Joint Venture Agreement - Techfaith Holdings Ltd. and NEC Corp.
CONTRACT FOR THE ESTABLISHMENT OF FOREIGN CAPITAL COMPANY
ARTICLE 1
GENERAL PRINCIPLE
In accordance with the stipulations of "The Law of the People's Republic of
China on Foreign-Capital Enterprises", "The Regulations for the Implementation
of the law of the People's Republic of China on Foreign-Capital Enterprises and
other related laws and rules (hereinafter collectively referred to as the
"Foreign-Capital Enterprises Law"), and on the basis of equality and mutual
benefit, Techfaith Holdings Limited and NEC Corporation agree to establish a
wholly foreign owned enterprise with joint investments pursuant to the terms and
conditions contained in this Contract.
ARTICLE 2
PARTIES OF THE COMPANY
2.1 The names and legal addresses of the parties to this Contract are as
follows:
TECHFAITH HOLDINGS LIMITED (hereinafter referred to as "Party A"), a
company duly organized and validly existing under the laws of British
Virgin Islands and hold the effective business license (license number:
551631)
Registered address: Rm. 1909, 19/F, Hutchison House, 10 Harcourt Rd.,
Central, Hong Kong
Legal Representative: Dong Defu
Title: Chairman
Nationality: The People's Republic of China
NEC CORPORATION (hereinafter referred to as "party B"), a company duly
organized and validly existing under the laws of Japan.
Registered address: 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001,
Japan
Legal Representative: Kanasugi Akinobu
Title: President
Nationality: Japan
Party A and Party B are hereinafter referred to as "Party" respectively
and "Parties" collectively.
2.2 Each of Parties hereby represents and warrants to the other Party that:
(a) It is a validly existing enterprise legal person of its country, in
good standing under the laws of its country, and has full power and
right to conduct its business within the scope of its articles of
association or similar corporate constituent
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documents;
(b) It has the authority to enter into and perform this Contract;
(c) It has taken all requisite actions to authorize the execution of
this Contract, this Contract will constitute a valid and binding
contract, and the other party shall have the right to require it to
perform it in accordance with its terms; and
(d) The execution and performance of this Contract will not violate any
commitment or obligation that it has made or assumed contractually
or otherwise, or any law or regulation.
ARTICLE 3
FOUNDING OF THE COMPANY
3.1 In accordance with the Foreign-Capital Enterprises Law and other related
laws, both Party A and Party B agree to establish a wholly foreign owned
enterprise with limited liability (hereinafter referred to as the
"Company") in Beijing, the People's Republic of China (hereinafter
referred to as the "PRC").
3.2 The Chinese name of the Company: [CHINESE CHARECTERS]
The English name of the Company: To be agreed upon by Parties based on
Chinese name.
The Registered Address of the Company: 4/F M8 West No.1 Jiu Xian Qiao Dong
Road, Chao Yang District. Beijing,
China. 100016.
If there is any problem in connection with registration of the name of the
Company in Chinese and/or English, Parties shall discuss and adopt another
name that can be registered, and shall cause the directors of the Company
appointed by them to vote for the adoption of such name.
3.3 The Company is a legal person in the PRC and is subject to the
jurisdiction and protection of the laws, decrees, ordinances and pertinent
rules and regulations of the PRC. All its activities shall be governed by
the laws, decrees, ordinances and other related regulations and rules of
the PRC.
3.4 The Company shall take the form as a Limited Liability Company. The
liability of each Party with respect to the Company shall be limited to
the amount of its respective capital contributions to the registered
capital of the Company set forth in Article 6.2 (hereinafter referred to
as the "Registered Capital").
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3.5 Neither Party shall have any liability (i) in excess of an amount of its
contribution to the registered capital of the Company or (ii) of any sort
whatsoever for the debts or obligations of the Company to any third party
creditors of the Company. Thus creditors of the Company (including
taxation and other authorities) shall look only to the assets of the
Company for payment. Subject to the limitations described above and other
terms and conditions contained herein, the profits and losses of the
Company shall be shared by Party A and Party B in proportion to their
respective capital contributions to the Registered Capital of the Company.
3.6 All legal and administrative details in connection with the establishment
of the Company shall be carried out by Party A in consultation with Party
B.
3.7 Party A shall advance all necessary fees and expenses for the
establishment of the Company set forth in Article 3.6, and shall be
reimbursed for the amount so advanced from funds of the Company, provided,
however, that Party A shall inform Party B and the Company in writing in a
timely manner of the amount so advanced together with appropriate
evidence.
3.8 The establishment of the Company shall be subject to examination and
approval by Beijing Municipal Committee of Foreign Trade and Economic
Cooperation (hereinafter referred to as the "Approval Authority"), and
registration by Beijing Municipal Administration for Industry and Commerce
(hereinafter referred to as the "Registration Authority"). The date of
issuance of the business license for the Company from the Registration
Authority shall be regarded as the date of establishment of the Company
thereinafter referred to as the "Establishment Date").
3.9 Immediately after the Establishment Date, Party A shall send a copy of
such business license to Party B with an English translation.
ARTICLE 4
OBJECTIVES OF THE COMPANY
Parties acknowledge that the purpose of establishment of the Company is to cause
the Company to engage in the business on the principles of the maximizing
profit, and to cause the Company to serve as a modernized enterprise with the
capacity to develop certain technologies regarding mobile terminal products
primarily for party B. Parties contemplates that the Company will be engaged in
development of technologies for 2.5G mobile terminal products to be marketed in
the PRC, and those for 3G mobile terminal products to be marketed worldwide.
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ARTICLE 5
BUSINESS SCOPE OF THE COMPANY
5.1 The business scope of the Company shall be:
(a) to engage in developing technology and performing design works in
connection with the mobile terminal communication equipment; and
(b) to be engaged in other activities adopted by the board of directors
of the Company (hereinafter referred to as the "Board of Directors")
pursuant to Article 8.4.
5.2 Unless otherwise specifically agreed upon by Parties in accordance with
this Contract and approved by the Approval Authority, the Company shall
not perform any business other than those listed in Article 5.1.
ARTICLE 6
REGISTERED CAPITAL AND TOTAL INVESTMENT
6.1 The total investment amount of the Company is fifty million Renminbi
(RMB50,000,000).
6.2 The Registered Capital of the Company shall be fifty million Renminbi
(RMB50,000,000).
Each Party shall subscribe for and make contribution in cash to the
Registered Capital of the Company as follows:
PARTY A: thirty five million Renminbi (RMB35,000,000), accounting for
seventy percent (70%) of the Registered Capital of the Company.
PARTY B: fifteen million Renminbi (RMB15,000,000), accounting for
thirty percent (30%) of the Registered Capital of the Company.
Party A shall make cash contributions in Renminbi and Party B shall make
cash contributions in US dollars. The exchange rate for conversion between
Renminbi and US Dollars for determining Party B's cash contributions shall
be RMB8.2780 per US Dollar.
6.3 Each Party shall contribute its entire amount of contribution to the
Registered Capital within thirty (30) days after the Establishment date,
provided, however, that each Party shall have no obligation to make its
contributions to the Registered Capital if, prior to the completion of
such contributions, (a) the other Party has committed a
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material breach relating to the establishment of the Company hereunder, or
(b) any of the force majeure set forth in Article 21 has occurred and
remains.
6.4 If either Party fails to make its contributions to the Registered Capital
as required in Articles 6.2 and 6.3, it shall be subject to the liability
provided in Article 14.1.
6.5 Within fourteen (14) days after each payment of the contributions pursuant
to Article 6.2, the Company shall, at its cost, cause an accountant
registered in the PRC to verify such payment and issue an investment
verification report, and shall submit such report to the Approval
Authority. In addition, without delay upon such payment, the Company shall
send Parties an original of investment certificate and a copy of such
report. The investment certificate, in which total investment paid by then
by each Party shall be indicated, shall be signed by the chairman of the
Board of Directors. If an investment certificate is defaced, lost, stolen
or destroyed, the Company shall, upon request, reissue such investment
certificate specifying the reasons.
6.6 During the term of corporate existence of the Company, the Company may
increase its Registered Capital in the event (a) the Board of Directors
approves such increase pursuant to Article 8.4, and (b) the relevant
approval is obtained from the Approval Authority in accordance with the
Foreign-Capital Enterprises Law.
6.7.1 During the term of the corporate existence of the Company, neither Party
may transfer or otherwise dispose of all or any portion of its interest in
the Registered Capital to any third party without the prior written
consent of the other Party and the approval by the Approval Authority.
6.7.2 Notwithstanding Article 6.7.1, if at any time either Party desires to
transfer all or any portion of its interest in the Registered Capital
(hereinafter referred to as the "Proposing Transferor"), such interest
shall be first offered to the other Party (hereinafter referred to as the
"First Refusal Party ") by way of a written notification (hereinafter
referred to as the "Transfer Notice"). The Transfer Notice shall be sent
to the First Refusal Party pursuant to Article 26.4, enclosing a copy of
the offer that the Proposing Transferor (i) intends to submit to a third
party or (ii) has received in good faith from a third party and wishes to
accept, and stating (a) its wish to make such transfer, (b) the interest
it wishes to transfer, (c) the price (including the terms and conditions
thereof) of such interest and (d) the identity of such third party.
6.7.3 Upon receipt of me Transfer Notice, the First Refusal Party shall have the
right of first refusal to purchase all or portion of such interest at the
Transfer Price. This right of first refusal shall be exercised within
twenty (20) days from receipt of the Transfer Notice.
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For the purpose of this Article 6.7.3, the "Transfer Price" shall be equal
to the amount of one hundred twenty percent (120%) of the net assets of
the Company times the ratio of the Proposing Transferor's interest in the
Registered Capital to be transferred. In such event, the value of the net
assets of the Company shall be the book value of the net assets of the
Company as of the end of the month immediately preceding the issuance of
the relevant Transfer Notice, which shall be audited by an independent
public certified accountant selected by both Parties.
6.7.4 If the above-referred right of first refusal is not exercised within the
twenty (20) day period or if there is a remainder after exercise of the
right of first refusal, the Proposing Transferor shall have the right,
exercisable after the expiry of the twenty (20) day period or the receipt
of the offer to purchase part of the interest from the First Refusal Party
as the case may be, to transfer the interest or the unsold portion of the
interest to the third party identified in the Transfer Notice at the price
and on terms and conditions not more favorable to such third party than
those contained in the Transfer Notice.
6.7.5 In case of a transfer of all or any portion of the interest owned by the
Proposing Transferor to a third party identified in the Transfer Notice
pursuant to Article 6.7.2, the Proposing Transferor shall cause such third
party to submit to the First Refusal Party a written commitment signed by
an authorized representative of such third party to assume any and all
obligations of the Proposing Transferor under this Contract and the
Articles of Association.
6.7.6 Any purported transfer of all or any portion of the interest in the
Registered Capital by either Party which is not in accordance with the
provisions of Article 6.7 shall be null and void and of no effect
whatsoever. In case that an agreement on the transfer of the interest
owned by either Party shall be reached in compliance with this Contract,
Parties agree to cause all the directors of the Company appointed by them
respectively to vote for such transfer. The Company shall apply for
approval of such transfer to the Approval Authority in accordance with the
Foreign-Capital Enterprises Law and shall use its best efforts to secure
such approval. Party A shall assist the Company in applying for and
securing such approval.
6.7.7 Upon any transfer by either Party of all or any portion of its interest in
the Registered Capital pursuant to Article 6.7, the Proposing Transferor
shall turn in to the Company for cancellation its investment certificate
issued by the Company, and the Company shall issue in its place a new
investment certificate or certificates, as appropriate.
6.7.8 In the event that any transfer by either Party of all of its interest in
the Registered Capital is effected in accordance with Article 6.7, the
Proposing Transferor shall immediately cause all the directors of the
Board of Directors appointed by it and the General Manager and Deputy
Managers of the Company directly and indirectly nominated by it, if any,to
resign from their posts in the Company.
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6.7.9 Notwithstanding the foregoing, Party B hereby explicitly and irrevocably
waives its right of first refusal as stipulated in Article 6.7.2 and 6.7.3
above in case of the assignment of all of Party A's interest in the
Registered Capital of the Company to Party A's parent company if:
(1) Such parent company is established within two (2) years after the
Establishment Date for the purpose of initial public offering of the
stock of such parent company;
(2) Such parent company has one hundred percent (100%) ownership of
voting stock issued by Party A;
(3) Such parent company, in advance, submits to Party B a written
commitment signed by an authorized representative of such parent
company to assume any and all obligations of Party A under this
Contract and the Articles of Association; and
(4) Mr. Dong Defu, a citizen of the PRC with the ID number of
220224197107242611 and having his residential address at 3.4 309C
area, Wang Jing Xin Cheng, Chao Yang District, Beijing 10120, the
PRC, in advance, submits to Party B a written commitment, in a form
and substance, similar to the contract signed by him for the
establishment of the Company.
In such event, Party B further agrees to cause the director of the Board
of Directors they appointed to vote in favor of such transfer.
In addition, in case Party A desires to transfer all or any portion of its
interest in the Registered Capital to Affiliates, upon appropriate
information to be provided by Party A and with the evidence of harmless to
Party B's business, Party B shall negotiate with Party A in good faith for
waiver of its right of first refusal as stipulated in Article 6.7.2 and
6.7.3. For the purpose of this paragraph, "Affiliate" means a legal entity
that directly or indirectly through one or more intermediaries, controls,
is controlled by or under common control with Party A. For the purpose of
this definition, the term "control" means the possession of more than
fifty percent (50%) of the voting stock or other interest for the election
of directors.
ARTICLE 7
OBLIGATIONS OF BOTH PARTIES
In Addition to subscribing for and making contributions to the Registered
Capital pursuant hereto, Parties shall have the obligations set forth in this
Article 7.
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(1) Party A shall be responsible for:
- Matters related to application to the authorities of China for
approval, registration and acquisition of permit or license for the
purpose of setting up the Company;
- Applying for the land use right for the Company, to organize the
design and construction of factory and engineering facilities
required for the Company, to handle customs clearance for import and
export as well as to handle transportation within China;
- Assisting the Company in hiring personnel of Chinese nationality
including managers, technicians, workers and other staff needed for
the Company;
- Assisting the Company in pursuing its business scope set forth in
Article 5, including without limitation, transferring or dispatching
certain appropriate engineers of its subsidiaries who are currently
engaged in the design work for Party B;
- Supporting the Company in obtaining availability of foreign currency
in the PRC;
- Assisting the Company in obtaining loans from financial
organizations in the PRC;
- Assisting the Company in obtaining all the preference treatment
which may be available for the Company as a Foreign-Capital
Enterprise and/or as technologically-advanced enterprise in
accordance with the Foreign-Capital Enterprises Law;
- Assisting the Company in obtaining latest technical and marketing
information related to the businesses of the Company;
- Assisting the Company in obtaining approval related to quality
control such as ISO 9001;
- Causing its subsidiaries to grant to the Company a license for
performing the businesses contemplated herein, including without
limitation, Know-how concerning 2.5G mobile terminal products, in
accordance with the license contract to be entered into between the
Company and such subsidiaries; and
- Other matters entrusted by the Company and accepted by Party A.
(2) Party B shall be responsible for:
- Assisting the Company in procuring the advanced and applicable
machinery and equipment from the international market, provide
related information in that regard by putting quality as top
priority in the selection to ensure the quality and quantity
standard of such equipment.
- Providing the technical assistance to the Company pursuant to the
"Framework Contract" and relevant individual contracts to be
separately entered into with the Company under which the Company
will develop certain technologies for Party B.
- Other matters entrusted by the Company and accepted by Party B.
ARTICLE 8
BOARD OF DIRECTORS
8.1 The Company shall establish the Board of Directors as of the Establishment
Date.
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8.2 The Board of Directors shall consist of five (5) directors (hereinafter
referred to as "Directors"), four (4) of which shall be appointed by Party
A, and one (1) of which shall be appointed by Party B. The Board of
Directors shall have one (1) chairman (hereinafter referred to as
"Chairman"), which shall be appointed by Party A.
8.3 The term of Directors shall be three (3) years and Directors may be
reappointed by the Party which appointed them. The Directors may be
replaced during their term only by the Party which appointed them. The
Directors may be dismissed for misconduct upon consent of all of the
remaining Directors, and the replacement of such dismissed Director shall
be appointed by the Party which appointed such dismissed Director. Should
a vacancy occur in the Board of Directors for any reason, the replacement
shall be appointed in due time for the remaining period of his/her
predecessor by the Party which appointed such predecessor. For any
appointment or replacement of the Directors, the Party which appoints or
replaces shall notify the other Party in writing of the name, age,
address, personal history and other related information of the candidates
in advance, and shall notify the Company and the other Party in writing of
such appointment or replacement.
8.4 The Board of Directors shall be the highest authority of the Company, and
shall have the sole power to decide all the major matters of the Company
including without limitation the followings:
(1) Amendment of the Articles of Association;
(2) Dissolution, liquidation of the Company, and extension of the term
of the corporate existence of the Company;
(3) Increase in the Registered Capital;
(4) Approval of transfer of the interest in the Registered Capital held
by Parties;
(5) Division, merger or change of organization form of the Company;
(6) Creating or issuing a mortgage or pledge of, or any other security
interest over or encumbrance of, the whole or any portion of the
assets of the Company;
(7) Profit distribution or loss treatment;
(8) Approval of the balance sheet, profit and loss statement, cash flow
statement and other annual financial statements;
(9) Any sale or other transfer of any intangible assets of the Company;
(10) Any sale or other transfer of tangible assets to any third party
exceeding the
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amount of one million six hundred Renminbi (RMB1,600,000) in
aggregate;
(11) Equity investment by the Company to any other legal entity;
(12) Approval of the annual loan budget plan of the Company;
(13) Entering into any agreement or transaction with Party A, under which
the Company shall pay, or bear a debt of, an amount exceeding eight
hundred thousand Renminbi (RMB800,000) in aggregate;
(14) Appointment and dismissal of the auditor of the Company;
(15) Establishment of any subsidiaries of the Company;
(16) Addition of any new line of business or discontinuation of any
existing line of business of the Company, amendment of the business
scope of the Company;
(17) Approval of the annual business plan and annual investment plan;
(18) Appointment and dismissal of the General Manager of the Company; and
(19) Adopting rules and regulations of the Company;
8.5 Every Director shall have one (1) vote at the meeting of the Board of
Directors (hereinafter referred to as the "Meeting").
8.6 Those issues listed in (1) through (14) in Article 8.4 shall be decided by
unanimous vote of the Directors attending the Meeting in person or by
proxy. Those issues listed in (15) through (19) in Article 8.4 shall be
decided by a simple majority vote of all Directors attending the Meeting
in person or by proxy.
8.7 The Chairman shall be the legal representative of the Company. When the
Chairman cannot carry out his obligations for whatever reason, he can
authorize another Director to act on behalf of him during the period of
his absence.
8.8 The first Meeting shall be convened within thirty (30) days after the
Establishment Date. Thereafter, each ordinary Meeting shall be convened
once a year within two (2) months after closing date of each fiscal year
at the head quarters of the Company. Any first or ordinary Meeting shall
be convened and presided over by the Chairman. Should the Chairman be
unable to convene or preside over the Meeting, he shall authorize another
Director to convene and preside over the Meeting. If the Chairman or the
Director authorized by the Chairman fails to give notice for convocation
of any ordinary Meeting within two (2) months after the closing date of
each fiscal year, then another Director may convene such ordinary Meeting
and the
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Director to be determined among the Directors then present shall preside
over such ordinary Meeting.
8.9 If Chairman deems necessary or is requested by at least one third of
Directors in a written manner, the Chairman shall convene an extraordinary
Meeting at the head quarters of the Company. In such event, Chairman shall
give each Director a written notice ten (10) days before such Meeting.
Should the Chairman be unable to convene or preside over the extraordinary
Meeting, he shall authorize another Director to convene and preside over
the extraordinary Meeting. If the Chairman or another Director authorized
by the Chairman fails to give notice for convocation of any extraordinary
Meeting within ten (10) days after request in writing for convocation by
the Director, then, the requesting Director may convene such extraordinary
Meeting and the Director to be determined among the Directors then present
shall preside over such extraordinary Meeting.
8.10 Unless waived in writing by all the Directors, the notice of the Meeting
shall be given to all the Directors and Parties by means of courier or
registered airmail at the address set forth in Article 26.4 at least
thirty (30) days prior to the date of the ordinary Meeting and ten (10)
days prior to the date of the extraordinary Meeting. The notice shall (i)
be written in the Chinese and English languages, (ii) specify the place,
date and time of the Meeting, (iii) state clearly and precisely all
matters which are to be considered at the Meeting and (iv) be accompanied
with all materials and documents in the Chinese and English languages
which will be presented to the Meeting for consideration. No business
other than that specifically stated in the notice shall be transacted at
any Meeting.
8.11 The Meeting shall require a quorum of four (4) Directors, provided that
the Director appointed by Party B shall be present in person or by proxy.
In case of non-quorum or absence of such Director, the Meeting shall be
adjourned to the time and date to be agreed upon among all the Directors
then present, and notified to all the Directors in writing.
8.12 The Meeting shall be conducted in Chinese and English languages. The
Company shall, at its cost, arrange for the presence of at least one (1)
skilled Chinese-English interpreter at every Meeting.
8.13 Each Party shall cause the Directors appointed by it to attend the
Meetings. Should the Director be unable to attend the Meeting, he may
appoint a proxy in writing to attend and vote in the Meeting in his place.
In case the Director neither attends nor appoints a proxy to attend the
meeting for any reason other than the force majeure events set forth in
Article 21, such Director shall be deemed to be present at such Meeting
for satisfying the quorum requirement, and shall be deemed to have voted
to concur with the votes cast by a majority of the Directors present at
such Meeting in person or by proxy.
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8.14 In lieu of the Meeting, a written resolution may be adopted by the Board
of Directors. Any written resolution of any Meeting shall require the
confirmation by the number of Directors necessary to make a resolution as
stipulated in Articles 8.6 and 8.11. A written resolution may consist of
several documents in the same form each signed by one (1) or more
Directors.
8.15 Minutes shall be made by the Company for each Meeting and signed by all
the attending Directors or by the attending proxy. Such minutes shall
cover the agenda, the decision made, and time and place of the Meeting.
Such minutes shall be written in English and Chinese, both of which
versions shall be equally authentic, and shall be filed by the Company for
record. The Company shall send the copy of such minutes to both Parties
within ten (10) days from the Meeting.
8.16 No Director shall be entitled to receive any remuneration, allowance or
other fees from the Company as a Director, provided that all the expenses
such as air tickets and accommodation fees incurred to Directors for
attending the Meeting or otherwise performing the Directors' duties shall
be borne by the Company.
ARTICLE 9
OPERATION MANAGEMENT ORGANIZATION
9.1 The Company shall establish a management organization for its daily
operation and management. The Company shall have the following
departments: Research & Development, Sales, Financing, Services, etc.,
which shall be led by a General Manager.
9.2 The Company shall have one (1) General Manager, who shall be nominated by
Party A and appointed by the Board of Directors. The Company may also have
several Deputy General Managers to be appointed by the General Manager.
9.3 The General Manger shall be directly responsible to the Board of
Directors. He shall carry out decisions of the Board of Directors and
matters delegated therefrom, organize and be responsible for the daily
management of the Company, including routine Research & Development, and
other business and administrative tasks, in accordance with this Contract.
9.4 The General Manager and Deputy General Managers may be dismissed by the
Board of Directors at any time if they engage in graft or are found to be
guilty of serious dereliction of duty.
9.5 The department managers of the Company shall be appointed by the General
Manager. The department managers shall be responsible for the operation of
various
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departments respectively, shall handle the matters delegated by the
General Manager and Deputy General Managers and shall be responsible to
the Company.
9.6 During the tenure of office, the General Manager shall not be allowed to
take concurrently position in other companies or entities.
ARTICLE 10
PURCHASE OF EQUIPMENT
In accordance with this Contract and the Articles of Association, the Company
shall have the right to purchase the relevant equipment and instruments
necessary for its corporate activities.
ARTICLE 11
PERSONNEL ADMINISTRATION AND TRADE UNION
11.1 With regard to issues relating to employment, dismissal, wages, labor
insurance, welfare and reward and penalty of the workers of the Company,
the Board of Directors should discuss and work out a labor contract and
then implement it in accordance with "The Law of the People's Republic of
China on Foreign-Capital Enterprise" and the its implementing measures.
The labor contract, after its execution, should be kept in the file of the
local labor administration department.
11.2 The employment conditions for the Company's employees and their numbers
will meet the business demands of the Company. In all cases, the Company
shall employ only those employees who are sufficiently qualified for
employment, as determined through examinations, interviews or other
appropriate means conducted by the Company. Neither Party shall employ any
former employees (except for employees dispatched by such Party) of the
Company who have retired, resigned or been dismissed by the Company,
within three (3) years from such retirement, resignation or dismissal.
11.3 The employees of the Company shall have the right to establish their trade
union and take part in its activities in accordance with the stipulations
of "Trade Union Law of the People's Republic of China." The trade union
shall have the right to negotiate with the Company regarding incentives,
punishment, dismissal, salary, welfare, labor protection, and labor
insurance issues, etc.
ARTICLE 12
TAXATION
12.1 The Company shall pay all the taxes required by the relevant laws and
regulations of
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the PRC. Party A shall make the best effort to get the most favorable
taxation treatment (including without limitation tax exemptions,
reductions, privileges and preferences) for the Company, which are
available or will become available under such laws and regulations.
12.2 The employees of the Company should pay individual income tax according to
the "Individual Income Tax Law" of the PRC.
ARTICLE 13
PROFIT DISTRIBUTION
13.1 If at the end of each fiscal year the Company makes a profit, then after
deduction of income tax payable and after allocation of (i) the Reserve
Fund and (ii) Bonus and Welfare Fund for Staff and Workers in accordance
with the Foreign-Capital Enterprises Law, the net profit shall be
distributed to Parties in proportion to their respective ratio to the
contributions to the Registered Capital actually paid at that time, as
decided by the Board of Directors. The proportion of such allocation of
the Reserve Fund and Bonus and Welfare Fund for Staff and Workers shall be
decided by the Board of Directors subject to applicable laws and
regulations of the PRC. The above distribution shall be made in the same
currency as the payments by Parties of contributions to the Registered
Capital, within thirty (30) days after the resolution of the Board of
Directors. Party A shall assist the Company in remitting such profit to
Party B.
13.2 Notwithstanding the provision of Article 13.1, in no event the Company may
distribute the profit in any fiscal year unless the losses of the previous
year(s) that has not been made up, if any, has been offset. Losses
incurred by the Company in any fiscal year may be carried over to the next
fiscal year. Should the income in the such next year be insufficient to
make up the said losses, the balance may be made up with further
deductions against income year by year over a period not exceeding three
(3) years.
13.3 The plan for profit distribution or retention shall be decided by the
Board of Directors within two (2) months after the end of each fiscal
year.
ARTICLE 14
FINANCIAL AFFAIRS
14.1 The fiscal year of the Company shall start from April 1st and close on
March 31st. The first fiscal year shall start from the date of the
Establishment Date. All accounts and statements shall be written both in
English and Chinese, both of which versions shall be equally authentic.
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14.2 The Company shall handle its accounting affairs in compliance with
applicable laws and regulations of the PRC. To the maximum extent
permitted by such laws and regulations, the Company shall adopt generally
accepted international accounting principles.
14.3 The Company shall open both Renminbi and foreign currency accounts with
one (1) or more banks legal established in the PRC.
14.4 The Company shall adopt accrual basis of accounting and the debit and
credit methods for bookkeeping, and shall adopt the Renminbi as its
account-keeeping unit. The conversion between Renminbi and other
currencies shall be in accordance with the exchange rate on the day of
conversion published by the People's Bank of China.
14.5 After closing date of each fiscal year, the General Manager shall
supervise the preparation of the previous year's balance sheet, profit and
loss statement, cash flows statement and profit distribution and loss
treatment statements. After they have been examined and signed by an
auditor set forth in Article 14.8, no later than thirty (30) days after
the end of each fiscal year, these statements shall be submitted to the
Board of Directors for examination and approval, and to each Party. Such
audited financial statements furnished to Party B shall be accompanied
with an English translation.
14.6 All matters concerning foreign exchange shall be handled according to the
Regulations for Exchange Control of the PRC and other relevant laws and
regulations of the PRC.
14.7 Each Party shall have the right to access to all accounting books and
records of the Company at its own expenses to examine the accounts of the
Company, provided that such Party shall give the Company a seven (7) day
period written notice. The Company shall keep all of such books and
records at its headquarters during the term of its corporate existence.
14.8 The accounts of the Company shall be audited at least annually by an
auditor (hereinafter referred to as the "Auditor") who shall be an
internationally recognized accounting firm registered in the PRC and shall
be appointed by the Board of Directors upon nomination by both Parties, at
the expense of the Company.
14.9 Each Party may, at its own expense and at any time, appoint an accountant
for its own audit (hereinafter referred to as the "Accountant"), who may
be either an accountant registered abroad or registered in the PRC.
Auditing results by the Accountant shall not be deemed as an official
report issued by the Company, provided, however, that the Company shall
fully cooperate with the Accountant in its auditing and provided, Further,
that the auditing results by the Accountant shall be
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properly reflected to the Company, to the extent permitted by applicable
laws and regulations of the PRC.
14.10 Complete access to the accounting books and records shall be given by the
Company to the Auditor and the Accountant, and the Company and the Party
who appoints the Accountant shall cause the Auditor and the Accountant,
respectively, to maintain the confidentiality OF the Company's financial
information and carry out its audit without prejudice to regular operation
of the Company. Any auditing conducted pursuant to Articles 14.7 and 14.9
shall be made during the normal business hours of the Company.
14.11 The Company shall furnish each Party with monthly financial statements
including without limitation balance sheet, profit and loss statement and
cash flows statement, as well as monthly sales and operating report and
other reasonable reporting documents, within thirty (30) days after the
end of each month. All of such information furnished to Party B shall be
accompanied with an English translation. Notwithstanding the foregoing, in
the term until March, 2004, the Company shall furnish each Party with such
financial statements within thirty (30) days after the end of each fiscal
quarter.
14.12 Except the contributions to the Registered Capital set forth in Article
6.2, all financial requirements for operation of the business activities
of the Company shall be provided internally, provided that, if sufficient
funds are not available internally, the Company shall raise the necessary
funds by borrowing from sources on its own loan capacity within the limit
of annual loan budget approved by the Board of Directors pursuant to
Article 8.4. Parties acknowledge that under no circumstances shall Party B
have any obligation to provide any guarantee in connection with any debt
of the Company.
ARTICLE 15
TERM OF THE COMPANY
The term of the corporate existence of the Company shall be twenty (20) years
from the Establishment Date, unless otherwise agreed by both Parties and decided
by the Board of Directors subject to the approval from the Approval Authority.
ARTICLE 16
LIABILITIES FOR BREACH OF CONTRACT
16.1 If either Party fails to make contributions to the Registered Capital
pursuant to Articles 6.2 and 6.3, such Party (hereinafter referred to as
"Failing Party") shall pay an amount equivalent to two percent (2%) of
such outstanding contributions as a
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delay penalty to the other Party (hereinafter referred to as "Non-Failing
Party"). to case Failing Party fails to make contributions to the
Registered Capital more than one (1) month, Non-Failing Party shall have
the right to terminate this Contract immediately, in addition to the
above-mentioned delay penalty.
16.2 If either Party violates any stipulation of this Contract, the other Party
shall have the right to demand the breaching Party compensation for losses
or adoption of other reasonable remedial measures. If the losses suffered
by the non-breaching Party still can not be made up completely after
taking such remedial measures, the non-breaching Party shall retain the
right to claim for damages. The liability for damages by the breaching
Party shall be equal to the loss directly suffered by the non-breaching
Party from such breach. In addition to the right of the non-breaching
Party specified in this Article 16.2, the Company shall have the right to
demand the breaching Party compensation for losses.
ARTICLE 17
AMENDMENT, TERMINATION OF THE CONTRACT
17.1 Any amendment to this Contract shall become effective upon signature in
writing by both Parties.
17.2 Each Party may terminate this Contract by notice to the other Party in
writing immediately if (i) the other Party is adjudicated a bankrupt,
makes a general assignment for the benefit of creditors or otherwise
becomes insolvent, (ii) a petition is filed against the other Party under
a bankruptcy law, a corporate reorganization law or any other law for the
relief of debtors (or law analogous in purpose of effect) and such
petition is not dismissed within thirty (30) days after filing, or (iii)
the other Party enters dissolution or liquidation proceedings.
17.3 If either Party commits any breach of its material obligations under this
Contract other than the payment obligations of its contribution set forth
in Article 6.2, the other Party may give to the breaching Party a written
notice specifying the nature of the breach. If the breaching Party fails
to cure such breach within ninety (90) days from the date such notice is
given to the breaching Party, the non-breaching Party may terminate this
Contract at the expiration date of such ninety (90) day period.
17.4 When the Framework Contract set forth in Article 7(2) is terminated and no
alternative agreement is executed, each Party may terminate this Contract
forthwith by giving a written notice to the other Party.
17.5 If a material disagreement concerning the operation or management of the
Company arises between Parties, which either Party deems in good faith to
be an irreconcilable disagreement, and such Party believes in good faith
that such irreconcilable
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disagreement still exists even thirty (30) days after such Party gives the
other Party a written notice thereof, such Party shall have the right to
terminate this Contract forthwith by giving a written notice to the other
Party.
17.6 In case that either Party causes a notice to terminate this Contract to be
given in accordance with Article 17.2, to the extent permitted by
applicable laws, the terminating Party (hereinafter referred to as the
"Non-Bankrupt Party") shall have the option to purchase, or cause any
third party(ies) designated by it to purchase, and the Party that caused
such notice of termination to be given (hereinafter referred to as the
"Bankrupt Party") shall have the obligation to sell all the interest in
the Registered Capital then owned by the Bankrupt Party. In case of
exercising such option, the Non-Bankrupt Party shall notify the Bankrupt
Party in writing of its intention within thirty (30) days from the date on
which the notice of termination is given to it. The price of such interest
shall be decided by negotiation between Parties within sixty (60) days
after the notice of the intention to exercise the option is given. If
Parties fail to reach an agreement on the price of the interest within
such period, such price shall be decided upon Bankrupt Party's share of
the net worth of the Company, as determined on the basis of the latest
available balance sheet prepared by an internationally recognized
accounting firm designated by the Non-Bankrupt Party using the assets
revaluation method and taking into account the tangible and intangible
asset of the Company. As used herein, the "Bankrupt Party's share" means
the proportion of the interest held by the Bankrupt Party in the
then-current Registered Capital. The costs and expenses incurred in
employing such internationally recognized accounting firm shall be borne
and paid by the Non-Bankrupt Party. Immediately after the sale of interest
pursuant to this Article 17.6, the Party who sells its interest of the
Company shall cause the Directors appointed by it and the General Manager
and Deputy General Managers directly or indirectly nominated by it, if
any, to resign from their posts in the Company.
ARTICLE 18
DISSOLUTION AND LIQUIDATION
18.1 The Company shall be dissolved and liquidated in the event of the
occurence of any of the following:
(1) If the accumulated losses of the Company exceed the then-current
Registered Capital;
(2) The Company is unable to operate for consecutive six (6) months due
to the occurrence of any event of Force Majeure (defined below) and
Parties have been unable to find an equitable solution acceptable to
both Parties;
(3) The Company declares losses for consecutive three (3) fiscal years;
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(4) Any of the business license required for the operation of the
Company shall expire, be terminated early or suspended for a
continuous period of three (4) months;
(5) the Company goes bankrupt, files a petition thereof or becomes
object of such petition;
(6) expropriation or requisition by the government or municipal
authority of all or any material portion of the asset or property of
the Company;
(7) Both Parties agree in writing to dissolved the Company;
(8) The term of the corporate existence of the Company expires;
(9) This Contract is terminated in accordance with Article 17.2 and the
terminating Party has not exercised the option as provided for in
Article 17.6 within the stipulated period;
(10) For whatever reason, the purchase and sale of the interest in the
Company has not been effected pursuant to Article 17.6 within one
hundred and eighty (180) days after the notice of the intention to
exercise the option as provided for thereunder is given;
(11) This Contract is terminated pursuant to any of Articles 16.1,
17.3,17.4 and 17.5.
18.2.1 In the event that the Company is dissolved in accordance with Article
18.1, the procedures and principles of liquidation and a list of members
of the liquidation committee of the Company shall be determined upon
majority consent of the Board of Directors and a report stating them
shall be submitted by the Company to the Approval Authority for approval.
18.2.2 Each member of the liquidation committee shall have equal right to one
(1) vote at the meetings of the liquidation committee. Any matters
considered and determined by the liquidation committee shall require the
unanimous consent of all the members.
18.2.3 The liquidation committee shall inspect and evaluate all the assets
(including, without limitation tangible and intangible properties and
accounts receivable), indebtedness and other liabilities of the Company
and shall prepare for use in the liquidation of the Company a balance
sheet and inventory and liquidation plan. Upon confirmation by the Board
of Directors and the Approval Authority of the liquidation plan, the
liquidation committee shall carry out the liquidation of the Company
according to such liquidation plan. For the purpose of preparing the
liquidation plan, the
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liquidation committee may engage an internationally recognized accounting
firm acceptable to Parties and cause such accounting firm to carry out
inspection and evaluation of all the assets, indebtedness and other
liabilities of the Company. The accounting firm's method of evaluation
shall be properly reflected in the liquidation plan.
18.2.4 During the liquidation process of the Company, the liquidation committee
shall represent the Company in bringing or defending court actions.
18.2.5 If there is any amount remaining after the deduction of all indebtedness
and other liabilities (including, wthout limitation the liquidation
expenses and remunerations), such remaining amount shall be distributed
to Parties in accordance with the decision of the liquidation committee.
18.2.6 On the completion of the liquidation of the Company, the Board of
Directors shall inspect all the books of account and documents of the
Company in comparison with a list presented by the liquidation committee
and after confirmation of accuracy thereof such books of account and
documents shall be kept by Party A.
ARTICLE 19
CHANGE OF LAW
If, after the execution date of this Contract, there arises any amendment,
enactment or repeal of the laws, rules, regulations or policies in the PRC which
is applicable and giving material effect to the Company and/or the activities of
Parties set forth herein (hereinafter referred to as the "Amendment"), Party A
shall make its best effort to inform Party B in writing of the Amendment so that
Parties shall discuss and determine whether or not they need to reflect the
Amendment to this Contract and the Articles of Association.
ARTICLE 20
INSURANCE
All insurances of the Company shall be effected with appropriate insurance
companies in the PRC. The procedures thereof shall be handled by the department
in charge.
ARTICLE 21
FORCE MAJEURE
In case of any Force Majeure event, such as earthquakes, typhoons, floods,
fires, wars, hostilities, civil wars, natural calamities, lockouts, epidemic,
embargo, governmental acts or other events beyond the reasonable control, which
directly affects, delay and/or encumber the
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performance of this Contract, the affected Party shall not be liable for any
delay or inability of performance of its obligation hereunder, provided,
however, that such affected Party shall notify the other Party of the details of
the event within fifteen (15) days after the occurrence of such event, with the
valid certifying documents evidencing the occurrence of the event, and
explaining the reason for its inability or delay of the performance of all or
part of this Contract.
ARTICLE 22
ARBITRATION
22.1 Should any disputes, differences or controversies arise from the
implementation of or relating to this Contract, Parties shall resolve them
through friendly negotiations. If such disputes, differences or
controversies cannot be solved by such negotiations, they shall be
exclusively and finally settled by arbitration held in Singapore in
accordance with the Rules of Arbitration of the International Chamber of
Commerce, whose decision shall be final and legally binding on each Party.
The arbitral tribunal shall consist of three (3) arbitrators to be
appointed in accordance with such rules, and such arbitration shall be
conducted in English language. The arbitration fees payable to the
arbitration organization shall be borne by the losing Party unless
otherwise determined in the arbitration award.
22.2 During the process of arbitration, this Contract shall be continuously
performed except for those relating to discrepancies under arbitration.
ARTICLE 23
EFFECTIVENESS OF THE CONTRACT
23.1 Appendixes attached hereto (Articles of Association) shall be made an
integral part of this Contract.
23.2 This Contract shall become effective upon signature of both Parties.
23.3 Parties shall cause the Company to approve this Contract and observe the
provisions of this Contract and the Articles of Association.
ARTICLE 24
APPLICABLE LAWS
The formation of this Contract, its validity, interpretation, execution and
settlement of disputes in connection herewith shall be governed by the laws of
the PRC irrespective of its conflict of laws principles. Where no published laws
or regulations of the PRC cover any
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matter herein contained, international legal principles and practices shall
apply.
ARTICLE 25
LANGUAGE
This Contract shall be written both in English and Chinese languages. Both
versions hereof shall be equally authentic.
ARTICLE 26
MISCELLANIOUS
26.1 Subtitles for each article are for clearness and do not affect the
explanation of the content of the contract.
26.2 The original text of this Contract consisting of both Chinese and English
versions shall be ten (10) copies, one (1) copy for each Party, one (1)
copy for the Company and seven (7) copies for the Approval Authority and
other governmental authority.
26.3 Parties agree that this Contract shall become null and void in case that
no relevant business license is issued within one hundred forty (140) days
after signature on this Contract.
26.4 Any and all notices or other communications required or permitted to be
made by either Party to the other Party pursuant to this Contract shall be
delivered personally, sent by courier, sent by certified or registered air
mail, postage pre-paid or transmitted by facsimile followed by
confirmation delivered by courier or certified or registered air mail, to
the other Party at the following addresses set forth below or the other
address as specified by like notice from the other Party:
(a) If to Party A, to:
Techfaith Holdings Limited
Rm. 1909,19/F., Hutchison House, 10 Harcourt Rd., Central, Hong Kong
Attention: Mr. Dong Defu
Facsimile No.: +(852)-2121 0345
(b) If to Party B, to:
NEC Corporation
4035, Ikebe-Cho, Tsuzuki-ku, Yokohama 224-8555, Japan
Attention: General Manager
Mobile Terminals Planning Division
Facsimile No.: +81-(45) 9392345
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Such notices and communications shall be deemed given when so delivered if
personally or by facsimile, three (3) days after deposit if by courier, or
ten (10) days after deposit if by certified or registered air mail. Any
and all such notices and communications shall be made in Chinese and
English language.
26.5 No failure or delay of either Party to enforce any of the provisions of
this Contract or to exercise any rights herein granted shall be considered
a waiver by such Party thereof nor shall affect in any way such Party's
right to enforce any or all of the provisions hereof.
26.6 Except as required under applicable laws and regulations, any conditions
of this Contract and any information disclosed among Parties and the
Company pursuant to this Contract (hereinafter collectively referred to as
the "Confidential Information") shall be treated as confidential and shall
not be disclosed to any third party without a prior written consent of the
disclosing party, provided that the Confidential Information may be
disclosed by the receiving party to its officers and employees whose
duties require such disclosure for the execution and implementation of
this Contract or to outside lawyers, accountants and consultants to the
extent necessary for them to provide their professional assistance. In
that event, the receiving party shall take all reasonable precautions,
including the conclusion of confidentiality contracts with each of such
employees, lawyers, accountants or consultants, to prevent such employees,
lawyers, accountants or consultants from using the Confidential
Information for their personal benefit and to prevent any unauthorized
disclosure or publication of the Confidential Information. Notwithstanding
the foregoing provision, the Confidential Information does not include
information which (i) is available to the public or becomes available to
the public through no fault of the receiving party, (ii) is properly
within the legitimate possession of the receiving party prior to its
receipt pursuant to this Contract, or (iii) is obtained without any
confidentiality obligation by the receiving party from any third party
with the proper right.
26.7 The provisions of Articles 14.10, 16, 17.6, 18, 22.1, 24, 25, 26.5, 26.6,
26.7, 26.8 and 26.11 shall continue to survive any expiration of the
corporate existence of the Company or termination of this Contract.
26.8 Except otherwise specifically provided for herein, nothing in this
Contract shall be construed as granting to the other Party or the Company
any right or license including without limitation the right to use trade
name, trademark or service mark of either Party. If agreed upon between
Parties, each Party may make press release regarding the Company and make
reference to the name of the other Party.
26.9 Except otherwise expressly provided for in this Contract, neither this
Contract nor any of the rights or obligations hereunder shall be
assignable by either Party without
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the prior written consent of the other Party and approval by the Approval
Authority (if necessary).
26.10 If any of the provisions of this Contract shall be held invalid or
unenforceable, the validity or enforceability of the remaining provisions
hereof shall not be affected thereby.
26.11 Except the Articles of Associate, this Contract shall constitute the sole
and entire agreement and understanding between Parties relating to the
subject matter hereof, and shall supersede and cancel all previous
agreements, understandings, negotiations, commitments and representations
made between Parties, orally or in writing, relating to subject matter
hereof.
26.12 This Contract is executed in ten (10) counterparts by the duly authorized
representatives of Parties as of 26th day of September, 2003.
(Signature Page)
PARTY A:
Signature: /s/ Dong Defu
Print name: Dong Defu
Title of Signatory: Chairman
Date: 2003/9/26
PARTY B:
Signature: /s/ Noboru Yasue
Print name: Noboru Yasue
Title of Signatory: Senior General Manager
Date: 2003/9/26
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