Lithium Hydroxide Conversion Service Contract

Lithium Hydroxide Conversion Service Contract

Party A （Client）：APEC Shanghai Chemicals Co., Ltd. Contract No: YDLH20210101

Party B （Processing Party）: Zhou Technology Co., Ltd.

Signing Date: 2020/11/20

A and Party B have reached the following terms through friendly negotiation regarding the cooperation business of Party A consigning Party B to process lithium hydroxide.

1. Cooperation Content:
   1. Consigned processing means that Party B processes the lithium carbonate meant to be processed （hereinafter “Lithium Carbonate Input Material”） provided by Party A into coarse result materials （hereinafter “Coarse Product”） or micronized result materials （hereinafter “Micronized Product”） after processing or micronizes certain Coarse Product which has already been delivered to Party A （hereinafter “Coarse Product Input Material”, each with “Lithium Carbonate Input Material” referred to as “Input Material”） as separately instructed by Party A （hereinafter “Additional Micronized Product”, each with “Coarse Product” and “Micronized Product” referred to as “Product”） and returns it to Party A, including each and every activity to be performed and each and every service to be provided with the purpose of receiving, storing, safeguarding, processing and converting or transforming Input Material into Product, as per the specification provided in this Contract and its annexes, including but not limited to the processes of reception, sampling, chemical and physical analysis, and, in general, any other activity or process necessary in order to successfully receive the Input Material with the purpose of processing and transforming them into Product, as well as returning them to Party A (the “Conversion Services”), and Party A pays the processing fee.

Quality of Input Materials: CRY8900 or superior

Quality of Products: LHB-C for Coarse Product, LHB-M for Micronized Product

1. Consigned Processing Duration and Processing Quantity:

The processing duration shall be similar to the term of the contract. Consigned Processing Duration: Same as the term of this Contract.

Processing Quantity: Party A will require Party B to process 100-200 metric tons (“MT”) of Lithium Carbonate Input Materials per month subject to the result of the qualification process as set forth in Article 4.3.

Every month, Party A will provide Party B with a non-binding forecast covering its anticipated Products requirements for the forthcoming 3 months. Party A shall have the right (but no obligation) to require Party B to carry out the consigned processing of the Products according to the above forecast. The specific processing quantity shall be subject to the quantity of Products actually delivered and accepted by Party A.

Every month, Party A will provide Party B with a forecast covering its anticipated Products requirements for the forthcoming 3 months. Party A shall have the right to require Party B to carry out the consigned processing of the Products according to the above forecast. The specific processing quantity shall be subject to the quantity of Products actually delivered and accepted by Party A.

1. Party B shall only process the Products with Input Materials provided by Party A under this Contract and shall not use any input material obtained from any other sources for processing any Products under this Contract, nor shall Party B deliver any battery grade lithium hydroxide or other products or materials obtained from any other sources to Party A as Products under this Contract.
   1. Party B agrees that the Products, Input Materials provided by Party A, by-products, intermediate, residues and wastes arising from and/or in relation to the performance of this Contract must not be sold or resold in whole or in part for nuclear fusion or similar purposes.
2. Processing Fee and Conversion Rate
   1. Conversion Rate:

With regard to Coarse Product Conversion Rate, Party B warrants that the receiving rate for each lot of the Products (the size of each lot is specified in the Technical Agreement (as defined below)) shall be no less than 100%; with regard to Micronized Product Conversion Rate, Party B warrants that the receiving rate for each lot of the Products (the size of each lot is specified in the Technical Agreement (as defined below)) shall be no less than 99%; and with regard to the Additional Micronized Product Conversion Rate, Party B warrants that the receiving rate for each lot of the Products (the size of each lot is specified in the Technical Agreement (as defined below)) shall be no less than 99%. To avoid any doubt, the Coarse Product Conversion Rate refers to the ratio of the quantity of Coarse Product ultimately obtained which meet the requirements of this Contract within a specific period of time to the quantity of Lithium Carbonate Input Materials put into production; the Micronized Product Conversion Rate refers to the ratio of the quantity of Micronized Product ultimately obtained which meet the requirements of this Contract within a specific period of time to the quantity of Lithium Carbonate Input Materials put into production; and the Additional Micronized Product Conversion Rate refers to the ratio of the quantity of Additional Micronized Product ultimately obtained which meet the requirements of this Contract within a specific period of time to the quantity of Coarse Product Input Materials put into production. Coarse Product Conversion Rate, Micronized Product Conversion Rate and Additional Product Conversion Rate each individually referred to as “Conversion Rate”.

• Coarse Product Processing Fee

RMB 13,000/MT Coarse Product

• Micronized Product Processing Fee

RMB 24,000/MT Micronized Product

• Additional Micronized Product Processing Fee

RMB 12,000/MT Additional Micronized Product Coarse Product Processing Fee, Micronized Product Processing Fee and Additional Micronized Product Processing Fee each referred to as “Processing Fee”.

• All expenses required during the processing shall be borne by Party B （price with VAT and other applicable taxes included, including cost of production and packing, insurance for Input Materials, Products and packaging materials, and all cost and expenses in between the delivery of Input Material and Product）. The aforementioned processing fee constitutes all consideration for Party B to provide Party A with lithium hydroxide processing business under this Contract, and Party A is not required to pay any other expenses.
  • If any lot of Products fails to reach the agreed Conversion Rate （which means the quantity of Input Materials actually used by Party B to produce such lot of Products is larger than the quantity of Products in such lot which meet the requirements of this Contract divided by the agreed Conversion Rate）, the processing fee for such lot of Products shall be calculated as follows:

Coarse Product Processing Fee: Adjusted Processing Fee = the quantity of Coarse Product actually accepted by Party A* the Coarse Product Processing Fee per MT of Coarse Product (as agreed in Article 2.2) – (the quantity of Lithium Carbonate Input Materials actually used for producing such Coarse Product * 100% – the quantity of Coarse Product actually accepted by Party A) * the Market Value of per MT of Coarse Product.

Micronized Product Processing Fee: Adjusted Processing Fee = the quantity of Micronized Product actually accepted by Party A* the Micronized Product Processing Fee per MT of Micronized Product (as agreed in Article 2.2) – (the quantity of Lithium Carbonate Input Materials actually used for producing such Micronized Product * 99% – the quantity of Micronized Product actually accepted by Party A) * the Market Value of per MT of Micronized Product.

Additional Product Processing Fee: Adjusted Processing Fee = the quantity of Additional Micronized Product actually accepted by Party A* the Additional Micronized Product Processing Fee per MT of Additional Micronized Product (as agreed in Article 2.2) – (the quantity of Coarse Product Input Materials actually used for producing such Additional Micronized Product * 99% – the quantity of Additional Micronized Product actually accepted by Party A ) * the Market Value of per MT of Additional Micronized Product.

For the avoidance of any doubt, the Market Value under this Article 2.3 shall mean the market value of the relevant Products or Input Materials calculated based on the average price of the relevant Products or Input Materials as published on the website of Asian Metal (http://www.asianmetal.com/) during the week before the invoice date. In case any lot of Products fails to reach the agreed Conversion Rate, Party B shall issue the processing fee invoice to Party A according to the amount of adjusted processing fee determined in accordance with this Article 2.3. If Asian Metal has ceased to publish the market price of the relevant Products or Input Materials on the invoice date, or Parties fail to determine the aforementioned market value due to Asian Metal’s adjustment via publishing of the relevant market price index, the Parties shall negotiate and reach an agreement on the market value of the relevant Products or Input Materials. If the Parties fail to reach an agreement within ten (10) days after the invoice date, a third party appraisal agency acknowledged by both Parties shall be engaged to evaluate and determine the market value, and Party B shall bear the additional costs arising therefrom.

If any lot of Products fails to meet the quality standards as agreed by the Parties in this Contract and in Annex 1 Technical Agreement for Lithium Hydroxide Processing Contract (hereinafter the “Technical Agreement”) but is accepted by Party A according to Article 4.2.4 of this Contract, a lower processing fee according to Article 4.2.4 shall apply.

• Shipment and Transportation of Input Materials, Delivery and Transportation of Products
  • Shipment of Input Materials:

At or before the beginning of each month, Party A shall send to Party B a shipping order which specifies the quantity of Input Materials which Party B shall pick up according to Article 3.2 for processing in such month and other commercial terms which the parties deem necessary to include (hereinafter the “Shipping Order”). Party A has an obligation to send Shipping Orders to Party B in batches according to the forecast agreed in Article 1.2.2. The specific quantity of each batch of Input Materials shall be subject to Party A’s Shipping Orders. For the avoidance of doubt, if there is any conflict between the contents of the Shipping Order and the provisions of this Contract, the relevant provisions of this Contract shall prevail.

• After receiving the Shipping Order from Party A and within the first two (2) weeks of the month, Party B shall get to the address as notified by Party A to pick up the Input Materials for such month. Party B shall be responsible for the arrangement of the transportation of the Input Materials, and the costs for the transportation shall be borne by Party A, provided that such cost for transportation shall be confirmed by Party A in writing in advance.
  • Delivery of Products: After Party B picks up the Input Material from Party A, Party B shall send to Party A a delivery schedule for the corresponding Product (the “Delivery Schedule”). Delivery Schedule shall be based on the principle that Party B must deliver the relevant Products to Party A within 5 days after the date that Party B shall have complete the processing of a 18-20MT of Products. After the processing of each 18-20MT of Products is completed, Party B shall send the Certificate of Analysis of such Products to Party A, and immediately deliver such 18-20MT of Products to Party A’s warehouse at the addresses notified by Party A. Party B shall ensure that Products are delivered to Party A according to the Delivery Schedule and all Products of such month shall be delivered to Party A by and before the end of such month. Party B shall be responsible for the arrangement of the transportation of the Products, and the costs for the transportation shall be borne by Party A, provided that such cost for transportation shall be confirmed by Party A in writing in advance.
  • Special Request: Notwithstanding the foregoing, Party A may issue a special request to Party B at any time requesting Party B to process certain Coarse Product Input Materials into Additional Micronized Products or change certain original order of processing Coarse Products to the order of processing Micronized Products in case such Coarse Products have not been processed or delivered to Party A (hereinafter referred to as “Special Request”）. The parties shall negotiate and agree on the term of picking up the Coarse Product Input Materials and delivery of Products under such Special Request within 5 days since the issuance of such Special Request, and Party B shall process and deliver the Products according to the Special Request and the agreement with Party A.
• Acceptance and Identification:
  • Acceptance and Identification of the Input Materials
    • The quantity of the Input Materials shall be subject to Party A’s Shipping Orders and Special Request （as applicable）. The acceptance of the Input Materials before processing shall be conducted in accordance with the quality standards agreed in the Technical Agreement. Party A makes no warranties, express or implied, with respect to the Input Material other than the specifications stated in the Technical Agreement.
    • If Party B objects to the quantity or quality of the Input Materials for processing provided by Party A, Party B shall notify Party A in writing within seven （7） days after the Input Materials for processing have been picked up from Party A and the Parties shall confirm the quantity or quality issues through mutual consultation and reach a written agreement on the solution of such quantity or quality issues. If there is a discrepancy between the Parties understanding of the quality of the Input Materials, a third-party inspection institution acknowledged by both parties shall be engaged to conduct an inspection on the Input Materials in question. If the third party inspection report shows that the Input Materials failed to meet the quality standards set forth in the Technical Agreement, Party A shall bear the cost of inspection and (i) the Parties shall negotiate and reach a written agreement on the solution of such quality issue or (ii) if the Parties fail to reach an agreement on the solution of such quality issue within ten (10) days after the issuance of inspection report, Party A shall pick the off-spec Input Materials from Party B at its own expense, provided however, Party A shall not be deemed as having breached the Shipping Order or bear any liability for failure to deliver the Input Materials in full amount in accordance with the quantity of the Input Materials specified in the Shipping Orders. If the Input Materials in question are qualified according to the third party inspection, Party B shall bear the cost of inspection and be deemed as has accepted such Input Materials on the earlier of (i) the seventh day since the Input Materials are picked up from Party A and (ii) the day on which the third party inspection report is issued.
    • If Party B does not raise any objection within the aforementioned time limit, Party A shall deem Party B to have approved and accepted the batch of the Input Materials for processing. Party B shall neither hold Party A liable for the quantity and quality of the Input Materials nor be exempted from undertaking the legal liability owed to Party A for delayed delivery of the Products, delivery of the Products with quality defects, or failure to deliver the Products in full amount in accordance with the quantity of the Input Materials specified in the Shipping Orders due to the quantity and quality of the Input Materials.
  • Acceptance and Identification of the Products:
    • The Products processed by Party B shall meet the quality standards and size specifications agreed in this Contract and the Technical Agreement. If any Product delivered by Party B to Party A fails to meet the quality standards or the size specifications agreed in this Contract or the Technical Agreement, such Product shall be deemed as an unqualified product (hereinafter referred to as “Unqualified Product”）, no matter whether such Unqualified Product is detected during Party A’s acceptance inspection at its warehouse or the Sample Testing （as defined below） carried out by Party A according to this Contract, or during any time after Party A’s acceptance inspection or Sample Testing, or after such Product is delivered to Party A’s customer for use.
    • If the actual Conversion Rate of a lot of Products processed by Party B is higher than the Conversion Rate agreed in Article 2.1 of this Contract, Party B shall deliver all the processed Products to Party A and Party A is not required to pay any remuneration to Party B for the extra part of the Products.
    • Within seven （7） business days after Party A receives a lot of Products （namely, the completion of delivery）, Party A shall conduct the examination or inspection on such lot of Products delivered by Party B, and shall accept the Products that meet the quality standards specified in the Technical Agreement. If Party A finds that there are Unqualified Products, within the aforementioned seven （7） business days, Party A shall notify Party B in writing of situations regarding relevant Unqualified Products.
    • If any lot of Product is detected to be Unqualified Product according to Party A’s inspection, Party A may choose to （i） in case the Unqualified Product is in the PRC and has not yet been reprocessed, ask Party B to pick up and reprocess the Unqualified Product and deliver the Product after reprocessing to Party A within 10 days with all expenses and costs borne by Party B; for avoidance of doubt, under such circumstances, the original conversion rate applicable before the reprocessing shall apply when determining the processing fee to be paid by Party A and Party B’s liabilities for breach of contract; (ii) in case Party B fails to provide qualified reprocessed Products within the aforementioned 10 days, reject such Unqualified Product; under such circumstances, Party B shall buy the rejected Unqualified Product from Party A at a price equivalent to the value of the Input Materials determined by Chinese customs upon the importation of Party A’s Input Materials plus a compensation valued as the difference between the highest market value of Product published on the website of Asian Metals during the week before Party A’s notification of Party B of its rejection of the Unqualified Products minus the aforementioned value of the Input Materials (if such difference turns out to be a positive value), and Party B shall bear the costs and expenses of returning the Unqualified Products; or (iii) accept such Product at a lower processing fee otherwise agreed by both Parties in writing. If Party A has paid Party B the processing fee of Unqualified Products, then Party A may deduct the difference in amount of the processing fee already paid and the adjusted processing fee from the next processing fee bill.
    • Party B shall compensate Party A for any loss suffered by Party A due to rejection of Unqualified Products, including but not limited to, cost of the Input Materials and packaging materials, Party A’s profit loss equivalent to the Market Value of the Product and the damages paid by Party A to a third party due to Party A’s failure to deliver the Products to the third party according to the contract with the third party. For the avoidance of any doubt, the Market Value under this Article 4.2.5 shall mean the market value of the relevant Products calculated based on the average price of the Products as published on the website of Asian Metal (http://www.asianmetal.com/) during the week before the date on which Party A sends out the written notice regarding Party B’s breach of contract to Party B. If the Asian Metal has ceased to publish the market price of the relevant Products or Input Materials on the date on which Party A sends out the written notice regarding Party B’s breach of contract to Party B, or Parties fail to determine the aforementioned market value due to Asian Metal’s adjustment via publishing of the relevant market price index, the Parties shall negotiate and reach an agreement on the market value of the relevant Products or Input Materials. If the Parties fail to reach an agreement within ten (10) days after the date on which the aforementioned written notice is sent out by Party A , a third party appraisal agency acknowledged by both Parties shall be engaged to evaluate and determine the market value, and Party B shall bear the additional costs arising therefrom.
    • The quality warranty period for the Products under this Contract shall be 6 months since the production date for Coarse Product and 3 months for Micronized Product (hereinafter the “Warranty Period”). If Party A or any end user finds any Unqualified Products at any time after the examination or inspection conducted in accordance with Article 4.2.3 and within the Warranty Period and it turns out that the relevant Products fail to meet the quality requirements according to Party A’s inspection of the standards of the back-up samples of such Products according to the Technical Agreement, Party A shall have the right to claim compensation from Party B. Article 4.2.4 and Article 4.2.5 shall apply to the above situations. However, Party B shall not be liable for quality problems arising from the use of the Products after the expiry of the Warranty Period.
  • Party B agrees to fully cooperate with Party A in the qualification process as may be required by Party A’s clients. Party B shall not directly communicate with Party A’s clients (unless requested by Party A). Party B agrees that communications between Party B and Party A’s clients shall only be carried out through Party A.
  • Sample Testing:
    • Party B shall take samples and back-up samples from each lot of Products according to the requirements of the Technical Agreement.
    • Party B shall provide Party A with samples randomly selected by Party A according the Technical Agreement for Party A’s chemical and physical analysis and inspection (referred to as the “Sample Testing”). Party A may, at its own discretion, choose to require Party B to deliver the samples selected by Party A to the place designated by Party A, or arrange personnel of Party A or a third party to pick up the samples to be tested from Party B at its own expense.
    • Notwithstanding the provisions of the above Article 4.2 regarding the acceptance of Products, if any sample provided by Party B fails to pass Party A’s Sample Testing, the lot of Products corresponding to such sample, the three lots of Products produced immediately before such lot of Products and the three lots of Products produced immediately after such lot of Products shall be frozen, and the samples for such frozen Products shall be provided to Party A for inspection; if the inspection results prove that the samples corresponding to any aforementioned frozen lot of the Products do not meet the specification requirements in the Technical Agreement, such inspection expenses shall be borne by Party B; if it is proved that all the samples meet the specification requirements in the Technical Agreement, such inspection expenses shall be borne by Party A. The Parties shall suspend the settlement of the payment of the processing fee of the frozen Products, no matter whether such Products have been delivered or accepted by Party A.
    • If any of the frozen Products fail to meet the agreed quality requirements according to the inspection, Article 4.2.4 and Article 4.2.5 shall apply to such situations.
    • Restrictions on Party B’s Resale of Products Rejected by Party A

If Party A rejects any Product according to Article 4.2.4, Party B may dispose such rejected Products after purchasing such Products from Party A according to this Contract, provided that Party B must comply with the following requirements:

• If Party B sells such rejected Products to any customer that will use the Products for manufacturing purposes and for an approved application (hereinafter “Final Customer”), Party B shall report to Party A all details of the sales of such rejected Products, including the sales price, sales volume and the information of the Final Customer that accepts such Products, before the fifteenth (15th) of the month following such sale of rejected Products.
  • If the rejected Products are not sold by Party B directly to Final Customers, Party B shall track the sales channels of such rejected products until such rejected products are sold to the Final Customer and report to Party A all details of such sales of rejected Products, including the final sales price, sales volume and the information of the Final Customer that accepts such Products, before the fifteenth (15th) of the month following such sale of rejected Products to Final Customers.
  • Party B shall ensure that the rejected Products shall not be sold or resold to any individual or entity included in the United Nations Security Council Consolidated List or any individual or entity from any country in the United Nations Security Council Consolidated List.
  • Party B shall ensure that the rejected Products shall not be sold or resold in whole or in part for nuclear fusion or any similar purposes.
  • If Party B sells any rejected Products to any intermediary instead of Final Customers, Party B shall require such intermediary to assume the same resale restrictions and obligations as specified under this article.
  • Party A shall have the right to audit the books, accounting documents and sales records of Party B and the relevant intermediary for the purpose of verifying whether Party B and the relevant intermediary who accepts the rejected Products from Party B have complied with the sales restrictions and obligations under this article, and Party B shall cooperate and ensure that Party A enjoys such audit right against the relevant intermediary.
  • Payment and Invoice

Both Parties agree that Party A shall pay the processing fee to Party B by bank wire transfer. On or before the first business day of each month, Party B shall provide Party A with a written report, which shall specify the quantity of Input Materials used for each lot of the Products delivered to Party A last month （no matter whether such Products are finally accepted or rejected by Party A） and the corresponding lot number of such Input Materials, and the quantity of Input Materials picked up by Party B from Party A last month but not yet used for processing and the corresponding lot number of such Input Materials. Provided that Party A has received the aforementioned report and Party B has provided the report on stock at the end of last month in accordance with Article 17.3 of this Contract, both Parties shall check the quantity of the Input Materials and the Products actually in storage and delivered from storage in the last month before the fifth day of this month. After the completion of the aforementioned check of the quantity of the Input Materials and the Products, Party B shall issue an applicable VAT processing fapiao according to the quantity of the Input Materials corresponding to the Products actually delivered and accepted by Party A （see Article 2 for the calculation method） without any quality dispute and as confirmed by both Parties.

Party A shall pay all undisputed expenses within twenty (20) business days after receiving the fapiao which contains correct amount of money and meets Party A’s financial requirements. Party B shall be responsible for paying all the expenses in relation to this Contract which should be borne by Party B, as well as all taxes or surcharges payable to the government authorities in relation to the fees received.

Any tax imposed in relation to the Conversion Services under this Contract shall be the sole responsibility of Party B. If Party A is obliged to withhold any taxes for Party B according to the requirements of applicable laws and regulations, Party A shall deduct the corresponding amount of taxes from the Processing Fee payable to Party B and timely remit it to the corresponding tax authority, which shall be treated for all purposes of this Contract as having been paid to Party B. For the purpose of this Contract, “taxes” means all taxes, charges, duties, fees, levies or other assessments, including income, excise, property, sales, and value added taxes imposed by any governmental entity, and including any interest, penalties and additions attributable thereto.

• Packing Requirements:

Party A shall provide packing materials to Party B, except that the bags for Micronized Products and Additional Micronized Products shall be provided by Party B for which the cost shall be borne by Party A. Party B shall ensure the package of the Products shall meet the provisions under the Technical Agreement and the requirements of Party A.

• Risks and Ownership
  • Both Parties agree that Party A has the ownership of the Input Materials. After Party B picks up the Input Materials from Party A in accordance with Article 3.2, the risks of damage, loss and deterioration of the Input Materials shall be borne by Party B. Party B shall have the obligation to keep the Input Materials with due care. Before the Input Materials have been processed into Products and delivered to Party A, if the Input Materials are damaged or lost due to Party B’s intentional or negligent act, Party B shall be liable to Party A for damages.
  • Party B acknowledges and accepts it shall receive Input Material exclusively as a custodian of said goods, with the sole and specific purpose of converting them to Product by providing the Conversion Services as detailed in this Contract.
  • With regard to the Products, the ownership of the Products prior to delivery to Party A pursuant to this Contract shall at all times remain vested in Party A. Both Parties agree that other than losses caused by Party A, Party B shall bear the risks of possible losses, quantity losses and deterioration of the Products before Party A checks and accepts the delivered Products; other than losses caused by Party B, Party A shall bear the risks of possible losses, quantity losses and deterioration of the Products after Party A accepts the delivered Products. Before delivering the Products to Party A, Party B shall have the obligation to keep the Products with due care. If the Products are damaged or lost due to Party B’s intent or negligence, Party B shall be liable to Party A for damages.
  • Party B hereby guarantees that except for those Unqualified Products which have been rejected by Party A and purchased by Party B with all considerations paid according to this Contract, Party A shall maintain, at all times and with no interruption, ownership over the total amount of Input Material delivered to Party B as per this Contract, and over the total amount of Product （including any intermediate product and Unqualified Product which has not been rejected by Party A or purchased by Party B). All Input Material sent, be they already converted or not, are and shall be owned by Party A exclusively. Party B at its sole expense shall sign such documents and take all other reasonable steps to assist in the filing, recordation or registration thereof as may be required under the Applicable Laws to perfect Party A’s title to the Input Material and the Product.
  • Party B shall at all times maintain Input Material and Product free of any and all encumbrance or hindrance, and shall inform Party A in writing of any situation or circumstance that could eventually lead to the questioning of Party A’s ownership and property rights over the Input Material and Product, in particular when existing within the Party B’s facilities.
• Insurance
  • Party B shall provide and maintain throughout the term of this Contract at its sole expense a policy of insurance, acceptable to Party A, naming Party A as additional insured and loss payee which insures all of the Input Materials and Products from losses and damages and which insurance shall be effective from the receipt of the Input Materials until the delivery of the Products to Party A. Party A must be given a reasonable opportunity to review and approve the insurance policy at the inception of this Contract. During the term of this Contract, upon request of Party A, Party B shall provide to Party A the insurance certificate and other materials related to the insurance as reasonably requested by Party A.
  • The policy of insurance shall insure Input Materials and Products at Market Value, with enough limit to cover all stock at all times and shall cover all risks (including but not limited to act of nature, fires, flood, vandal acts, terrorism, SRCC (Strikes, Riots, and Civil Commotions Clauses), contamination and theft) and with no applicable exclusions. Notwithstanding the foregoing, if any event causing the damage or loss of the Input Materials or the Products is not cover by the insurance policy, Party B shall answer for the damage or loss of the Input Materials or the Products and shall compensate Party A for its losses caused thereby; meanwhile, Party B shall at all times assume any and all liability for the Conversion Services and shall indemnify, defend and hold harmless Party A from and against as well as pay and/or reimburse Party A for any and all damages incurred in by Party A caused or arising out of any breach of this Contract by Party B. For the avoidance of any doubt, the Market Value under this Article 9.2 shall mean the market value of the relevant Products or Input Materials calculated based on the average price of the Products or Input Materials as published on the website of Asian Metal (http://www.asianmetal.com/) during the week before the date on which the insurance is purchased. If Asian Metal has ceased to publish the market price of the relevant Products or Input Materials on the date on which insurance shall be purchased, or Parties fail to determine the aforementioned market value due to Asian Metal’s adjustment via publishing of the relevant market price index, the Parties shall negotiate and reach an agreement on the market value of the relevant Products or Input Materials. If the Parties fail to reach an agreement, a third-party appraisal agency acknowledged by both Parties shall be engaged to evaluate and determine the market value, and Party B shall bear the additional costs arising therefrom.
• 仓储及可追溯性

Storage and Traceability

• Party B shall store the Input Materials and the Products according to the requirements specified in the Technical Agreement and ensure that the Input Materials and the Products will not get damaged in any way and in the best possible condition before shipment.
  • The Input Materials and the Products shall be traceable. Party B shall label and identify the Input Materials and Products according to the requirements specified in the Technical Agreement.
• Confidentiality Clause:
  • Either Party shall keep confidential the terms of this Contract and the other Party’s documents, materials and information (hereinafter “Confidential Information”) obtained through negotiation, signing and performance of this Contract. Both Parties shall not use the Confidential Information for purposes other than the purpose of this Contract. However, the provision shall not apply to the following information:
    • Information which either Party can prove that is has lawfully possessed before the other Party discloses relevant information;
    • Information generally known to the public but not due to illegal acts;
    • Information known to the public but not due to breach of contract by either party;
    • Information later legally obtained by either Party from other sources without any confidentiality restrictions;
    • Information ordered to be disclosed by the court or relevant government authorities (however, either Party must provide the other Party with notice of the order in advance so that the other Party has the opportunity to raise objections and take other actions that can be taken);
    • Information which both Parties shall disclose during litigation or arbitration with respect to this Contract.
  • Both Parties shall take any necessary measures to ensure that only the employees, directors and professional consultants who must have the knowledge of the Confidential Information due to their job responsibilities can obtain the Confidential Information and to procure such employees, directors and professional consultants to keep the Confidential Information confidential in order to minimize the risk of disclosure of the Confidential Information.
  • Unless subject to mandatory legal provisions, the confidentiality obligations stipulated in this Article 11 shall remain valid during the validity period of this Contract and within five (5) years after the termination of this Contract.
• Representations and Warranties:
  • Party B is duly incorporated and validly existing under the laws of the place of its incorporation.
  • Party B has the legal right and the full power, capacity and authority to execute, deliver and perform its obligations under this Contract.
  • Party B has the experience, capacity, package, conveyance, know-how, technology, personnel, facilities, assets, machinery and equipment to wholly fulfill the Conversion Services and all obligations contained in this Contract.
  • Party B shall perform all its obligations herein with due care of a good processor, and shall strictly obey and implement the Contract Law of the People’s Republic of China, the Product Quality Law of the People’s Republic of China, labor, environmental, safe production and occupation disease prevention and treatment laws and other applicable laws. To avoid any doubt, applicable laws means, with respect to any Party, any statute, treaty, law, ordinance, rule, regulation, order, writ, injunction, judicial decision, decree or other requirement of any governmental authority applicable to such Party or any of its respective properties, services, assets, officers, directors, employees, consultants or agents (in connection with such officer’s, director’s, employee’s, consultant’s or agent’s activities on behalf of such Party)( the “Applicable Laws”).
  • Party B hereby warrants and undertakes that it has obtained all certificates, qualifications and permits required for performing conversion services under this Contract.
  • The performance of Party B’s obligations under this Contract throughout the term of this Contract do not and will not constitute a breach, under any contract with any third party, of the rights of such third party and/or of its obligations to such third party. Party B does not need or already possesses the consent or approval of any third party or of any judicial or governmental agency to execute this Contract or perform any of its obligations hereunder.
  • Party B shall abide by the Annexes and other Party A’s policies and/or code of conducts and their updates as deemed necessary and notified by Party A from time to time.
  • Input Material and Product shall be free and clear of all liens, security interests or other encumbrances and shall comply with Applicable Laws.
  • With regard to the quality of the Products to be delivered to Party A in accordance with this Contract, Party B warrants that:
    • Products will meet the quality standards and the specifications under this Contract and its annexes and the requirements of Party A;
    • Products will be qualified products and will have no defects, and the “defects” herein include but are not limited to agglomeration, particle size, carbon dioxide, acid-insoluble and water-insoluble substances and magnetic substances, among other impurities;
    • If there is any defect in the Products, Party B shall bear the disposal expenses and relevant liabilities according to Article 4.2.4 and shall further indemnify Party A for all losses incurred thereby in accordance with the provisions of this Contract.
    • The Products shall meet the requirements of any laws and regulations and mandatory quality standards applicable to the Products.
    • The certificate of origin of the Products shall comply with the rules of the Generalized System of Preferences valid in the European Union and the rules of other nations and regions in which the Products are sold. In the event of commencement of any customs duties investigation by the European Union authorities or other competent authorities, Party B agrees to reasonably cooperate with the competent authorities and Party A, including promptly providing any required information on the certificate of origin or any other information required by the competent authorities.
  • During the term of this Contract, Party B shall ensure its continuous operation at its existing operation address. If the performance of this Contract is affected due to the following reasons, Party B shall compensate Party A for all losses incurred therefrom:
    • Party B has to move out of its existing operation address due to the failure of industrial zone, where Party B is located in, to be determined as a qualified industrial zone or other reasons; or
    • The mortgage on the factory and office building of Party B is realized.
  • Party B shall obtain, update and maintain a legal and effective Pollutant Discharge Permit according to the requirements of applicable laws and regulations, and shall ensure that the production line and other production construction projects of Party B in relation to the performance of this Contract have completed all necessary approval and acceptance procedures, including but not limited to the approval on the environmental impact assessment report, the environmental protection inspection and acceptance, the safety equipment completion acceptance, filing certificate for the completion acceptance of construction project and approval on the firefighting inspection and acceptance and the respective filing certificate, and are allowed to be put into use according to laws and regulations.
  • Party B further warrants that if it has any production lines or production construction projects other than those mentioned in Article 12.11, it shall ensure the compliance of the construction and operation of such production lines and production construction projects, and shall not put such production facilities into use unless and until all necessary approval and acceptance procedures (including but not limited to the approval on the environmental impact assessment report, the environmental protection inspection and acceptance, the safety equipment completion acceptance, filing for the completion acceptance of construction project and approval on the firefighting inspection and acceptance and the respective filing) have been completed.
  • Party B shall submit a rectification plan to Party A with respect to the issues found during the audit by the third-party environmental and safety compliance audit institution engaged by Party A within 3 months after the execution of this Contract, and make rectifications and solve the relevant issues timely according to the rectification plan confirmed by Party A and in a manner satisfactory to Party A. Party B agrees that Party A shall have the right to conduct relevant environmental and safety compliance audits on Party B at any time when it deems appropriate during the term of this Contract; under such circumstance, if Party A feels unsatisfied about the audit results, Party A shall have the right to terminate this Contract.
• Intellectual Property Rights

Both Parties agree that all intellectual property rights in relation to the Input Materials, the Products, the packing materials and other documents and items provided by Party A shall be owned by Party A, and Party B does not own any right to all intellectual property rights in relation to the Input Materials, the Products the packing materials and other documents and items provided by Party A. For the purpose of this Contract, “intellectual property rights” include but are not limited to patents, trademarks, trade names, logos, signs, trade secrets, proprietary technology, copyrights, etc. Without obtaining the other Party’s written consent, neither Party shall have the right to use or to allow others to use the intellectual property rights of the other Party.

1. Sub-Contracting / Assignment
   1. Party B shall not sub-contract any of its obligations under this Contract （“Sub- Contracting”） without the prior written consent of Party A, which may be withheld in its sole discretion.
   1. Nothing by virtue of Party A’s consent to Sub-Contracting as aforesaid, shall be construed as releasing Party B from any obligation to which it is subject under this Contract or from liability for any kind of work that is due to be carried out within the framework of such Sub-Contracting.
   1. Party B hereby agrees not to assign its rights or obligations of any part thereof under this Contract to any third party without the prior written consent of Party A.
2. Liability for Breach of Contract
   1. Party B shall indemnify, defend and hold harmless Party A from and against, and pay or reimburse Party A, for any and all damages actually incurred by Party A based upon or arising out of or relating to: (1) any breach or inaccuracy of any representation or warranty made by Party B; (2) the breach by Party B of any covenant contained in this Contract; (3) any breach by Party B of any obligation under this Contract, including but not limited to any failure on the Conversion Services; (4) failure to reach the Conversion Rate; or (5) any breach by Party B of the Technical Agreement.. To avoid any doubt, damages shall include all claims, damages, payments, taxes, costs and expenses (including costs and expenses of any action, suit, arbitration or proceeding by or before any arbitrator, court or other governmental entity (“Actions”), amounts paid in connection with any assessments, judgments or settlements relating thereto, interest and penalties recovered by a third party with respect thereto and reasonable out-of-pocket expenses and reasonable attorneys’, accountants’ and other experts’ fees and expenses reasonably incurred in defending against any such Actions or in enforcing the indemnified Party’s rights hereunder).
   1. Unless due to Party A’s reasons, if Party B fails to complete the delivery of Products within the time agreed in Article 3.3, for each day of delay including the last day of estimated delivery, Party B shall pay Party A 0.5% of the total Processing Fee for the Product not delivered in due time as liquidated damage. If the liquidated damage fails to cover the losses suffered by Party A, Party B shall make further compensation to Party A. If the delay in Products delivery lasts more than 30 days, Party A may immediately terminate the Contract by serving Party B a written notice.

For the avoidance of any doubt, the Market Value under this Article 15.2 shall mean the market value of the relevant Products or Input Materials calculated based on the average price of the Products or Input Materials as published on the website of Asian Metal (http://www.asianmetal.com/) during the week before Party B’s first day of delay. If Asian Metal has ceased to publish the market price of the relevant Products or Input Materials on Party B’s first day of delay, or Parties fail to determine the aforementioned market value due to Asian Metal’s adjustment via publishing of the relevant market price index, the Parties shall negotiate and reach an agreement on the market value of the relevant Products or Input Materials. If the Parties fail to reach an agreement, a third party appraisal agency acknowledged by both Parties shall be engaged to evaluate and determine the market value, and Party B shall bear the additional costs arising therefrom.

1. If Party A fails to meet the minimum quantity of Input Materials it committed to provide under this Contract, leading to the shortage of Party B’s Input Materials, Party B shall have the right to request Party A to pay liquidated damages equivalent to 10% of the processing fee which Party B could have obtained in accordance with the daily processing schedule agreed by the parties (i.e. 5 MT/day) for the period of shortage of Input Materials, provided that Party B has picked up the Input Materials in accordance with Article 3.2. The calculation of such liquidated damages as follows:

Liquidated damages = (minimum monthly processing quantity of Input Materials agreed by both Parties (namely 100 MT)/ agreed daily processing schedule (namely 5MT/per day) — quantity of Input Materials actually delivered for this month / agreed daily processing schedule (namely 5MT/per day)) * agreed processing fee per MT * 5 *10%.

1. If Party B fails to meet the Conversion Rate, Party A may require Party B to pay Party A 5% of the Market Value of this lot of the Products as liquidated damage. If the liquidated damage fails to cover the losses suffered by Party A, Party B shall make further compensation to Party A. The “Market Value” under this Article shall have the same meaning as assigned to it under Article 4.2.5.
   1. If Party A fails to pay the processing fee within the time agreed in Article 6, Party A shall pay Party B 1% of the unpaid processing fee monthly as liquidated damage of for deferred payment （for example, if Party A defaults on payment for 5 days, the payable liquidated damage would be 5 days * 1%/30 days）. If Party A delay in payment lasts more than 30 days, Party B may immediately terminate the contract by serving Party A a written notice.
   1. If Party B is in breach of its obligations under this Contract, Party A shall be entitled to deduct any liquidated damages, compensations indemnifications, penalties and other costs and expenses from any amount payable by Party A to Party B hereunder.
2. Effectiveness, Termination and Dissolution of Contract:
   1. Both Parties agree that the term of This Contract shall commence on the launch day of conversion, a day in January 2021 as confirmed by Party A by written notice, or other launch day of conversion as agreed by Party A and Party B. This Contract shall be effective for one （1） year since the launch day of conversion.
   1. Party A shall have the right, at its sole discretion, to renew the Contract for an additional period of 2 years upon the same terms and conditions as are in effect during the term of this Contract. In order to exercise its right to extend the term of the Contract for the additional 2-year period, Party A must give written notice to Party B no later than sixty （60） days prior to the end of the term of this Contract.
   1. This Contract can also be terminated in advance after both Parties reach an agreement through negotiation.
   1. Both Parties agree that if either party’s representation or warranty under this Contract is untrue or there are other breaches of this Contract by such party, and if the breaching party fails to correct or remedy as to its breach of Contract in a manner satisfactory to the non-breaching party within 30 days after the non-breaching party notifies the breaching party in writing of the aforementioned breaches, the non-breaching party shall be entitled to immediately terminate this Contract. The dissolution of this Contract shall not affect the non-breaching party’s request to the breaching party to compensate for the economic losses suffered by the breaching party in accordance with the provisions under this Contract and Chinese laws and regulations.
   1. Party A shall be entitled to immediately terminate the Contract forthwith on the occurrence of one or more of the following:
      1. Party B has filed a bankruptcy petition or has been declared bankrupt.
      1. Party B’s assets have been attached, or any action has been executed against the Party B in executionary procedures and has not been reversed within 30 days.
      1. Party B is in violation of its warranties, undertakings or obligations as specified in Article 5, Article 11, Article 12, Article 13, Article 14 or Article 19 of this Contract.
      1. Party B is in material or several times’ violation of any of its warranties, undertakings or obligations under this Contract.
   1. Either Party may at its sole discretion terminate this Contract, without paying any amount or indemnification to the other Party, by sending a termination letter to the other Party, indicating the date of termination, which shall occur one hundred and 20 days after the date of notification.
   1. Upon termination of this Contract, Party B shall, return Party A all Input Materials, packaging materials, Products, semi-finished Products, items, or any documents that are the property of Party A per the request of Party A. If the termination of this Contract is not due to reasons of Party A, the cost of returning the property of Party A shall be borne by Party B.
3. Audit
   1. Party B shall keep and maintain complete and accurate books, records and accounts. Party A shall have the right, by prior written notice, at any time to examine such books, records and accounts of Party B. The purpose of such examination is to confirm Party B’s compliance with Article 5 of this Contract and the APEC Policies (as defined below) during its provision of services. Any examination shall be conducted in such a manner as not to materially interfere with the normal business activities of Party B. In the event of any dispute between the Parties regarding the results of any such examination, the Parties shall engage an independent auditor reasonably agreed to by the Parties to conduct an audit of the Party B’s books, records and accounts. The Parties shall equally share the costs and expenses of such audit.
   1. Party B shall provide Party A with detailed sales information of the rejected Products, including the sales price, sales volume and the information of final customers, within the agreed time limit according to Article 5.1 and 5.2 of this Contract.
   1. Before the end of each month (last day of each month) within the term of this Contract, Party B shall provide Party A with a report on stock in the format required by Party A with a stock list, which shall specify the volumes and lot numbers of the Input Materials, packaging materials, the Products inside the tolling process and the Final Products stored in every warehouse or storage location.
   1. For the duration of this Contract and at its sole discretion and expense, Party A may, with at least one （1） week prior written notice, arrange a physical stock count of the Input Materials, the packaging materials, the Products inside the tolling process and the Final Products in Party B’s plants and/or warehouses. Party B shall assist Party A in completing such physical stock count in accordance with Party A’s instructions.
4. Force Majeure
   1. Neither Party B nor Party A shall bear the responsibility for the failure of non-performance of any of its obligations under this Contract if the non-performance results from circumstances which are unforeseeable unavoidable and insurmountable, such as strikes, flood, fire, earthquake, massive global pandemic and other natural calamities as well as war or military operations; provided, however, that the Party which cannot perform shall notify the other Party in writing of the beginning of the event of force majeure, its expected time of duration, and the cessation of such event of force majeure no later than ten （10） business days from the time of its beginning and cessation; and, provided, further, that the fact of the event of force majeure shall be confirmed by a recognized and independent business or citizen organization or other competent authority in the country where the event of force majeure occurs.
   1. If the event of force majeure renders one Party unable to perform under the Contract for more than ninety （90） consecutive days, the other Party shall have the right to terminate this Contract.
5. Compliance Provisions.
   1. The Party B agrees to comply with the Code of Conduct for APEC’s Business Partners in Annex 2, Anti-Bribery and Anti-Corruption Compliance Policy of Sociedad Quimica y Minera de Chile S.A. and its affiliate companies (hereinafter, “APEC Policies”) and all Applicable Laws, including the laws of China, the Chilean law 20.393 regarding corporate criminal liability and all its modifications and the U.S. Foreign Corrupt Practices Act (“FCPA”) (the “Anti-Corruption Laws”).
   1. Party B shall ensure that the goods that come directly or indirectly from Party A, or those to which it had access due to this Contract, whatever be its nature, will not be used for illegal purposes or as part of any crime under the Anti-Corruption Laws. Party B represents that it has not made and agrees that it will not, in connection with this Contract, make or promise to make any payment or transfer anything of value, directly or indirectly, (i) to anyone working in an official capacity for a government, public entity (including employees of government owned or controlled corporations) or public international organization; (ii) to any political party, official of a political party or candidate; (iii) to an intermediary for payment to any of the foregoing; (iv) to any officer, director, employee or representative of any actual or potential customer of Party A or its related companies; (v) to any officer, director or employee of Party A or any of its related companies; or (vi) to any other person or entity if such payment or transfer would violate the laws of the country in which it is made, the APEC Policies, or the Anti-Corruption Laws. It is the intent of the parties that no payment or transfers of value shall be made that have the purpose or effect of bribery or “kickbacks” or, in general, any actions or use of goods or money in connection with entities or public or private officers that constitute the carrying out of illegitimate or inappropriate acts in accordance with the APEC Policies, the Anti- Corruption Laws, and other Applicable Laws.
   1. Under no circumstance or instruction of Party A or its employees or representatives shall Party B be authorized to perform any of the activities prohibited by the APEC Policies, the Anti-Corruption Laws, or any other applicable law, not even under the pretext of complying with instructions from Party A or in order to benefit Party A.
   1. The Party B agrees to fully and totally adhere to the APEC Policies, and declares that it has received a full copy of the APEC Policies, which are available at http://ir.APEC.com. The Party B shall ensure that the employees under its authority, subcontractors, contractors, and any person that has a relationship with Party A, abstain from executing, in their relationship or link with Party A, any acts that are illegal, improper, or contrary to the conduct established in the APEC Policies. Party B shall immediately inform Party A of any situation of which it becomes aware that may result in an illegal use of Party A’s money or goods or a violation of the APEC Policies or Anti-Corruption Laws.
   1. A breach of this Clause shall be considered a material breach of the obligations imposed by the Contract and authorize Party A to terminate the Contract immediately and without liability for Party A, and Party B shall indemnify and hold Party A harmless against any and all claims, losses, or damages arising from or related to such breach.
   1. Any complaints by the Party B can be made by entering the external web portal https://APEC.ethicspoint.com or through the phone lines available according to the Party B’s location, specified in the referred portal.
6. Jurisdiction of Disputes

This Contract shall be governed by the laws of China and shall not be governed by or construed in accordance with the United Nations Convention on Contracts for the International Sale of Goods (CISG). All disputes arising out of this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission (“SHIAC”) to be arbitrated according to its rules and regulations then in effect in Shanghai. The arbitration shall be conducted in English and Chinese. The arbitration tribunal shall consist of three (3) arbitrators; each Party shall appoint one (1) arbitrator, and the third (3rd) arbitrator shall be jointly appointed by the Parties, or failing such agreement on the third (3rd) arbitrator within fourteen (14) days from the submission for arbitration, the third (3rd) arbitrator shall be appointed by the Chairman of SHIAC. To avoid confusion the Parties agrees that this Contract is a service agreement but not a sale and purchase agreement.

1. Language:
   1. This Contract is written in Chinese and English. If there is any inconsistency between the Chinese version and the English version, the Chinese version shall prevail.
   1. Matters not covered under this Contract shall be settled by both Parties through friendly negotiation. Any amendment or supplement to this Contract and its annexes shall be valid only if confirmed by both Parties in writing.
2. This Contract is made in quadruplicate and shall come into force upon being signed and sealed by both Parties. Each party shall hold two originals, each of which is entitled the equal legal effect.
3. Notice Clause:
   1. Any notice (which term shall in this clause include any other communication) required or permitted to be given under this Contract or in connection with the matters contemplated hereunder shall, except where otherwise specifically provided, be issued in writing.
   1. Any such notice shall be considered to be delivered in the following ways:
      1. personally delivered, in which case it shall be deemed to have been given upon delivery at the relevant address;
      1. sent by registered pre-paid post, in which case it shall be deemed to have been given two (2) days after the date of posting;
      1. sent by pre-paid registered airmail, in which case it shall be deemed to have been given seven (7) days after the date of posting;
      1. Sent by fax, in which case it shall be deemed to have been given when dispatched, subject to confirmation of uninterrupted transmission by a transmission report, but any notice dispatched by fax after 17:00 on any day shall be deemed to have been received at 09:00 on the next day.
      1. Sent by email; in this case, the notice shall be deemed to have been delivered when it reaches the recipient’s server.
      1. Either Party to this Contract may notify the other Party of any change to the contact address or any of other contact details, provided that such notification shall only be effective on the date specified in such notice or five (5) days after the notice is given, whichever is later.
      1. Delivery of notices to the following addresses shall be deemed as valid. Either Party may change the address to which it receives notices by notifying the other party at any time in accordance with this clause.

Party A: APEC Shanghai Chemicals Co., Ltd.

ANNEX 1: TECHNICAL AGREEMENT FOR LITHIUM HYDROXIDE PROCESSING

SERVICE CONTRACT

1. Definitions

The following terms shall have the indicated meanings:

“Input Material” shall mean lithium carbonate that Party A shall deliver to the Party B for conversion to lithium hydroxide, which shall comply with the specifications and the test methods described herein, and which compliance shall be reported in the Certificate of Analysis to be provided by Party A.

“Product” shall mean the lithium hydroxide that the Party B shall deliver to Party A, which shall comply with the specifications and test methods described herein, and which compliance shall be reported by Party B’s Certificate of Analysis.

• Specifications and Test Methods

Input Material shall meet the following specifications, according to the methods of analysis defined for each item.

• Quality Warranty
• The quality of Input Material and Product according to their respective specifications is guaranteed by the parties for one year and 6 months respectively, starting from the production date. If the Product is milled, then specifications are guaranteed for 3 months.
• In case the parties could not agree whether certain lot is on-specification or off- specification, both parties may re-sample that lot and conduct a new analysis at Party B’s laboratory by a surveyor designated by Party A. The results of this analysis will be final and binding to both parties. The cost of the survey will be paid by Party A if the retesting results confirm that the Product is within specification and by the Party B if the Product is found off-specification.
• In case any lot of Input Material or Product is found off-specification, the parties shall bear the relevant liabilities according to the Lithium Hydroxide Conversion Service Contract (hereinafter referred to as the “Contract”); in case the relevant liabilities are not expressly provided in the Contract, the parties shall discuss the settlement of the discrepancy, including but not limited to material return, material replacement and compensation costs.
• Lot Size Definition, Quality Inspection and Certification

Input Material:

• The size of the lot shall not be more than 24 MT.

Product:

• Lot size: 4.5 or 5.0 MT upon request from Party A.
• Sampling, analysis and quality certification: For each lot, a composite sample will be prepared taking at least 300-500 g increments from each of the ten big bags that conform to the lot. The increments should be taken with a proper probe introduced in the bag. The 3- 5 Kg composite sample will be duly homogenized and equally divided reserving 3 samples of 1.0 Kg each. Two of the samples will be kept as backup samples at least for one year after production. The other 1 Kg sample will be used for the quality control analysis.
• The samples will be labeled, as a minimum, with the same information show in Section 6 herein for the Product Code and Lot No. Party B must ensure the sample is properly bagged and labeled.
• For the purpose of quality validation, during the first two months from the date when Party B first picks Input Materials from Party A, Party B shall provide every week Party A, one of the samples for one of the lots produced in that week, to be selected by Party A. After the expiry of the first two months from the date when Party B first picks Input Materials from Party A, Party A shall have the right to request samples from any of lots produced in a certain week, on a random basis.
• One of the non-requested samples for the other lots will be used as input material in the production process, if they have not been requested by Party A after three months from the date of delivery of the lot, but always keeping one sample as back-up.
• In case the parties could not agree whether certain lot is on-specification of off- specification, both parties may re-sample that lot and conduct a new analysis at Party B’s laboratory by a surveyor designated by Party A. The results of this analysis will be final and binding to both parties. The cost of the survey will be paid by Party A if the retesting results confirm that the Product is within specification and by the Party B if the Product is found off-specification.
• In case of the analysis done by Party A to any of the requested samples would result off-specification, Party B will send Party A samples corresponding to the three lots produced immediately before and after such lot, for the purposes of quality verification.
• The back-up samples hold by Party B should be kept for a minimum period of 2 years from the date of production.
• In case of quality claim from Party A’s customers, the back-up sample kept by Party B will be analyzed at Party B’s laboratory by a surveyor designated by Party A. The results of this analysis will be final and binding to both parties. The cost of the survey will be paid by Party A if the retesting results confirm that the Product is within specification and by the Party B if the Product is found off-specification.
• The off-spec Products detected by Party B will be duly recorded and reported monthly to Party A. Reprocessing the Products shall be authorized by Party A’s Technical Manager.

GENERAL COMMENT

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