Contract of Tenancy
Lessor: China Hebei Cangzhou City Chemical Corporation
Lessee: Heng Fai Light Products Co., Ltd.
According to the "Economical Contract Law of the People's Republic of
China" and other relative regulations, after negotiation between the two
parties, the lessor and lessee get to the following contract about the renting
of the cement plant property:
1. The nomenclature, quantity, quality and use of the property, please
see Attachment 1.
2. The total renting term is 5 years, starting from January 1, 1995 and
ending by December 31, 1999.
3. The total rent is RMB 1.2 million Yuan. Both parties agreed that the
rent be used on the revolution of the cement technology, expanding the
production capacity to 20,000 tons within one year (by the end of 1995). Other
capitals such as profit and loans can also be used to increase the production
capacity to 38,000 T/year within 5 years, reaching the designed production
4. The lessor agrees that the lessee can use the nomenclature, label
and the land using rights free of charge. However, if the lessor finds out that
the lessee is cheating the consumers with unqualified or not properly
quality-controlled products and so on, the renter has the right to stop the
lessee's using of the registered label and the lessee should be responsible for
all losses so caused.
5. The treatment of stocks
a. With both parties checking the capitals, the lesser should give the
current stock (not including the products) as well as the renting property to
the lessee. And the lessee should take the actual accounting price after
checking and rearrange it as the starting accounting. When the lessee does the
liquidation at the end of the renting period, or if any part quits the renting
or if the rentee would reform the managing forming and do the property checking,
the last accounting price should be the actual accounting after checking,
rearranging and adjusting by both parties. If the last accounting is larger than
the initial one, the lessee should pay the lessor what that is more than the
initial accounting; and if the last accounting is smaller, the lessor should pay
the lessee back the actual amount.
b. While checking the property, the lessor should give the current
products as well as the renting property to the lessee. And the lessee should do
the accounting according to the balance of the yearly average selling price of
1994. At the time when the renting period is due,
the renting is stopped or if the economical form is reformed and the lessee is
doing the property checking, the products and stock after checking by both
parties should be accounted according to the average yearly selling price in the
current year. The balance should be accounted according to what it is stated in
c. The above items that need checking should be paid within a month
after the ending of this renting.
6. Some relative items
a. The lessor should supply to the lessee water, power and gas
according to the yearly production plan (The water and power should be charged
according to the unified price of the Chemical Corporation), and the gas price
is a little lower than that of the market and higher than the lessor's checking
price. However, the calcium powder can be used free of charge according to the
actual cement production.
b. During the renting period, the lessor and lessee should keep the
relationship with the lessor and the original cement plant in the using of raw
materials and the manufacturing of spare parts as well as the craning of large
equipments. And the lessee should pay out at the end of each season according to
the original paying system.
c. Public equipment (such as warm gas, means of communication, etc.)
using fee will be charged by the lessor according to general standards. If the
lessee needs renting office equipment and transportation means for raw materials
and products in the production process, payments should be made according to the
checking price of the lessor. The price unit is T/mile.
d. The lessor agrees to do the contacting of the railway transportation
for the lessee free of charge.
e. The lessor agrees to supply the lessee bank working capital, loan
guarantee with the total amount less than 30% of the yearly sales income.
7. Rights and obligations
a. The lessor should transfer all the property items in good condition
to the lessee according to the time limit agreed by both parties. Every
production equipment should meet the process demands.
b. During the renting period the lessor has the right to supervise the
using and maintaining work of the equipment to keep the rented properties
c. During the renting period the lessor should guarantee that the legal
rights of the lessee will not be infringed and that the production supplies
(water, power, roads, etc.) will be
properly supplied. The lessor should not interfere with the production and
managing activities of the lessee.
d. During the renting period, the lessor has the obligation to educate
the employees who come from the lessor's side to obey all the regulations of the
lessee and work hard. At the same time, the lessor has the right to supervise
that the legal rights of the employees not be infringed.
e. During the renting period, the lessee should keep the rented
properties complete and in good condition through proper using and maintaining.
f. If the lessee needs to reform the rent equipment and the plant for
production needs, agreement from the lessor is necessary. Or else the loss so
caused should be paid by the lessee.
g. Rent should be paid in time.
h. During the renting period, the lessee should do the managing
independently according to the law and take full responsibility of winning and
losses. While enjoying production and managing rights, the lessee should also
take the responsibility of paying the tax, industry and commerce managing fee,
environmental fee and fees that should be paid to the quality supervising
department and soon. Fees for water and power should be paid to the lessor in
i. After the renting, the lessee rerecruits the workers and has the
right to decide the managing formality. The lessee also has the right to
terminate the contract according to the law and relative regulations and dismiss
or fire employees. The lessee also has the responsibility to do the
birth-control work of the employees and accept the relative work arrangement of
the managing people from the lessor's party.
j. The rentee should organize the occupational organization and mass
democratic managing organizations (Worker's Association) and at the same time
accept the supervising of the General Worker's Association of the Chemical
8. The obligation and liability of enterprise and the treatment of left
a. The lessor should be responsible for the left over loss, obligation
and liability before the renting. And because of the business contact the rentee
should appoint a person be specially in charge of the left over problem-solving
and report to the lessor every month, accept checking until the problem-solving
is completed. This should not influence the daily production work during the
b. The obligations and liabilities happened during the renting period
should be taken back or paid back by the lessee.
9. The employees hired by the lessee from the lessor's part (who belong
to the lessor's part before the end of the October, 1994) enjoy the same right
with those still working at the lessor's plant in housing and other welfare and
should have the same responsibility as well. The lessor agrees to supply work
meals for employees of the lessee's plant and the cost should be paid by the
lessee by month.
10. The changing and terminating of the contract
a. None of the cooperating side should terminate the contract without
negotiation with the other side except under one of the following circumstances
when the contract can't be implemented.
a.1. Force majeure or causes from outside world that the concerned side
cannot do anything about and that it is not the fault of the party concerned.
a.2. One side breaks the contract.
b. If one side demands to change or terminate the contract, a written
announcement should be made and the original contract is valid before getting to
After getting the written announcement, the receiving side should give
its reply within 15 days. Or else the other side may regard it as silent
c. On the condition that the lessor agrees that the legal
representative is not changed, the lessee may change the plant's name or
continue the renting in the name of other enterprise of the lessee with the same
renting conditions listed on this present contract. If the lessor wants to
continue with the renting, the present lessee should be the first consideration.
d. During the renting period, the renting relation can be terminated
after negotiation between both parties and a cooperative corporation can be set
up under another negotiation.
11. If any party breaks the contract, all economical loss so caused
should be paid to the other side.
12. If any party breaks the contract, RMB 40,000 Yuan should be paid to
the other side for punishment.
13. The returning and liquidation of property at end of renting period.
a. 6 months before the ending of the contract, both parties should get
to a decision as to whether further renting is necessary.
b. At the end of the renting period, if the lessee doesn't want to
continue renting, cooperative checking of the enterprise property should be made
and the lessee should make sure that the property can be working under normal
14. The details of this contract should be made definite by the end of
December 1994. And it should be signed by both parties together with Attachment
1 and become valid afterwards.
Other unfinished matters should be negotiated later.
15. The settlement of disputes
When there is a dispute over this contract, negotiation should be made
first. If no negotiation can be made, the cooperative parties should go to the
Economical Contract Arbitration Committee of the Industry and Commerce Executive
Managing Bureau. It's arbitration is final.
16. This contract is valid on the day both parties finish the signing.
There should be two copies of the original and each party holds one.
17. This contract should be signed by representatives of both parties
in Hong Kong on October 20, 1994.
Legal representative from Legal representative from
the lessor's party: the lessee's party:
China Hebei Cangzhou City Heng Fai Light Products Co., Ltd.
I hereby certify that the foregoing is a fair and accurate translation
of this document which was originally prepared in Chinese.
/s/ Heng Fai Chan
Heng Fai Chan, President
Heng Fai China Industries, Inc.