SAMPLE OF FINANCIAL LEASE AGREEMENT.doc

TABLE OF CONTENTS 1 OBJECT OF THE LEASE 1 2 LEASE TERM 2 3 LEASE PAYMENT 2 4 PURCHASE OF THE LEASED OBJECT 4 5 DELIVERY OF THE LEASED OBJECT 4 6 HANDLING OF DEFECTS IN THE LEASED OBJECT 6 7 CUSTODY AND USE OF THE LEASED OBJECT AND EXPENSES THEREFOR 6 8 DESTRUCTION OR LOSS OF OR DAMAGE TO THE LEASED OBJECT 7 9 INSURANCE 8 10 LEASE DEPOSIT 8 11 HANDLING OF BREACHES OF CONTRACT 9 12 ASSIGNMENT OF PARTY A S RIGHTS 10 13 AMENDMENT OF THE CONTRACT 10 14 DISPOSAL OF THE LEASED OBJECT AFTER EXPIRATION OF THE LEASE TERM 11 15 SECURITY 11 16 DISPUTE RESOLUTION 12 17 PROVISION OF NECESSARY DETAILS AND INFORMATION BY PARTY B 12 18 CONTRACT SCHEDULE AND ANNEXES 12 ANNEX 1 SCHEDULE 14 ANNEX 2 ACTUAL LEASE PAYMENT FORM 15 ANNEX 3 CALCULATION OF ACTUAL COST OF LEASED OBJECT 17 ANNEX 4 EQUIPMENT PURCHASE CONTRACT NO 18 ANNEX 5 LETTER OF GUARANTEE 19 ANNEX 6 RECEIPT FOR LEASED OBJECT 20 FINANCE LEASE CONTRACT 1 2 EQUIPMENT LEASE CONTRACT Lessor Party A Legal address Legal representative Telephone Facsimile Postal code Bank Account no Lessee Party B Legal address Legal representative Telephone Facsimile Postal code Bank Account no Pursuant to the Contract Law of the People s Republic of China and other Chinese laws and regulations the Parties enter into this Finance Lease Contract and have agreed upon the following terms which they shall both abide by and perform 3 1 OBJECT OF THE LEASE Pursuant to Party B s requirements and discretionary selection Party A with the aim of leasing the object specified in item 1 of the Schedule hereto the Leased Object to Party 1 A finance lease contract is a contract by which a lessor based on a lessee s selection of the seller and the leased object after entering into a sales contract with the seller makes the subject matter purchased under the sales contract available to the lessee for his use and benefit and for which the lessee makes a lease payment to the lessor Paraphrased from Article 237 of the Contract Law of the People s Republic of China the Contract Law adopted by the National People s Congress of the People s Republic of China on March 15 1999 and implemented from October 1 1999 2 Selected from among the sample contracts issued by the State Administration for Industry and Commerce in 2000 3 Law Governing the Contract For lease contracts with a foreign element the parties may negotiate on the selection of the governing law which may be the law of the country where one of the parties is located the law of the place where the contract is executed the law of the place where the Leased Object is delivered the law of the place where the Leased Object is to be used or international practice According to Article 4 of the Regulations of the Supreme People s Court on Several Issues Concerning the Trial of Finance Lease Contract Disputes if the parties have not selected the governing law of the lease contract the law of the place where the lessee is located shall apply Chinese Law has been selected as the law governing this Lease Contract and the main basis hereof shall be the Contract Law of the People s Republic of China the Contract Law B shall finance the purchase thereof and lease the same to Party B and Party B shall lease the same from Party A and use the same 4 2 LEASE TERM The lease term shall be that specified in item 5 of the Schedule and the lease commencement date shall be the date on which Party B signs the bill of lading as specified in paragraph 1 of Clause 5 hereof or alternatively the date on which Party A posts the bill of lading as specified in paragraph 2 of Article 5 hereof 3 LEASE PAYMENT 3 1Party A shall finance the purchase of the Leased Object for Party B and Party B must make lease payments to Party A for the lease of the Leased Object The lease payment amount date and place of payment currency and number of payments are specified in item 9 of the Schedule 3 2The lease payment amount mentioned in the preceding paragraph shall be calculated in accordance with the budgeted cost specified in item 7 of the Schedule the Budgeted Cost However if on the lease commencement date there is a discrepancy between the actual cost and the Budgeted Cost of the Leased Object the actual cost shall prevail and the lease payment shall be calculated accordingly on the basis of the actual cost 3 3For the purposes of the preceding paragraph the term Actual Cost means the total of all the amounts expenses and interest thereon paid in foreign exchange and Renminbi by Party A in order to purchase the Leased Object and deliver the same to Party B Interest shall be calculated at the rate of percent per annum for foreign currency and percent per annum for Renminbi for the period between the date of payment by Party A or the date on which Party A actually assumes the same until the lease commencement date of the Leased Object 3 4Pursuant to paragraphs 2 and 3 of this Article if there is a discrepancy between the Actual Cost and the Budgeted Cost Party A shall provide a Calculation of the Actual Cost of the 4 A typical finance lease contract involves three parties and two contracts i e the sales contract between the lessor and the seller and the lease contract between the lessor and the lessee The contents of the former are largely similar to general trade or sales contracts although the seller should perform his obligation of supplying the goods directly to the lessee and acknowledge that the lessee has the same contractual rights as the buyer i e the lessor Accordingly the provisions of the sales contract should be consistent with those of the lease contract and in general will only enter into effect if confirmed by the lessee Furthermore considered from the point of view of protecting the lessor the sales contract should specify that if for any reason the lessor fails to perform the lease contract before the delivery of the goods the lessor has the right to unconditionally terminate the sales contract Leased Object and an Actual Lease Payment Form to Party B shall inform Party B of the amount of the Actual Cost and that the Actual Cost shall prevail and shall revise items 8 9 10 11 and 12 of the Schedule Party B shall confirm the aforementioned revisions Such revisions shall not be construed as amendments to or revisions of the Contract Furthermore regardless of whether it uses the Leased Object Party B shall make a lease payment to Party A on the date in the amount in the currency etc specified on the Actual Lease Payment Form 3 5The currency in which the lease payment hereunder is denominated shall be determined by Party B and may not be modified during the performance hereof Any benefits or losses arising from changes in the exchange rate shall accrue to or be borne by Party B 5 4 PURCHASE OF THE LEASED OBJECT 4 1Party B shall select at its own discretion the Leased Object and the seller in accordance with its own requirements and after investigating the seller s creditworthiness Party B enjoys all 5 Lease Term and Lease Payment The finance lease contract should expressly specify the lease term and the term during which a lease payment will be assessed the Base Lease Term usually calculated in years The length of the Base Lease Term is determined on the basis of certain relevant factors including the number of years of use of the Leased Object cash flow relevant expenses etc In the case of machinery equipment computers etc the normal term is five years As for the starting date of the Base Lease Term the delivery date indicated on the receipt for the Leased Object may be deemed the date on which calculation commences or calculation may commence from the date on which the seller seeks payment or another date agreed upon by the Parties The lease payment is one of the key provisions of a finance lease contract The relevant provisions should include the amount thereof or the method of calculating the same and the lease payment conditions and requirements See Article 243 of the Contract Law In general the lease payment consists of the total cost of the Leased Object plus the lessor s profit The total cost includes the price freight insurance the interest on the lessors s financing and the lessor s expenses At the time the contract is drafted the lease payment is usually calculated on the basis of the Budgeted Cost In general if at the time the Leased Object is actually delivered the total cost of the Leased Object differs from the Budgeted Cost the Actual Cost prevails and the lease payment is adjusted accordingly The Parties may specify in the lease contract that under such circumstances the lessor will notify the lessee thereof in writing and the change will be effected after confirmation by the lessee The lessee may not object to any reasonable adjustment made to the lease payment as a result of the aforementioned circumstance The lease contract should expressly specify the amount method of and place of lease payment the lease commencement date i e the date on which calculation of the lease payment commences the currency in which the lease payment is to be paid the payment rate and the date on which each payment is to be made The main conditions relating to the lease payment method are set forth below i advanced payment or post payment of the lease payment ii payment in installments equal payments may be made on a daily or quarterly basis or even on a bi annual or annual basis iii equal or variable payments in international finance leases the lease payment is paid in equal installments is normal practice although payment in unequal installments may also be adopted e g seasonal payment progressive increase during repayment period progressive decrease during repayment period etc rights of decision over the Leased Object s description specifications model performance quality quantity technical standards the contents and quality of the services connected therewith technical warranties price terms delivery date etc and shall negotiate the same directly with the seller Party B shall bear full liability for the decisions and selections which it has unilaterally made Party A shall enter into a purchase contract with the seller on the basis of Party B s selection and requirements Party B agrees to and confirms all of the terms of the purchase contract specified in item 1 of the Schedule and shall sign such contract 4 2Party B must provide to Party A all approvals and permits which Party A considers necessary 4 3Party A shall be responsible for raising the funds required to purchase the Leased Object and carrying out pursuant to the purchase contract all the relevant import procedures 4 4Customs duties valued added tax newly levied state taxes and other taxes domestic freight and other domestic charges payable in connection with the purchase of the Leased Object shall be borne by Party B and shall be paid on time and directly by Party B in accordance with the regulations and requirements of the relevant authority Party A shall not bear any liability in respect thereof 6 5 DELIVERY OF THE LEASED OBJECT 5 1The Leased Object shall be delivered to Party B by the seller or Party A including its agent at the point of delivery specified in item 3 of the Schedule After receipt of the bill of lading Party A shall promptly notify Party B by telegram to collect the bill of lading from Party A on the strength of a power of attorney At such time Party B shall issue Party A a receipt for the Leased Object Upon Party B signing the bill of lading Party A shall be deemed to have completed delivery of the Leased Object to Party B The date on which Party B signs the bill of lading shall be deemed the date of commencement of the lease hereunder Party B shall take delivery of the Leased Object at the point of delivery on the strength of the bill of lading and may not refuse to take delivery of the same for any reason 6 Subject Matter of the Lease One of the main differences between a finance lease and a general operational lease is that the decision on the subject matter of the lease supplier the quality requirements and technical specifications in respect of the subject matter etc rests with the lessee rather than the lessor Accordingly the following provisions on the requirements in respect of the subject matter of the lease should be specified in the finance lease contract i the fact that the Leased Object is purchased by the lessor in accordance with the requirements of the lessee and is provided to the lessee for its use should be specified ii the requirements of the lessee in respect of the Leased Object s description specifications model technical requirements and iii the special requirements of the lessee in respect of the supplier of the Leased Object e g the designation of a certain supplier in a certain place See Article 239 of the Contract Law 5 2If Party B fails to collect the bill of lading on the date communicated to it by Party A or refuses to accept the bill of lading Party A shall send the bill of lading to Party B by registered mail whereupon Party A shall be deemed to have completed delivery of the Leased Object to Party B and Party B to have delivered the receipt for the Leased Object to Party A In such circumstances the date on which Party A mails the bill of lading shall be deemed the date of commencement of the lease hereunder 5 3Once the Leased Object has been delivered to the point of delivery Party A s forwarding agent outward shipment company or Party B itself shall carry out the customs declaration procedures and the procedures for taking delivery of the Leased Object Regardless of whether Party B takes delivery of the Leased Object in a timely manner or not Party B shall be liable for custody of the Leased Object once it is delivered to the point of delivery 5 4Party A shall not bear any liability for the delayed receipt by Party B of the Leased Object or Party B being unable to receive the Leased Object due to delayed shipment unloading or customs procedures if such delay is due to force majeure a government decree or other such reason not attributable to Party A 5 5After taking delivery of the Leased Object at the point of delivery Party B shall in accordance with relevant state laws and regulations carry out commodities inspection procedures at the place and time designated in the purchase contract and provide a duplicate of the commodities inspection report to Party A in a timely manner 7 6 HANDLING OF DEFECTS IN THE LEASED OBJECT 6 1As Party B enjoys the rights specified in paragraph 1 of Article 4 hereof if the seller delivers the Leased Object late or if there is a discrepancy between the Leased Object provided and the provisions regarding the same specified in the purchase contract or if a defect is discovered during the installation adjustments operation or the warranty period or other such circumstance the seller under the purchase contract shall pursuant to the provisions of 7 Time Limit for and Method of Delivery of the Leased Object A finance lease contract should specify the specific time for and the method of the delivery of the Leased Object In general the lessee will take delivery of the goods from the lessor or the seller will deliver the goods directly to the lessee The lessor is not under obligation to collect the goods Notwithstanding the foregoing the lessor as the owner of the goods has the right to require the lessee to act as its agent in issuing a proof of receipt of the goods to the seller and to issue to itself a receipt for the delivery of the goods as proof of the delivery of the Leased Object If an international finance lease arrangement is involved specific provisions in respect of such related matters as shipment customs declaration customs duties value added tax commodities inspection etc need to be made such contract be held liable Party A shall not be liable for damages and Party B shall not have any recourse against Party A 6 2The right of recourse in respect of the late delivery of and quality defects in the Leased Object shall vest in the Lessor and the Lessor may assign part or all of its right of recourse to the Lessee The assignment of the right of recourse shall be expressly specified in the purchase contract 6 3Expenses incurred in the pursuit of claims and the results of such claims shall be borne by the Lessee 7 CUSTODY AND USE OF THE LEASED OBJECT AND EXPENSES THEREFOR 7 1During the lease term Party B may make full use of the Leased Object 7 2Party B may not remove the Leased Object from the place of installation specified in item 4 of the Schedule assign it to a third party or permit a third party to use it without the written consent of Party A 7 3Party B shall properly maintain the Leased Object at all times so that it is kept in normal condition and functions normally Party B shall be responsible for handling the repair and maintenance of the Leased Object and shall bear all costs therefor Without the written consent of Party A parts thereof requiring replacement may only be replaced with parts supplied by the original manufacturer of the Leased Object 7 4Party B shall be liable for compensation for any damages incurred by a third party attributable to the Leased Object itself or the installation custody or use thereof 7 5Party B shall bear all costs and taxes including all new taxes levied by the state but excluding income tax payable by Party A on all of its profit arising in respect of the Leased Object itself or the installation custody or use thereof 8 8 Quality and Maintenance of the Leased Object Clauses 6 and 7 In general a finance lease contract will specify that the lessor is not responsible for the acceptance installation adjustment use maintenance repair etc of the Leased Object and that such responsibility lies with the lessee The reasons therefor are set forth below i the Leased Object was specifically determined by the lessee and in general as it is not commonly used equipment the lessor does not have the technical capabilities to assume the aforementioned responsibility ii