lease Contract. Pursuant to the terms of the Lease Contract,
Party A shall lease to the Company the Site and facilities (the "Site")
to be used by the Company for its manufacturing business, all as
indicated in the red line drawings and improvement descriptions contained
in the Lease Contract. At the time of the execution of the Lease
Contract, Party A shall hold a land use certificate evidencing Party A's
land use grant right in the Site being leased to the Company. Party A
shall have paid all premiums required under the land use grant between
Party A and the Fuzhou Land Administration Bureau covering the Site
thereby enabling Party A to legally lease the Site with improvements
thereon to the Company. Party A represents and warrants to Party B that
the Site is environmentally acceptable, contamination free and is in full
compliance with the relevant government authority for land
administration, environmental protection, water and soil conservation,
construction standards, fire prevention and worker safety. Party A hereby
indemnifies and holds harmless Party B and the Company for any and all
claims, demands, liabilities, damages, costs and expenses that arise out
of, or in connection with, any use of or activities on the Site, or
failure of the Site to meet compliance standards indicated in the
preceding sentence prior to the date of the Lease Contract.


12.4 Each Party shall cooperate and deal fairly and in good faith with the
other in the performance of this Contract and in the operation of the
Company.


12.5 In the event that the Company's Board of Directors approves an increase
of the registered capital of the Company, then each Party shall pay into
the Company, on such terms and at such times as shall have been approved
by the Company's Board of Directors, its respective portion of the
registered capital so increased, as


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determined by its Equity Interest immediately prior to the making of the
decision by the Board of Directors for the increase of the registered
capital.


12.6 If a Party fails to pay its portion of the Company's registered capital
when due (the "Non-performing Party"), whether the initial registered
capital approved in Chapter V of this Contract or increased registered
capital approved by the Board of Directors, and if the other Party (the
"Performing Party") makes its full capital contribution within the time
limit, then, subject to the provisions of Article 38, the Performing
Party shall have the right to subscribe to the portion of the
Non-performing Party, and consequently the Performing Party's Equity
Interest shall be increased and the Non-performing Party's Equity
Interest shall be decreased to reflect their actual payment into the
Company's registered capital.


ARTICLE 13


13.1 In case a Party wishes to assign all or part of its Equity Interest to a
third party, consent to such assignment must be obtained from the other
Party and approval thereof obtained from the Board of Directors. In
addition, approval must also be granted by the original Approving
Authorities. The assignee is required to assume all the assignor's rights
and obligations under this Contract in respect to the assigned portion of
the investment.


13.2 When one Party wishes to assign all or part of its Equity Interest to a
third party, the other Party shall have a right of first refusal to
purchase that portion of that Party's Equity Interest in the Company's
registered capital which that Party wishes to assign in accordance with
the following provision:


(a) A Party who wishes to assign all or part of its Equity Interest in
the Company (the "Transferring Party") shall notify the other Party
of its desire to do so, and the other Party shall have the
preferential right within 60 days following the receipt of such
notice to agree to purchase all of the offered Equity Interest upon
the terms offered by the Transferring Party.


(b) If at the end of such 60 day period, the other Party has not agreed
to purchase all the Equity Interest offered by the Transferring
Party upon terms which the Transferring Party is willing to accept,
the Transferring Party shall be free to assign all or part of its
Equity Interest to any third party, provided that the conditions of
such sale cannot be more favorable to the third party, and provided
further that the approvals referred to in Article 13.1 herein are
granted.


13.3 Notwithstanding anything contained in Articles 13.1 and 13.2 herein to
the contrary, if one Party wishes to assign or transfer all or a part of
its Equity Interest (the "Assigning Party") to an affiliate of the
Assigning Party or, in the event of a


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sale, merger, or assignment of the generator business of the Assigning
Party, to a third party which is at least as financially viable as the
Assigning Party (such affiliate or third party referred to as the
"Permitted Assignee"), provided that the Assigning Party has entered into
all necessary instruments and agreements with the Permitted Assignee for
the transfer of the title or right to use and sublicense the respective
technology previously licensed to the Company by the Assigning Party as
part of its contribution to the Company and further provided that in the
case where Party A is the Assigning Party, such Permitted Assignee is not
a company or entity that is a competitor of Party B, the other Party does
hereby give consent to such proposed assignment or transfer and shall
cause the Directors appointed by it to approve such assignment or
transfer. Approval must also be granted by the original Approving
Authorities. Such transfer or assignment will become effective upon the
grant of approval by the original Approving Authorities. The Permitted
Assignee is required to assume the Assigning Party's rights and
obligations under this Contract arising from ownership of the portion of
the Equity Interests being transferred. In the case where Party B is the
Assigning Party, Party B shall not use the technology it has licensed to
the Company to produce separately the Products in the PRC for the term of
this Contract. For purposes of this Article 13.3, and as used elsewhere
in this Contract, "affiliate" shall mean: (i) any company or entity that
directly or indirectly holds a controlling interest of the issued and
outstanding voting shares or equity interests in the Assigning Party (a
"Parent Company"); (ii) any company or entity in which the Assigning
Party directly or indirectly holds a controlling interest of the issued
and outstanding voting shares or equity interests; or (iii) any company
or entity in which a Parent Company directly or indirectly holds a
controlling interest of the issued and outstanding voting shares.


CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY


ARTICLE 14


Party A and Party B shall be respectively responsible for the following matters in addition to other obligations under this Contract:


14.1 Responsibilities of Party A:


(A) Handling of applications and obtaining approval, registration and
business license for the establishment of the Company, assisting the
Company in being designated "technologically advanced enterprise" and/or
"export-oriented enterprise", and obtaining all the tax incentives
available in connection with such designation and assisting in other
matters concerning the establishment and operation of the Company from
relevant departments in charge in the PRC;


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(B) Assisting the Company with the organization, design and construction of
the premises and other facilities of the Company;


(C) Making cash and non-cash contributions, in accordance with the
stipulations in Article 11 of this Contract, Schedule B and Schedule D;


(D) Assisting the Company to make necessary installation, start up,
calibration and final acceptance of normal operation of machinery and
equipment provided to the Company by either Party A or B or acquired by
the Company;


(E) Assisting the Company and Party B in the importation of equipment,
machinery and raw materials; in handling customs procedures and
obtaining all necessary import licenses or permits relating to the
aforesaid imports and arranging the domestic transportation of the
aforesaid imports after they are shipped to a designated port of the PRC;


(F) Assisting the Company in purchasing or leasing equipment, components,
raw materials, articles for office use, means of transportation and
communication, etc.;


(G) Assisting the Company in ensuring adequate supplies of all necessary
utilities including water, electricity, transportation, and
telecommunications;


(H) For properties leased to the Company, assisting the Company to obtain all
adequate fire protection and other insurance to protect the interests
of the Company;


(I) Assisting the Company in recruiting and employing qualified Chinese
management personnel, technical personnel, workers and other personnel
needed;


(J) Assisting foreign workers and staff in applying for entry visas and work
licenses, and in processing their traveling matters; and providing
personnel records for all former employees of Party A who become
employees of the Company ;


(K) Recommending the needed technical personnel to support and use product
process and management technologies contributed to the Company by
Party B;


(L) Recommending the necessary English speaking technical and management
personnel, to enable timely and efficient training to be contributed by
Party B to the Company;


(M) Assisting the Company in obtaining adequate housing for its expatriate
employees and otherwise obtaining other welfare and recreational
facilities for its employees;


(N) Assisting the Company in applying to authorized banks approved by the
PRC State Administration of Exchange Control for the opening of foreign
currency


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and Renminbi accounts and assi
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