Exhibit 10.41
JOINT VENTURE AGREEMENT
between
XXXX COMPANY
and
QUEST TECHNOLOGY SDN. BHD
Dated as of April 15, 1997
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT is dated as of April 15,1997 by and
between Xxxx Company, a Delaware corporation ("Xxxx"), and Quest Technology SDN.
BHD, a Malaysian SDN. BED ("Quest").
RECITALS
X. Xxxx and Quest desire to pursue jointly the production and sale of
air filtration products in Pacific Rim markets with the objective of increasing
market share of Xxxx brand filter products in that region;
X. Xxxx and Quest desire to carry out such joint activities through QF
FILTERS SDN. BHD, a Malaysian corporation which is being formed to conduct the
business operations contemplated by this Joint Venture Agreement ("QF"); and
X. Xxxx and Quest wish to memorialize their mutual understanding and
agreement to participate as shareholders in QF for the purposes of, and on the
terms set out in, this Joint Venture Agreement.
AGREEMENT
In consideration of the premises and in reliance upon the
representations, warranties, covenants and agreements set forth herein, Xxxx and
Quest agree as follows:
Section 1. Formation of QF.
1.01. Initial Capitalization. As soon as practicable after the
execution and delivery of this Joint Venture Agreement and before QF commences
business or enters into any agreement or arrangement of whatever kind, Xxxx and
Quest will cause to be taken all necessary steps to ensure that:
(a) Inception. QF is duly formed and this Joint Venture Agreement is
adopted by QF;
(b) Authorized Capital Stock. The authorized capitalization of QF
consists of 1,500,000 shares of capital stock, (the "Stock");
(c) Shares Purchased by Xxxx. 250,000 shares of Stock are issued to
Xxxx in consideration for the payment by Xxxx to QF of RM 250,000 in available
funds, and Xxxx shall have agreed to purchase an additional 500,000 shares of
Stock for RM 1.00 per share concurrently with the dates of purchase of an equal
number of shares by Quest;
(d) Shares Purchased by Quest. 250,000 shares of Stock are issued to
Quest in consideration for the payment by Quest to QF of RM 250,000 in available
funds, and Quest shall have agreed to purchase an additional 500,000 shares of
Stock for RM 1.00 per share concurrently with the dates of purchase of an equal
number of shares by Xxxx.
1.02. Loans. On a date or dates mutually agreed upon by the parties
hereto, but in any event not later than August 1, 1997, Xxxx and Quest each
agrees to make non-interest bearing loans to QF in the aggregate amount of RM
500,000 by each party. The loans shall be repaid in full prior to any
distribution of dividends on the Stock.
1.03. Transfer of Technology. As soon as practicable after the
formation and initial capitalization of QF, but in any event not later than
August 1, 1997, Xxxx agrees to enter into a license agreement with QF whereby
Xxxx transfers, licenses and makes available to QF the right to use the brand
name "Xxxx" and related intellectual property, patents and proprietary
technology and practices involved in the design, development and production of
air filtration products and filter media systems and components for the
applicable licensed product lines described in Section 1.04 below.
1.04 Product Lines. The product lines to be produced by QF for sale
pursuant to this Joint Venture Agreement shall be the following:
(a) ASHRAE filters and hardware
(b) HEPA filters and hardware
(c) Cleanroom products (excluding ceiling grid)
(d) Gas and vapors absorbers
1.05. Payment for Technical, Manufacturing, Production Services and
Support. In consideration of the regular and ongoing services in product
research and development, testing, evaluation and reporting; product engineering
service; manufacturing engineering service; equipment, machinery and tooling
design, procurement and testing; parts and materials specifications, testing and
reporting; quality control procedures, maintenance and surveillance; production
control system design, maintenance and surveillance; and financial system design
maintenance and surveillance to be provided to QF, Xxxx shall be compensated by
QF in an amount to be determined by Xxxx and billed to QF quarterly. Such
amounts billed to QF by Xxxx during the first 24 months of operation shall not
exceed 7.5% of total net sales adjusted from time to time to reflect return of
excess profits to both Quest and Xxxx under the provision of Section 3.04, if
any and thereafter in accordance with the following schedule:
Fiscal Year Sales RM x Million Rate %
First 2.5 7.5
Next 2.57 7
Next 2.56 6
Thereafter 5
1.06. Timing for Technical Service and Support Payments. QF shall make
the payments contemplated by Section 1.05 above in full to Xxxx no later than 15
days after receipt of invoices.
2
Section 2. Corporate Governance.
2.01. QF's Board of Directors.
(a) Number of Directors. During the term of this Joint Venture
Agreement, QF shall be governed by a Board of Directors (the "Board") consisting
of three members.
(b) Board Representation. Xxxx and Quest shall take such action as may
be necessary to cause the nomination, election and continuance as the members of
the Board one person designated by Xxxx and one person designated by Quest. The
third director shall be selected by the Xxxx and Quest director-designees by a
process of alternately striking all but one name from a slate of candidates
submitted for consideration by a mutually agreed upon third party such as a
bank, accounting firm or law firm.
(c) Initial Board of Directors. The initial Board shall consist of the
following members:
Peng Yew Xxxx
H. Xxxx Xxxxx
(d) Compensation. The directors designated by Xxxx and by Quest shall
not be compensated for their service as directors, except that travel expenses
to and from the plant location shall be reimbursed. The third director selected
pursuant to the process outlined above shall be compensated at prevailing market
rates for such service.
(e) Term of Office. Each of the Board members shall be elected for a
term of one year and shall hold office until the next annual meeting of
shareholders of QF or until his respective successor is otherwise duly elected
as provided under this Joint Venture Agreement.
(f) Vacancies. At any time a vacancy is created on the Board by the
death, removal or resignation of any one of the directors, a replacement shall
be selected in the same manner the departing director was selected through
Section 2.0l(b) above. Any director may be removed for cause by a vote of a
majority of the remaining directors. Any director may be removed for any reason
by the party who has designated such director.
2.02. Management.
(a) Plant Manager. Plant operations conducted by the Joint Venture
shall be managed initially by an individual selected by the Board of Directors
of QF with competency and expertise as a plant superintendent/mechanic, plant
manager and general manager in that order of importance. The individual so
selected (the "Plant Manager") will report directly to QF's Board of Directors,
and the Board of Directors of QF shall review and approve the total compensation
of the Plant Manager no less than once each year.
3
(b) Quest's Primary Responsibilities. Quest shall bear primary
responsibility for (i) providing direction and oversight of the Plant Manager,
(ii) reviewing of financial performance and (iii) providing periodic reports to
the Board of Directors on these areas of responsibility.
(c) Xxxx'x Primary Responsibilities. Xxxx shall bear primary
responsibility for (i) developing a material and production system and a
financial reporting system which will be followed by QF without exception, (ii)
periodically reviewing the financial performance and operations of QF, product
quality, plant efficiency and capacity utilization and (iii) providing periodic
reports to the Board of Directors on these areas of responsibility.
2.03. Operations Budget. As soon as practicable after the execution
and delivery of this Joint Venture Agreement and not less than 30 days prior to
the commencement of each fiscal year thereafter, Xxxx and Quest shall together
prepare a business plan reflecting the estimated receipts and expenditures
(operating and capital) of QF for each such fiscal year (an "Operations
Budget"). Such Operations Budget shall be updated and modified from time to time
as agreed by both Xxxx and Quest.
2.04. Books and Records. QF will keep and maintain complete and
accurate books and records in accordance with generally accepted accounting
principles and on such other basis as may be required by law. QF shall provide
Xxxx and Quest (i) within 90 days after the end of each fiscal year of QF,
audited statements of income for such preceding fiscal year and balance sheets
as at the end of such fiscal year, (ii) within 30 days after each calendar
quarter of QF, unaudited statements of income for such preceding calendar
quarter and balance sheets as at the end of such quarter, and (iii) from time to
time, such other information as Xxxx or Quest may reasonably request. QF shall
afford Xxxx and Quest and their respective agents or representatives access, at
all reasonable times, upon reasonable prior notice, to inspect the books,
records and operations of QF and to discuss with management of QF the business
and affairs of QF.
2.05. Supermajority Stockholder Vote. In addition to obtaining the
authorization and approval of QF's Board of Directors to undertake certain
corporate actions and transactions, the affirmative vote and approval of both
Xxxx and Quest in their capacity as the stockholders which own 100% of the
issued and outstanding capital stock of QF shall be required for the following:
(i) amendment of the charter documents of QF;
(ii) increase or decrease in the number of QF directors;
(iii) any merger, consolidation, sale of all or substantially
all of the assets or liquidation of QF;
(iv) dissolution of QF;
(v) issuance of any capital stock of QF or any warrants,
convertible securities or other rights to acquire shares of capital
stock of QF;
(vi) granting of any dividends or other distributions to
shareholders of QF;
4
(vii) encumbering any of the assets of QF;
(viii) a change in QF's Operations Budget as contemplated by
Section 2.03 above;
(ix) any significant transaction directly or indirectly with or
for the benefit of either of the parties to this Joint Venture
Agreement; provided that QF may enter into transactions with either of
the parties providing for the leasing of property, the rendering or
receipt of services or the purchase or sale of inventory and other
assets in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous
to QF as the monetary or business consideration which QF would obtain
in a comparable arm's length transaction with a person not a party to
this Joint Venture Agreement; and
(x) any change in the signatories to QF bank accounts.
Section 3. Factory Start-Up and Operations.
3.01. Selection of Plant Location. A plant location shall be selected
as soon as practicable following execution of this Joint Venture Agreement. Upon
receipt of funds from the sale of Stock contemplated by Sections 1.01(c) and
1.01(d) of this Joint Venture Agreement, Xxxx and Quest shall immediately
undertake all necessary steps to adapt the plant for production of the products
contemplated by this Joint Venture Agreement.
3.02 Equipment and Machinery. Not later than 10 days after the receipt
of funds under Sections 1.01(c) and 1.01(d) above, Xxxx shall commence work on
production of all of the necessary equipment, machinery and tooling (the
"Equipment") which are necessary for the production of Xxxx products. Sales of
the Equipment by Xxxx to QF shall be made at Xxxx'x book or replacement cost
plus applicable overhead so that no profit inures to Xxxx as a result of sale of
the Equipment. Xxxx will invoice QF monthly for progress payments for the
Equipment, and QF will pay Xxxx not later than 15 days after receipt of
invoices. Other assets required for operation of the plant which are not
furnished by Xxxx will be acquired in arm's length transactions from third party
suppliers.
3.03. Parts and Materials. All parts and materials purchased by QF
shall satisfy all criteria and specifications of Xxxx'x Engineering and Quality
Control Departments. Pleated filter media with wire backing and pleated filter
frames will be purchased from Xxxx, and other parts and materials will be
purchased from the most viable sources which satisfy Xxxx criteria.
3.04. Pricing Policy. The plant shall be operated in an efficient
manner so as to produce high quality products at the lowest possible prices to
its two customers, Quest and Xxxx. The prices will be established at a level
that will provide enough profit for approximately a 10% return to QF before
interest costs, if any, on sales at forecasted 1997 sales volume. Prices will be
adjusted annually to reflect a 10% profit on forecasted sales at manufacturing
efficiency levels at
5
least equal to Xxxx'x U.S. plants. However any profit in excess of 20% of
average assets, less cash, will be returned pro rata to Xxxx and Quest.
3.05 Charges and Reimbursements. Neither Xxxx nor Quest shall be
entitled to any fees, commissions or other remuneration or consideration with
respect to any purchase, acquisition, service, contract or consultancy for which
QF may contract with other parties. There shall be no charges for employee time
provided to QF by either Xxxx or Quest except as agreed to in advance by both
parties. Reasonable travel and living expenses, at out of pocket costs, will be
reimbursed to Xxxx by QF for those Xxxx employees who travel to QF for the
purpose of assisting or training in the set up and operations of the factory.
Xxxx will be reimbursed, at cost only, for all charges and expenses for
non-employee contract labor provided to QF. There shall be no charges by Xxxx to
QF for time, travel or expenses of Xxxx employees' work in the U.S. in
connection with purchase of equipment, coordination, and training of QF
personnel in the U.S. There shall be no charges by Xxxx to QF for license fees,
use of intellectual property, patents or proprietary technology, and there shall
be no charges to QF by either Xxxx or Quest for management fees. In the event of
any governmental levy of withholding tax on monies paid by QF to Xxxx under this
Joint Venture Agreement, then such payments shall be made to Xxxx in the net
amount after withholding.
3.06. Working Capital. QF will be adequately financed such that it can
meet its obligations in a timely manner. It will take into stock only those
materials, parts and supplies necessary to sustain production of finished
filters. It will not at any time purchase, own, take on consignment or sell any
other finished products or parts of materials.
Section 4. Sales and Marketing.
4.01. Initial Marketing Objective. Projected sales results for the
first year of operations of the Joint Venture is estimated at $1 million, it
being understood and agreed that the estimated sales levels are not intended to
be binding on the parties.
4.02. Market Area Exclusions. Xxxx agrees not to sell licensed Xxxx
brand products in Malaysia but may sell all Xxxx brand products in any country
other than Malaysia. Quest agrees not to sell any Xxxx brand products in any
country other than Malaysia but may sell other than Xxxx brand products in
Malaysia or in any other country.
4.03. Other Marketing Activities. Nothing contained in this Joint
Venture Agreement shall either (i) preclude Quest from purchasing and reselling
other than Xxxx brand products in Malaysia or in any other country, or (ii)
preclude Xxxx from manufacturing or selling Xxxx brand products in any country
other than Malaysia or non-Xxxx brand products in any country whatsoever
including Malaysia.
4.04. Sales by QF. QF will not sell products to any customer other
than Xxxx or Quest. Xxxx and Quest shall pay QF for their respective purchases
of product no later than 15 days after shipment to them by QF. QF will pay for
all purchases from Xxxx no later than 15 days after shipment by Xxxx.
6
Section 5. Term of Joint Venture Agreement.
5.01 Initial Term. The initial term of these joint venture
arrangements between Xxxx and Quest shall be a period of ten years, provided,
however, that the term may be extended or shortened by mutual agreement of the
parties.
5.02. Early Termination for Change of Control. Notwithstanding the
provisions of Section 5.01 above, in the event that one of the parties to this
Joint Venture Agreement has a change of control in its ownership, the other
party may elect to terminate this Joint Venture Agreement. The Party which has
not had a change in control shall, for a period of sixty days after learning of
the change in control in the other party, have the right to submit to the other
party an offer to either purchase or sell a 50% 6wnership interest in QF for a
specified price. The party receiving the offer or purchase or sale shall
thereupon have a period of thirty days to notify the other whether it will be a
buyer or seller for the specified price, and the closing of the purchase and
sale shall be effected five business days following the expiration of the thirty
day notice period or on such other date as is mutually agreed between Xxxx and
Quest.
5.03. Early Termination for Cause. In the event that either of the
parties materially breaches the terms of this Joint Venture Agreement, the other
party shall have the right to terminate the Joint Venture Agreement and cause
the operations of QF to be liquidated and wound up not later than ninety days
after a notice of termination is given by the non-defaulting party. In the event
of termination under this Section 5.03, Xxxx shall have the right, but not the
obligation, to purchase all of the equipment and machinery of QF for a purchase
price which is the greater of book value or 25% of original cost.
5.04. Early Termination for Non-Performance. In the event that the
operations of QF result in an operating deficit during two of any three
consecutive fiscal years after the first full year of operations, either party
shall have the right to terminate this Joint Venture Agreement and cause the
operations of QF to be liquidated and wound up. An election to liquidate under
this Section 5.04 must be made within a thirty day period following receipt of
QF financial statements for the fiscal year last ended, and the operations of QF
shall thereupon be liquidated and wound up not later than ninety days after a
notice of termination under this Section 5.04. Xxxx shall have the right, but
not the obligation, to purchase all of the equipment and machinery of QF for a
purchase price which is the greater of book value or 25% of original cost.
Section 6. Representations and Warranties.
Xxxx and Quest each hereby represents and warrants to the other that
(a) it is a corporation duly organized and validly existing under the laws of
its jurisdiction of organization; (b) it is qualified to conduct business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure to qualify would have a material
adverse effect on its business, financial condition or operations; (c) it has
full corporate power and authority to enter into this Joint Venture Agreement;
(d) the execution, delivery and performance of this Agreement have been fully
authorized by all necessary corporate action; (e) this Joint Venture Agreement
constitutes a legal, valid and binding obligation, enforceable in accordance
with its terms (except to the extent enforcement may be limited by applicable
bankruptcy,
7
insolvency, reorganization or similar laws affecting creditors' rights generally
and by general principles of equity); (f) this Joint Venture Agreement does not
violate, conflict with or constitute a default under its by-laws or other
charter document, or any indenture, mortgage, deed of trust or other material
contractual covenant or any restriction to which it is a party or by which it or
its assets are bound, nor does it violate any provision of any law, rule,
regulation, order, writ, judgment, decree, determination, or award presently in
effect having applicability to it; and (g) there are no actions, suits, or
proceedings pending or, to its knowledge, threatened in any court or by or
before any government authority or any arbitrator, in which there is a
reasonable possibility of an adverse decision that could reasonably be expected
to materially and adversely affect its business, operations, properties, assets,
or condition (financial or otherwise) or its ability to perform its obligations
under this Joint Venture Agreement.
Section 7. Survival and Indemnification.
The representations and warranties and commitments of Xxxx and Quest
made in this Joint Venture Agreement shall survive the execution and delivery of
this Joint Venture Agreement and the consummation of the transactions
contemplated herein, and shall continue in effect thereafter. Xxxx and Quest
each agrees to indemnify and hold harmless the other from and against any
losses, damages or expenses that are caused by or arise out of any breach of
warranty or commitment or inaccurate or erroneous representation made by it.
Section 8. Transfers of Stock.
Xxxx and Quest each agree not to sell, assign, pledge, encumber or
otherwise transfer any shares of Stock to any person, regardless of the method
of transfer. Any attempt to transfer or encumber shares of Stock without first
obtaining the written consent of the other party to this Joint Venture Agreement
shall be null and void, and QF shall not give any effect to such attempted
transfer or encumbrance in its books and records.
Section 9. Sale and Purchase of a Joint Venture Interest
If either Xxxx or Quest desires to sell and dispose of all its Stock
to a third xxxxx, then Xxxx or Quest (as the case may be, referred to herein as
the "Proposed Seller") shall notify the other party to this Joint Venture
Agreement in writing of its determination to sell and the price for which it
proposes to sell its Stock. The xxxxx receiving notice of disposition shall
thereupon have a period of thirty days to advise the Proposed Seller of whether
it elects to either (i) purchase the Stock of the Proposed Seller at the stated
price or (ii) sell the Stock owned by it at the stated price to either the
Proposed Seller or to a willing third party purchaser identified by the Proposed
Seller. The closing of the purchase and sale of Stock shall be effected five
business days following the expiration of the thirty day notice period, or on
such other date as is mutually agreed between Xxxx and Quest.
Section 10. Miscellaneous Provisions.
10.01. Publicity. Press releases and other announcements to be made by
or about the Joint Venture shall be approved by both Xxxx and Quest prior to
release.
8
10.02. Entire Agreement. This Joint Venture Agreement contains the
entire agreement between Xxxx and Quest with respect to the transactions
contemplated herein, and it supersedes all prior written agreements and
negotiations and oral understandings between the parties.
10.03. Amendment. This Joint Venture Agreement may not be amended,
supplemented or discharged except by an instrument in writing signed by both
Xxxx and Quest.
10.04. Counterparts. This Joint Venture Agreement is being executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.05. Notices. All notices, statements, instructions or other
documents required to be given hereunder, shall be in writing and shall be given
either (i) by mailing the notice in a sealed envelope, first-class mail, postage
prepaid and either certified or registered, return receipt requested or (ii) by
confirmed telecopy addressed to the principal office of the party to which it is
sent. All notices, statements, instructions and other documents hereunder that
are mailed shall be deemed to have been given five days after deposited in the
mail system or the respective appropriate country or on the receipt confirmation
date of the telecopy, as the case may be. Either party may change the address to
which notices, statements, instructions or other documents are to be sent to it
by giving notice of such changes in the manner prescribed in this Section 10.05.
10.06. Injunctive Relief. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved party will be irreparably damaged
and will not have an adequate remedy at law. Any such party shall, therefore, be
entitled to injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Joint Venture Agreement, none of the parties hereto shall
raise the defense that there is an adequate remedy at law.
10.07. Governing Law. This Joint Venture Agreement shall be governed by
and construed in accordance with the laws of Malaysia without regard to
principles of conflicts of law.
10.08. Arbitration. Any controversy or claim arising out of or
relating to this Joint Venture Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the rules then prevailing of the
International Chamber of Commerce. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
proceeding hereunder shall be held in English at a place designated by the
arbitrator, and the arbitrator, in rendering his decision as to any law claims,
shall apply the laws of the state and country which the arbitrator deems
appropriate under the circumstances. The arbitrator shall assess all expenses of
arbitration, including arbitration fees, costs, and reasonable attorneys' fees,
in favor of or against the parties in such proportions as the arbitrator shall
determine.
10.09. Headings. Section headings are inserted herein for convenience
only and do not form a part of this Joint Venture Agreement.
9
10.10. Non-Assignability. Neither party shall be entitled to assign
this Joint Venture Agreement or its rights or obligations hereunder without the
express written consent of the other party.
IN WITNESS WHEREOF, the undersigned parties hereto have caused this
Joint Venture Agreement to be duly executed as of the date first written above.
XXXX COMPANY,
a Delaware corporation
By: /s/ X. X. Xxxxx
Name: X. X. Xxxxx
Title: Chairman and CEO
QUEST TECHNOLOGY SDN. BHD,
A Malaysian SDN. BHD.
By: /s/ X.X. Xxxx
Name: X. X. Xxxx
Title: Director
10
