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LIAONING PUBLISHING GROUP OF COMPANIES
QINNET.COM, INC.
CONTRACT
FOR
ESTABLISHMENT OF JOINT VENTURE COMPANY
LIAONING QINNET E-BOOKS CO., LTD.
TABLE OF CONTENT
Chapter 1 General
Chapter 2 Definitions and Interpretations
Chapter 3 Parties of the Contract
Chapter 4 Business Objectives, Scope and Scale
Chapter 5 Total Investment and Registered Capital
Chapter 6 Responsibilities of Parties
Chapter 7 Purchase, Production and Sales
Chapter 8 Board of Directors
Chapter 9 Labor Management
Chapter 10 Finance, Tax and Dividends
Chapter 11 Expiry of the Contract
Chapter 12 Union and Insurance
Chapter 13 Amendments, Changes and Termination of the Contract
Chapter 14 Disputes and Arbitration
Chapter 15 Effectiveness of the Contract and Other Documents
Appendix: Required Files for the Incorporation of Joint Venture
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CHAPTER 1: GENERAL PRINCIPLES
Article 1 According to the Letter of Intent signed by Liaoning
Publishing Group of Companies (LPG), China and Qinnet.Com, Inc.,
USA, and the Enterprise Laws and other relevant regulations of
the People's Repbulic of China for Sino-Foreign Joint Venture
Companies, and based on principles of equality and mutual
benefits, the two parties agree to sign this contract, so as to
develop high-tech business, and employ modern Internet technology
to develop hardware and software technologies for electronic
books and electronic commerce in China.
CHAPTER 2: DEFINITIONS AND EXPLANATIONS
Article 2 Unless otherwise with separate descriptions in this
contract, the following terms are defined as:
1. "Party A": Liaoning Publishing Group of Companies ("LPG")
2. "Party B": Qinnet.Com, Inc. ("Qinnet")
3. "One Party": Party A or Party B
4. "Two Parties": Party A and Party B
5. "Joint Venture": The joint venture company which is
established by the two parties according to
the relevant Chinese laws
6. "Contract and this Contract": Contract and its appendices between the two
parties
7. "Approval Organization": Industrial and Commerce Bureau of
Shenyang Nanhu High-Tech Industrial District.
8. "Effective Date": The date on which this contract is
approved and issued the business license by
the government organizations
9. "Articles of Association": Articles of the joint venture company
10. "RMB": Legal currency of the People's Republic
of China
11. "USD or US$" Legal currency of the United States
of America
12. "Products and Services": Internet products, value-added products
and services provided by the joint venture
according to this contract
13. "Force Majeure": Any of the following disasters: war,
earthquake, typhoon, flood, fire and other
unforeseeable and inevitable external forces
which are beyond protections and avoidance
CHAPTER 3: TWO PARTIES
Article 3 The two parties of the joint venture are:
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Party A: Liaoning Publishing Group of Companies
that has rights to conduct publishing
business in China
Legal representative: Ren Huiying
Corporate address: 24-11th Wei Road, Shenyang, Liaoning 110003, China
Party B: Qinnet.Com, Inc. that is a public company
listed on the Nasdaq in the United States
of America
Legal representative: Weiguo Lang
Corporate Address: 6th Floor, 450 North Brand Blvd., Glendale,
California 910203 USA
Article 4 The two parties agree to form a joint venture company
in Shenyang, China (the "JV") in accordance with the Enterprise
Laws of the People's Republic of China, and other relevant laws
and regulations of China.
Article 5 The Chinese name of the JV is Liaoning Qinnet E-book
Technologies Ltd.
Article 6 All the business conducts of the JV shall follow the
laws and regulations of the People's Republic of China and the
relevant regulations of the local government.
Article 7 The JV is a limited liability company. Each of the two
parties of the JV shall bear its own credit rights and limited
liabilities of the JV according to terms and conditions of the
cooperation. The two parties share profits and bear risks and
losses according to the contract.
CHAPTER 4 BUSINESS AIM, SCOPE AND SCALE OF THE JV
Article 8 The aim of the cooperation is to utilize capitals,
technologies, publishing resources and international connection
resources of the two parties to conduct economic cooperation,
technology exchange; to develop electronic-book software and
produce and sell electronic reader as well as after-sale
services.
CHAPTER 5 TOTAL INVESTMENT AND REGISTERED CAPITAL
Article 9 The total investment and the registered capital of the
JV is US$5,000,000. Party A shall invest the amount of RMB which
shall be equal to US$2,000,000 and own 40% equity interests in
the JV. Party B shall invest US$3,000, 000 and own 60% equity
interests in the JV. The two parties can increase the investment
and the registered capital according to electronic publishing
business and related Internet technology services capacity and
future development of the JV.
Article 10 The two parties shall invest their capital according to
their equity ratios.
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Article 11 The JV shall reserve rights to go public on stock
markets independently in China and abroad when it is mature.
Article 12 The difference between the total investment and the
registered capital shall be compensated by the two parties. It
can be resolved using bank loans or reinvestments.
Article 13 For sales or transfers of the registered equity, if one
party is to transfer its equity shares in the JV, it must be
agreed by the other party. The other party has the first right
of refusal to purchase the shares. If the other party disagrees
to transfer, it should acquire the shares.
Article 14 The two parties shall consult to distribute profits to
management of the JV according to the JV's business operation.
CHAPTER 6 RESPONSIBILITIES OF THE TWO PARTIES
Article 15 The two parties shall jointly share responsibilites of the JV.
Party A:
1. to assist in completing the project application and
approval, Internet operating license, and registration,
business license and duty registration of the JV.
2. to establish relationships between the JV and local
government and organizations concerned, and try to obtain
incentive policies of Liaoning Provincial Government.
3. to timely provide network equipments, book copyrights and
required capital according to the Articles 9 and 10 of this
Contract.
Party B:
1. to timely provide the JV with required capital according to
Article 9 of this Contract.
2. to assist the JV in purchases of required equipments,
hardware and software, and responsible for relevant legal
reliabilities.
3. to provide the JV with advance international electronic
editing and Internet technologies and modern management
method in order to ensure implementations of quality
Internet services and technologies.
4. to assist the JV with other consigned matters.
CHAPTER 7 PURCHASE, PRODUCTION AND SALES
Article 16 Under the same conditions, the JV shall consider with
the priority purchasing required equipment, hardware and
software, technologies and office equipment, etc. inside of
China.
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Article 17 The JV's electronic editing and electronic books and
the Internet products and services can establish website mirrors
for users outside China.
CHAPTER 8 BOARD OF DIRECTORS
Article 18 The Board of Directors of the JV shall be formed when
the JV is officially approved and the registration becomes
effective.
Article 19 The Board of Directors is formed with 7 members, among
whom 3 are designated by Party A and 4 by Party B. The Chairman
shall be appointed by Party B and the Vice Chairman shall be
appointed by Party A. Each term of the directorship is 4 years
and renewable. The two parties shall have rights to replace
their own directors.
Article 20 The Board of Directors is the highest operational
authority and shall make decisions for all the major policies of
the JV. The following important matters shall resolved by all
the directors anonymously:
1. Amendment to the Articles of Association;
2. Increase and/or decrease of each party's equity investment
in the JV;
3. Early termination of the JV prior to the expiration.
Other unmentioned issues above can be resolved with simple
majority procedure. The minority is subordinate to the majority.
Article 21 The Board of Directors shall hold at least a meeting
once a year. The Chairman shall call on and chair the meeting.
If more than one-third directors put forward a proposal, the
Chairman should call an extraordinary board meeting. The
Chairman is the legal representative of the JV. If the Chairman
cannot fulfill the duties for reasons, he or she can temporarily
appoint another director as the legal representative.
Article 22. General Manager and Deputy General Manager of the
JV shall be appointed and approved by the Board of Directors.
The service term is four years. They can be reappointed or
dismissed before the term end.
Article 23. General Manager is responsible for the Board of
Directors; executes resolutions of the Board; and carries out the
JV's daily operation. Vice General Manager assists in the
General Manager work. Division managers shall be hired with
approvals of management meetings of the JV. All division
managers shall be responsible for the General Manager. Financial
controller of the JV shall be recommend by Party B, and
responsible for financial work of the JV. The Board of Directors
decides to hire and/or dismiss the financial controller.
Article 24. In the event that the General Manager or the Vice
General Manager pursues their own personal benefits and is found
to take bribes or neglect their duties,
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they can be dismissed by the Board of Directors at any time, and
shall bear liabilities accordingly.
CHAPTER 9 MANAGEMENT OF EMPLOYEE
Article 25 According to the Labor Laws and the Enterprise Laws of
the People's Republic of China, the Board of Directors of the JV
is responsible for stipulating rules for employee hiring,
dismissal, salary, labor insurance, benefits, reward and
punishment. The signed labor contract shall be submitted to the
local labor department for filing.
Article 26 The Board of Directors decides salaries, benefits and
travel allowance for senior management. Salary scales for
employees shall be determined at General Manager's office
meetings.
CHAPTER 10 FINANCE, TAX AND DIVIDENDS DISTRIBUTION
Article 27 The JV shall pay taxes according to the Chinese laws
and regulations, and in the meantime, enjoy various incentive
policies of Liaoning Province and Shenyang City.
Article 28 All employees of the JV shall pay personal income taxes
according to the personal income tax laws of the People's
Republic of China.
Article 29 The JV shall establish Reserve Fund, Enterprise
Development Fund and Workers' Benefits and Reward Fund. These
three funds shall be equal to 10% of net profit of the JV in the
first year. After the second year, this ratio shall be
determined by the Board of Directors according to situations of
the JV's business operation. After deducting the above funds,
the net profit shall be distributed as follows:
Party A: 40%; Party B: 60%
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Article 30 The JV shall establish a complete financial controlling
system and accounting books in accordance with the relevant
Chinese laws and the US GAAP standard. All the accounts,
invoices, receipts and account books shall be written in Chinese.
The financial reports can be written in Chinese and English, and
shall be submitted to the relevant authorities according to the
regulations of the financial and tax departments.
Article 31 Financials of the JV shall be audited by legally
registered and internationally reputable professional accounting
firms. The auditing report shall be submitted to the Board of
Directors.
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CHAPTER 11 EXPIRY OF THE COOPERATION
Article 32 The expiry of the cooperation is 20 years after the JV
is approved to establish and it can be extended upon the two
parties agreement and approval by the local government.
Article 33 The key objective in the first stage of the JV
operation is to construct online publishing website to accomplish
the digital publishing.
Article 44 After successfully completing the first stage
operation, the JV shall enter into the second stage where the JV
shall expand its business scale, develop electronic book readers
and print-on-demand business.
Article 45 The key objective of the second stage is to expand
business cooperation with domestic publishers and other medias to
make broader markets available for the electronic book readers
and to produce them locally.
CHAPTER 12 TRADE UNION AND INSURANCE
Article 36 Employees of the JV can establish a trade union
according to the laws and organize sport and entertainment
activities as well as protect the legal benefits of the
employees. The JV shall provide the union's activities with
necessary conditions.
Article 37 The JV shall purchase necessary insurance to ensure
normal business conducts of the JV.
CHAPTER 13 AMENDMENTS, CHANGES AND TERMINATION OF THE CONTRACT
Article 38 Amendments of the contract and its appendices must be
made with written agreement between the two parties. The amended
agreement shall be submitted to the original contract approval
organization. The amended contract will become effective after
it is approved by the original approval organization.
Article 39 In the event that the contract cannot be executed
because of Force Majeure, the party that is sustained the Force
Majeure should inform the other party in writing immediately with
specific descriptions of the Force Majeure and legitimate
documents that describe why the contract cannot be executed
within fifteen days in order to justify reasons why the contract
is wholly unexecutable or partially unexecutable, or can be
executed with delay. The documents must be issued by a local
notary public firm. The two parties shall discuss to determine
whether to cease the contract and exempt from some of the
obligations or extension of the execution. In the event that the
JV consecutively and severely loses in business for so many years
that the JV cannot be continued to operate, the contract can be
ceased before the expiry
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day, or ceased the contract upon anonymous government. When the JV
ceases the contract before the expiration, it shall go through legal
liquidation procedures. After the liquidation, the two parties shall
divide remaining assets on a basis of the equity holding ratio.
Article 40 In the event that one party breaches the contract and
causes the JV cannot continue its business operation, or cannot
fulfill the business objectives or obligations as described in
terms and conditions of the contract, or seriously violates the
contract and the stipulations, the breaching party shall be
regarded as illegal cease of the contract. The other party shall
not only have rights to take legal actions against the breaching
party, but also have rights to terminate the contract based on
Article 36 of the contract.
CHAPTER 14 DISPUTES AND ARBITRATION
Article 41 In the event that the two parties have disputes during
the period of the contract's execution, the two parties should
resolve the disputes through negotiations and intermediary. In
case that disputes cannot be resolved through negotiations and
intermediary, the two parties shall submit the disputes to
relevant organizations for arbitration. During the arbitration,
the contract shall continuously be executed except those parts
that are being arbitrated.
Article 42 In the event that any of the two parties cannot execute
the obligations stipulated in Chapter 5 of the contract, or
cannot fulfill the obligations stipulated in the contract 3
months over the deadline, this party shall not only liable for
payment of its investment but also payment of 3% overdue penalty.
In the event that any of the two parties cannot fulfill the
obligations 6 months over the deadline, the other party shall
have rights to terminate the contract and take legal actions
against the breaching party for bearing liabilities for breaching
the contract.
Article 43 In the event that the contract cannot be executed or
partially cannot be executed because of the both parties'
liabilities, the two parties shall bear each of their liabilities
for breaching the contract.
CHAPTER 15 EFFECTIVENESS OF THE CONTRACT AND OTHER DOCUMENTS
Article 44 The contract and its appendices shall become effective
after approval by the relevant Chinese authority concerned.
After the contract becomes effective, in the event of any
inconsistence between the contract and the original letter of
intent for the cooperation, the contract shall prevail.
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Article 45 The content, effectiveness, explanations, execution and
settlement of any dispute of this contract shall be in accordance
with the laws of People's Republic of China.
Article 46 The two parties shall inform each other by fax. The
date of the fax transmitted shall be regarded as the date of the
fax arrival. The addresses of the two parties listed in the
contract shall be the addresses for communications.
Article 47 This contract is written in both Chinese and English.
These two languages in the contract shall have equal legal
binding forces. In the event of any inconsistence between these
two language texts, the Chinese language text shall be prevail.
CHAPTER 16 APPENDICES
1. Copies of the two parties' business licenses;
2. Copies of the identification or passport of the two
signatories;
3. Letter of Authorization for the two signatories.
Representative of Party A: Representative of party B:
Huiying Ren Weiguo Lang
Signature: /s/ Huiying Ren Signature: /s/ Weiguo Lang
Liaoning Publishing Group of Companies Qinnet.Com, Inc.
The People's Republic of China The United States of America
August 18, 2000
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