Initial profit sharing agreement
This Agreement entered into this 1st day of May, 2000
DIGITAL VILLAGE WORLD TECHNOLOGIES (CANADA) INC. a Canadian company incorporated
in the Province of British Columbia and having an office at #10 8980
Fraserwood Court, Burnaby, BC V5J 5H7
TIANJIN TEDA YU CHENG GROUP CO LTD , a wholly owned subsidiary of the People's
Daily news paper group in China with its principal place of business in Tianjin
A. Yu Cheng has formed a new domestic Chinese company called Yu Xun
Digital Hi-Tech Co Ltd. (Yu Xun) which is a local Internet Service
Provider (ISP) in the Tianjin region;
B. Yu Xun has agreed to form a domestic joint venture with Tianjin Chuang
Xian Information Development Co Ltd (Chuang Xian) that will assume Yu
Xun's ISP business and Chuang Xian's IT services to form a new business
C. The New Business requires fresh working capital;
D. Yu Cheng is the controlling shareholder of DVC and as such wishes to
advance the business of DVC in China by having DVC provide overall
management for the New Business and to raise capital for the New
Business in accordance with this agreement.
THIS AGREEMENT WITNESSETH that in consideration of the payments, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. General Appointment
YU Cheung hereby appoints DVC to be its manager to manage the affairs of the New
Business for a term of 25 years unless terminated earlier as provided herein,
provided DVC assumes the responsibility for raising all working capital
requirements of the New Business.
2. Profit Sharing
2.1 Yu Cheung hereby agrees that 80% of the net profits of the New Business
(Profit Allocation will be earned by DVC provided DVC raises the capital, as
hereinafter defined, and provides the senior management, as hereinafter defined,
for the New Business.
2.2 Net Profits will be defined according to GAAP as determined by the auditor
of the New Business. The auditors of the New Business shall be a recognized
international audit firm that is approved by DVC.
2.3 The parties agree that semi annually Net Profits will be determined and 20%
thereof, or such other amount agreed to by the parties, shall be retained by the
New Business as working capital and that the balance returned to the parties on
a 80/20 basis, at each parties option, that is to say either party may chose to
leave their portion of the Net Profits in the New Business as an addition to
their loan account with the New Business.
3.1 DVC will form a new Chinese firm, a wholly owned foreign enterprise, (WOFE)
which will provide no fewer than two senior executives, at DVC's cost, to
provide on going executive management for the New Business.
3.2 Yu Cheng agrees that DVC may appoint 2 of 5 persons to be directors of the
4. Conversion to Equity
The parties acknowledge that it is their intention to treat DVC's Profit
Allocation as a substitute to owning 80% of the equity of the New Business and
therefore as and when the rules of China permit DVC to own, through the WOFE,
shares in the New Business, that the parties will take such steps as are
necessary to have shares issued to the WOFE and upon such event occurring the
Profit Allocation will be adjusted to ensure that the underlying 80/20
arrangement is adhered to.
5.1 DVC, through the WOFE, will provide capital of not less than $4M US
contributed over 12 months or as otherwise agreed to by the parties hereto.
5.2 In the event the Capital is not raised within the said 12 months, the
Profit Allocation shall be adjusted based on the percentage actually raised of
5.3 Yu Cheung will assist the WOFE to have all capital contribution registered
as loans to the New Business in order to ensure that when the New Business is
able that DVC will be able expatriate the Capital out of China should it so
6. Annual Budget
The parties agree that they will no less than on an annual basis agree upon an
annual budget, prepared in accordance with GAPP and that unless otherwise agreed
the New Business will be managed in accordance with the annually agreed upon
The Parties agree that DVC may assign this agreement to any 3rd party provided
that any assignee agrees to be bound by the terms of this agreement.
8.1 This Agreement shall terminate and be of no further force or effect if DVC
fails to meet any material obligation of this Agreement; or files a voluntary
petition in bankruptcy, or an involuntary petition in bankruptcy is filed
against DVC , or DVC is liquidated or its business transferred to a receiver, or
DVC makes a general assignment of all its assets on behalf of creditors.
Upon the occurrence of an event set forth in 8.1 Yu Cheng shall send a written
notice to DVC stating the nature of the breach. If the breach is curable DVC
shall have thirty days from the date of the notice to cure.
Notices as to disputes or termination to be given under this Agreement shall be
signed by the party giving such notice and mailed by certified or registered
mail, addressed to the party to be notified at its then current business address
as set forth at the beginning of this Agreement or as subsequently changed by
giving notice. Notice as to address changes, pricing changes, warranty changes
and other matters relating to policy and business may by given to such
addresses, by facsimile transmission, telex, telegram or first class mail.
Notices by mail shall be deemed given three days after mailing.
10. Settlement of disputes and Governing Law
10.1 In the event a dispute arises in connection with the interpretation or
implementation of this Agreement, the parties to the dispute shall attempt in
the first instance to resolve such dispute through amicable consultations. If
the dispute cannot be resolved in this manner within thirty (30) days after
first conferring, then any or all parties to the dispute may refer the dispute
to arbitration by the Beijing International Arbitration Committee ("Committee").
The number of arbitrators shall be three. The claimant(s) in the dispute shall
appoint one arbitrator within thirty (30) days of filing notice of the
arbitration, and the respondent(s) in the dispute shall appoint one arbitrator
within thirty (30) days thereafter. If the respondent fails to so appoint an
arbitrator, the Arbitration Centre shall appoint the second arbitrator. The two
arbitrators thus appointed shall choose the third
arbitrator, and if they fail to do so within thirty (30) days after the
appointment of the second arbitrator, the third arbitrator shall be appointed by
the Committee. The arbitration proceedings shall be conducted in the English
10.2. Any award of the arbitrators shall be final and binding on the parties.
The costs of arbitration shall be borne by the losing party, unless the
arbitrators determine that this would be inequitable. The parties agree and
recognize that any award of the arbitrators shall be recognizable and
enforceable in any court having jurisdiction over the party against whom the
award was rendered, and also wherever assets of such party are located.
10.3. The legal relations between the parties under this contract shall be
interpreted in accordance with the substantive laws of China. Any disputes
between the parties concerning their legal obligations arising under this
contract which are submitted to arbitration pursuant to this clause shall be
decided pursuant to the substantive laws of China.
11. Non Compete
The parties agree that during the currency of this agreement that it will not
directly or indirectly in any manner whatsoever be engaged in any business
competitive to the business of New Business or advise or be concerned with or
interested or lend money to guaranty the debts or obligations to an competitive
12. Initial Agreement
The parties agree that this agreement is an initial agreement and that it may be
superceded by a more comprehensive agreement but until then the parties agree
this agreement will prevail.
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the day and
year first above written.
/s/ Yu Wen Cheng
TIANJIN TEDA YU CHENG GROUP CO LTD
/s/ Richard Wang
DIGITAL VILLAGE WORLD TECHNOLOGIES (CANADA) INC