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Case 1:10-cv-02236-WDQ Document 9-10 Filed 08/20/10 Page 2 of 9

Board of Directors
Shanghai Shenda Sound Electronic Co. Ltd.


In order to understand the Shenda's efforts toward this cooperation, one must first
understand the creation of Shenda. Before the establishment of Shenda, American Jolida
already was handling the sale of "Shu-Guand products" which were produced by Mr. Liu
Ze in a Gua Zhou factory. The trade mark then was Shu-guang & Jolida, Shorty
thereafter, American Jolida felt that these products had a promising future, and therefore
decided to establish a factoiy in Chia. At that time, they invited Mr. Sun to be CEO and
Ms. He as vice-CEO in charge of sales.
To star the factory, approximately U.S. $300,000 was required. Because there
was no investment funds available from the United States, we invested U.S.$180,000 and
Jolida was supposed to invest U.S.$120,000. The allocation of shares was thus: Jolida-
35%; Mr. Sun & Ms. He 20 percent (without actual contribution offunds); the
Directors -45% (Mr. Cheng -15%, Mr. Chang - 15%, Mr. Shou-15%) considered
ourselves as the only investors and shareholders; but would not paricipate in the
operation ofShenda. At that time we were guaranteed that there were no quality
problems; America could sell 300 units a month and China could sell 300 unts a month.
These investments could be returned in one year.
The company was established. Jolida money did not come. The company
experienced a shortge of cash. Ms. Li Mei made an investment in place of Jolida. (Ms.
Li Mei's investment was returned by us at a later date.) Therefore, practically speaking
Jolida has no share in the company. Shenda and Jolida are two separate and independent
companes. At that time we established sales areas for the two companies: Jolida's area
would be the United States and Europe and Shenda would have Hong Kong, Japan,
Korea and other Asian countries. In order to enlarge Jolida's influence in the Amierca,
Shenda agreed to use the Jolida trade mark. That trade mark in America belongs to
Jolida and in China the trade mark belongs to Shenda. Period.

1. Shenda spent money to register itself with the Chinese government (registration
was completed in 1997). Since then it has received legal protection from the
Chinese government. In China no individual nor unit (establishment) can produce
or sell Jolida trademarked hi-fi equipment. To do so would be ilegal under
Chinese law. Which also includes American Jolida, Inc.

2. Shenda every year spent several tens of thousands of dollars for promotion and
advertsement. Shenda worked veiy hard to improve the quality. This is why the
Jolida products have a good reputation. Without Shenda's effort Jolida's products
would not have today's good reputation.

Once Shenda began its operations, the earlier guarantee on sales volumes
becomes empty talk. Quality has been bad. Sales have been smalL. Mr. Sun
Case 1:10-cv-02236-WDQ Document 9-10 Filed 08/20/10 Page 3 of 9

considered that the American Jolida sales were too low; Americans considered the
quality too poor. The real victims are we, the investors. The company is losing
money. We investors put in more money. From the beginng until now we have put
in U.S.$600,000. One by one the key people left the company because of the
deterioration of this chaotic
the company's business. This forced us to take care of

condition, organize a new team, establish a new sales policy, and to produce new
types of electronic tube products. Then the company gradually was able to get out of
the chaotic situation.

Based on the above, Shenda did not do anytng wrong. We never did anything
to violate the original agreement. To save the overall picture and to help American
Jolida make a profit, we had agreed not to sell certain models domestically. By doing
that we lost a large market share. To introduce new models required additional costs.
Shenda suffered double loss. Did American Jolida sacrifice anything to help us? Did
you give us any sympathy and understanding? For many years Shenda treated Jolida
as its brother company and excerted its highest efforts to assist American Jolida.
What we got in return was nothing but complaints. They scolded us for no good

Shenda gave American Jolida many conveniences and benefits such as follows:

1. Shenda gave the American the lowest price (Shenda charged the Germans
double the American). Now we have no tax benefit, the cost of original
materials has been steadily increasing, and we tried to hold the price down
until very recently. We have asked for an increase.
2. Shenda gave Jolida the best method of payment, i.e. payment after the arrival
of the goods. With other customers we always ask for payment before
3. Shenda does not charge Jolida fees for developing new products. Sometimes
Jolida has refused to accept the new products and we do not charge them any
R& D fee.
4. Shenda twice sent personnel to American Jolida to assist in the repairing of
products which were beyond the waranty period. Sometimes the repair was
for units that were not even produced by Shenda.
5. Shenda has kept its promise by refusing requests by foreign customers for
Jolida units (two such requests from America and two from Europe).
6. Shenda continuously and persistently refused to sell on the internet.
7. At the beginng, when Shenda was established, Jolida ordered large numbers
of units. After Shenda produced those units, Jolida then refused to accept
them. Therefore, accumulated a large inventory in their warehouse. The loss
money, Shenda lost U.S.$35,OOO. Yet, Shenda
was very high. In terms of

never complained to American.

Based on the above, we consider that in the cooperation problem between the
two sides (Shenda and Jolida), Shenda has done its utmost and we can not
Case 1:10-cv-02236-WDQ Document 9-10 Filed 08/20/10 Page 4 of 9

accommodate any further. Now we have reached the end of our rope and can not
do anymore.


Item 1: Can not agree.
Reason: Shenda produces many different products with many different
trademarks. Jòlida is only a part of it, and percentage wise J olida is not a major
customer. We canot accept (Le. that "Shenda will not sell any home electronic
equipment... ........outside of China.") We can not give up other customers. Jolida
demanded that of us that we give up other customers 'ad other products. This is not

Item 2: Agreed

Item 3: Needs some change.
(1) Add JD1501, JD 1701, JD100H, Music Envoy, Music Van.
Reason: Shenda needs to clear inventory.
(2) Eliminating words "Michael Allen Jolida Inc." on units.
Reaon: Shenda is the only company producing Jolida Hi-fi equipment. Only
Shenda Company has the production capability. To put the above quoted wording
(on the units) people wil mistakenly think the production belongs to American
. Jolida Company.

Item 4: In order to show our friendship and our cooperative spirit, we wil agree.

Item 5:
a. Needs some change.
b. Needs some change.
c. Needs some change.
Reason: We can not guarantee American and European methods of sale.

Item 6: Cannot agree.
Reason: Ifwe ask that "Shenda take over all of Jolida's sales in America," what
would you think about that? This is our greatest difference. Our original thinking
was that since there are so many disagreements in the new agreement document,
we should follow our first agreement and conduct business in a normal fashion
and we both cool down and slowly but surely adjust and correct the new
agreement. But our good intentions were misinterpreted. Michael insists that the
new agreement must be signed before any orders and shipments can be made.
Now we agree with Michael, therefore the Board of Directors has issued the
following decisions:
(1) Factory stop producing Jolida units.
Case 1:10-cv-02236-WDQ Document 9-10 Filed 08/20/10 Page 5 of 9

(2) Before signng of the new agreement, stop all shipments to American Jolida
(including pars).


If Shenda and American Jolida continue to work together, we hope this kind of
cooperation should be real, equal and like brother-to-brother relationship. Not a father-
and-son relationship. Any future agreement should have room for discussion and should
not be forced by one side. Push all the faults onto one side and keep all the good deeds to

In our opinion, problems cannot be avoided in any developing stage of a business,
but these problems can be resolved. Shenda has determined to try its best to solve the
problems. If Jolida stil considers the "future can not be good," and stil doubts "whether
we ca exist under such cooperation," then we have nothing to say, we only can say "no
one can stop flower petals from falling down, whether the same swallows retur
together." (Goodbye)

Signed: Board of Directors,
Shanghai Shenda Sound Electronic Co. Ltd.

Date: June 28, 2005
Case 1:10-cv-02236-WDQ Document 9-10 Filed 08/20/10 Page 6 of 9
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