JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT ("JV Agreement") is made and entered into as
of this 10th day of November, 2005 (the "Effective Date"), by and among BLONDER
TONGUE LABORATORIES, INC., a Delaware corporation ("BT"), BLONDER TONGUE FAR
EAST, LLC, a Delaware limited liability company to be formed ("BTFE") and MASTER
GAIN INTERNATIONAL INDUSTRIAL, LIMITED, a Hong Kong corporation ("Master Gain").
BACKGROUND
The purpose of this Joint Venture Agreement is to provide the principal
terms and conditions under which BT and Master Gain will engage in a joint
venture ("Venture") and to define the relative rights of the parties in
connection therewith. All references herein to monetary amounts and values
shall, unless otherwise specifically stated, be references to lawful currency of
the United States of America (US$).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and subject to the terms and conditions intending to be
legally bound hereby, the parties agree as follows:
1. Formation of Entities.
(a) Off Shore Entity. Subject to the terms and conditions hereof, the
parties hereto shall, promptly, organize a new limited liability entity under
the laws of Mauritius or some other jurisdiction ("Offshore Newco"), with the
actual jurisdiction of formation to be selected by BT following consultation
with its legal and tax advisors. The parties shall mutually agree upon the type
of limited liability entity to be formed and the legal name thereof in English
shall be such as the parties hereto mutually agree upon, as reflected in the
organizational documents thereof. Upon formation, the parties agree to cause
Offshore Newco to become a party to this JV Agreement. All costs related to the
formation of Offshore Newco shall be paid equally be BT and Master Gain.
(b) China Entity. Subject to the terms and conditions hereof, promptly
following the latest to occur of (i) the formation of Offshore Newco, (ii)
approval of this JV Agreement by any governmental authority with proper
jurisdiction, if any, and (iii) approval of the formation, capital structure,
and governance structure of China Newco (as defined below) by any governmental
authority with proper jurisdiction, the parties hereto shall cause Offshore
Newco to, directly or through an Intermediate Entity (as defined below),
organize a new limited liability entity under the laws of the Peoples Republic
of China ("PRC") ("China Newco"). The type of limited liability entity shall be
as required under the laws and regulations of the PRC and any other relevant
local or provincial laws or regulations governing the providence where the
Manufacturing Facility (as defined below) shall be located (collectively, the
"PRC Laws") and the legal name thereof in English shall be such as the parties
shall mutually agree upon, provided, however, that the final form of entity must
be approved by each of BTFE and Master Gain. It is the intention of the parties
hereto, that China Newco be formed as a wholly foreign owned enterprise,
commonly referred to in the PRC as a "WFOE". All costs related to the formation
of China Newco shall be paid by Offshore Newco. To the fullest extent allowed by
PRC Law, the provisions of this JV Agreement which relate to any right or
obligation of any entity within the Newco Group (as defined below) shall be
incorporated into the operational documents governing the organization and
governance of such entity, the terms of which shall be mutually agreed to by the
parties.
(c) Additional Entities. To the extent required by the business activities
of Offshore Newco or Chine Newco, BTFE and Master Gain shall cause Offshore
Newco or China Newco to, directly or through an Intermediate Entity, organize
such additional limited liability entities under the laws of the PRC or such
other jurisdiction (including Hong Kong) as shall be deemed necessary, with the
final form of each such entity and its jurisdiction to be approved by each of
BTFE and Master Gain (each including any Intermediate Entities, an "Additional
Entity," and together with China Newco, Offshore Newco and all Intermediate
Entities, the "Newco Group").
(d) Tax Status. Initially, it is contemplated that Offshore Newco, China
Newco (to the extent permitted under applicable law) and any Additional Entities
shall be organized as "flow-through" entities (i.e., partnerships) for United
States federal income tax purposes.
2. Purpose and Benefits.
(a) The purposes for which China Newco shall be formed include, without
limitation, the following, and the parties agree to cause China Newco to enter
into such agreements or otherwise take such actions as necessary to cause each
such purpose to be accomplished:
all as shall be more fully set forth in the operational document
governing the organization and governance of China Newco, the terms of
which shall be mutually agreed to by the parties:
(i) to locate and acquire or build a manufacturing facility in the PRC
capable of manufacturing high quality television system electronics and
other electronics products (the "Manufacturing Facility");
(ii) to provide contract manufacturing services to BT for such of BT's
products as BT shall, in its sole discretion, determine from time to time
("Specified BT Products");
(iii) to provide contract manufacturing services to third parties;
(iv) to actively seek out and acquire emerging technologies and
licenses for emerging technologies ("Acquired Technology");
(v) to be appointed by BT as its exclusive distributor of the
Specified BT Products ("Newco Distributorship") for the Asian, Southeast
Asian, African, European, Middle Eastern and Australian markets
(collectively, the "Newco Markets");
(vi) to market and sell the Specified BT Products in the Newco
Markets;
(vii) to manufacture, market and distribute products developed from
the Acquired Technology ("Newco Products"); and
(viii) to appoint BT as its exclusive distributor of Newco Products
("BT Distributorship") for the North American, South American and Caribbean
markets (collectively, the "BT Markets") and in such capacity, permit BT to
market and distribute Newco Products in the BT Markets.
Notwithstanding the foregoing, the parties acknowledge that if upon consultation
with legal, tax, and accounting advisors, it is determined that some or all of
the purposes outlined above would more appropriately be delegated or allocated
to Offshore Newco or an Additional Entity, then such shall be the case and in
that event appropriate additional definitive agreements shall be entered into by
the parties and actions taken, to implement the same.
(b) The benefits which the Venture shall obtain through the operation of
China Newco in the PRC are:
(i) Tax free status for two years and extendable for an additional two
years, which tax free periods shall not start until China Newco is
profitable;
(ii) After tax free period, for a period of three years, payment of
taxes at half (1/2) the tax rate required for Chinese owned entities
(subject to any changes in the PRC tax laws);
(iii) Preferential treatment and financial incentives in connection
with access to land and/or Manufacturing Facilities from the Chinese
government; and
(iv) Receipt of Chinese government rebates or waivers of up to 17%,
but not less than 13%, of the import VAT in connection with all raw
materials/components manufactured in the PRC and incorporated into products
exported from the PRC.
3. Ownership Structure and Initial Equity.
(a) Offshore Newco shall have the following equity structure:
Equity Ownership Economic Interest
BTFE 50% 50%
Master Gain 50% 50%
Except as provided in Section 15 hereof, neither BTFE nor Master Gain
shall, without the prior written consent of the other party, assign, sell,
transfer, pledge, mortgage or otherwise dispose of all or any part of its
Ownership interest in Offshore Newco to any third party.
(b) China Newco shall be formed as a wholly owned subsidiary of Offshore
Newco; provided, however, that to the extent it is determined by BT (in
consultation with its legal and accounting advisors) that interposing one or
more entities from alternative foreign jurisdictions (including the United
States of America) (each, an "Intermediate Entity") between Offshore Newco and
China Newco would be beneficial from a corporate, tax or other business
standpoint, China Newco shall be formed as a wholly-owned subsidiary of the
Intermediate Entity, provided further, that the use of the Intermediate Entity
does not adversely affect Master Gain.
4. Capital Contributions.
(a) Initial Cash Capital Contribution to Offshore Newco. BTFE and Master
Gain shall each make an initial cash capital contribution to Offshore Newco in
the amount of US$25,000, for an aggregate initial capital contribution of
US$50,000 (the "Initial Capitalization"). Such initial capital contributions
shall be made within ten (10) business days after the formation of Offshore
Newco.
(b) Master Gain Contribution. Within ten (10) business days after the
formation of Offshore Newco, Master Gain shall invest in Offshore Newco, as an
additional cash capital contribution, the aggregate sum of US$5,850,000 (the
"Master Gain Investment"). Application to transfer the Master Gain Investment to
Offshore Newco within two business days is acceptable, if the transfer
transaction is irreversible and subsequently the actual transfer to Offshore
Newco takes place within 5 days of approval under PRC Laws, but in no event
later than 60 days from the date of applications. The repayment of the Master
Gain Investment by Offshore Newco to Master Gain shall be determined by mutual
agreement of the parties and in accordance with all applicable laws.
(c) Additional Capital. As and to the extent that Offshore Newco requires
additional cash capital in excess of the Initial Capitalization and Master Gain
Investment, as determined by the mutual agreement of the parties, such cash
capital shall be provided jointly and equally by Master Gain and BTFE up to a
combined total value of US$1,000,000 (i.e., US$500,000 each). If additional
capital is required in excess of this amount, Master Gain and BT shall work
together to develop a plan to secure such additional funds, including, without
limitation, loans from Master Gain to Offshore Newco which would accrue interest
at the lowest applicable federal rate permitted under the United States Internal
Revenue Code of 1986, as amended (the "Code") to avoid the imputation of
interest, with such interest to be paid only out of Offshore Newco's earnings
and profits. Any such loan from Master Gain would be interest only for the first
year and thereafter would amortize over the term of sixty months, subject to
being subordinated to indebtedness provided by any third party or institutional
lenders as contemplated by Section 4(e) below. In no event will any such loan
affect the equity ownership or economic interest percentages set forth in
Section 3(a) above.
(d) Offshore Newco Contribution. The parties hereto shall mutually agree
upon the total investment, including, without limitation, cash capital
contributions (the "Cash Contribution") and potential loans ("Loans," together
with the Cash Contribution, the "Registered Capital") necessary to implement the
purposes of this Venture and obtain from the national government of the PRC and
any local or provincial government the maximum financial incentives, grants and
other government-sponsored opportunities that are available, and shall seek
approval of such Registered Capital as required by PRC Law. Upon approval of
such Registered Capital, the parties shall cause Offshore Newco, directly or
through an Additional Entity, to contribute to China Newco the Cash
Contribution. As and to the extent required, as determined by the mutual
agreement of parties, Offshore Newco will lend all or a portion of the remainder
of the Master Gain Investment to China Newco, provided, however, such amount
shall not exceed the approved Loan amount. The repayment of Offshore Newco's
capital contribution by China Newco and the distribution of dividends and/or
earnings and profits from China Newco to Offshore Newco and from Offshore Newco
to BTFE and Master Gain, shall be determined by mutual agreement of the parties,
subject to applicable law.
(e) Third Party Capital. To the extent that Offshore Newco, China Newco or
an Additional Entity seeks or obtains additional capital in the form of loans
from third parties (including financial institutions), none of BT, BTFE or
Master Gain shall be required to provide such lender credit enhancements in the
form of guaranties or otherwise.
5. Sale of CMTS Technology. Contemporaneously with the formation and
Initial Capitalization of Offshore Newco, Master Gain shall sell, assign and
transfer to Offshore Newco for consideration equal to Master Gain's actual
purchase price paid therefor, as confirmed by providing Offshore Newco and BTFE
with such backup and support documentation as is reasonably requested (and which
is estimated by Master Gain to be $650,000), all of its right, title and
interest in and to the cable modem termination system ("CMTS") hardware and
software technology, know-how and other assets acquired by Master Gain from
Coresma Ltd. and its successors (collectively, the "CMTS Assets").
6. BT Stock.
(a) Advancement of Shares. In consideration of the Master Gain Investment,
and upon payment of the Master Gain Investment to Offshore Newco, and
consummation of the sale of the CMTS Assets to Offshore Newco, BTFE shall
promptly invest in and advance to Offshore Newco One Million (1,000,000) shares
of unregistered BT common stock ("BT Stock") causing the same to be recorded in
the name of Offshore Newco on BT's stock registry; provided, however, that such
shares shall be subject to cancellation as contemplated by Section 6(e) and
Sections 15 and 20 of this JV Agreement. To the extent that additional benefits
sought to be obtained from the PRC for China Newco can be obtained through the
transfer of some or all of the BT Stock as a loan to China Newco or as a capital
investment in China Newco, then such number of shares of BT Stock as is
necessary to obtain such benefit shall be lent to or invested in, as the case
may be, China Newco; provided, however, that such investment or loan does not,
together with all other capital contributions and loans, exceed the approved
Registered Capital amount, and further provided, that such investment or loan
does not (after consulting with BT's legal and tax advisors) have any
significant adverse U.S. federal income tax consequences to BT. If the
investment and advance of BT Stock to China Newco is determined to have a
significant adverse U.S. federal income tax consequence to BT, the parties
hereto agree to cooperate in restructuring the proposed transaction to minimize
or eliminate such adverse consequence in such a manner as preserves, to the
fullest extent possible, the economic benefits intended to be afforded to each
of the parties. The parties hereby represent and warrant that any investment or
advance of BT Stock to Offshore Newco or China Newco shall be for investment
purposes only and not with a view to distribution or resale thereof.
(b) Voting Trust. The BT Stock shall at all times be subject to a voting
trust agreement to be entered into by Offshore Newco (and China Newco if any
shares of BT Stock are lent or invested in China Newco), pursuant to which each
of Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxx, Xx., or such other person designated by
the Board of Directors of BT, would be appointed as a voting trustee with the
right to vote the BT Stock for all purposes. The parties will cause Offshore
Newco and China Newco to execute such voting trust agreements and issue such
voting trust certificates and other documents and instruments as deemed
reasonably necessary by counsel for BT to implement the foregoing voting trust.
The voting trust shall be for the maximum term permitted under applicable law
with such renewals as may be permitted under applicable law.
(c) United States Securities Laws. Offshore Newco (and China Newco, as the
case may be) shall, at all times, comply with all rules and regulations of the
Unites States Securities and Exchange Commission applicable to its ownership of
any or all of such BT Stock, including the timely filing of such notifications,
documents, statements and reports as are required by applicable law, and with
respect thereto, as to which Xxxxxx X. Xxxxx, Xx., or his designee, is
authorized to execute and file on behalf of Offshore Newco or China Newco, as
the case may be.
(d) Valuation. The BT Stock shall be valued as of the date of original
issuance by BT to Offshore Newco (or China Newco, if issued the same day)
("Valuation Date"), which value shall be the average high and low selling prices
reported by the American Stock Exchange on such issuance date ("Valuation
Amount").
(e) Cancellation of BT Stock.
(i) As and to the extent that the Newco Group incurs a loss in fiscal
year 2006 or any subsequent fiscal year, that is reflected in or otherwise
adversely impacts the income statement of BT by virtue of BT's direct or
indirect ownership interest therein (whether under the equity method or as
part of a consolidated group with BT), BT shall be entitled to cancel such
number of shares of the BT Stock, valued at the Valuation Amount
(determined as of the Valuation Date), as equals the amount of the loss
recognized or to be recognized by BT on its income statement. The parties
hereby appoint Xxxxxx X. Xxxxx as attorney-in-fact with full power and
authority on behalf of Offshore Newco and/or China Newco, as the case may
be, to endorse any instruments and execute any such documents as may be
necessary to effectuate the foregoing. In addition, BT is hereby authorized
to effect any cancellation contemplated hereby and so notify BT's transfer
agent thereof.
(ii) As and to the extent that the Master Gain Investment is repaid to
Master Gain, shares of BT Stock having an equivalent Valuation Amount
(determined as of the Valuation Date) to each such repayment of the Master
Gain Investment, shall be cancelled by BT.
(iii) Each certificate representing any shares of BT Stock shall bear
usual and customary restrictive legends for shares of stock that are not
subject to an effective registration statement under the U.S. Securities
Exchange Act of 1934, as amended, and a restrictive legend that such shares
are subject to cancellation in accordance with Section 6(e) and Sections 15
and 20 hereof.
(f) Restriction on Transfer. Offshore Newco (or China Newco, as the case
may be) shall not pledge, hypothecate or otherwise encumber any of the BT Stock
without the express prior written consent of BT, nor shall Offshore Newco (or
China Newco, as the case may be), directly or indirectly, absolutely or
conditionally, voluntarily or involuntarily, dispose of or part with all or any
portion of any BT Stock including, but not limited to, by sale, assignment,
waiver, gift, court order, operation of law, equitable or other distribution,
settlement, exchange, abandonment or disposal ("Transfer"), other than a
Transfer to BT and each certificate representing any shares of BT Stock shall
bear a restrictive legend to that effect. Any Transfer of BT Stock in violation
of this Section 6(f) shall be null and void, and BT shall be under no obligation
to recognize a transferee who acquires BT Stock pursuant to a Transfer in
violation of this Section 6(f).
(g) Tag Along/Drag Along Rights. If a bona fide offer from a third party to
purchase Blonder Tongue common stock constituting a Change in Control
Transaction, as defined in section 10(b) herein, (a "Bona Fide Offer") is
received by BT, which BT desires to accept, Master Gain promptly shall be
notified (the "Purchase Notice") of the Bona Fide Offer, specifying the terms,
including price, and the conditions of the Bona Fide Offer. BT shall have the
option for a period of ninety (90) days from the date of the Purchase Notice, to
require Newco Group to accept the Bona Fide Offer on the same terms, including
price, and subject to the same conditions as specified in the Bona Fide Offer.
Furthermore, in the discretion of Master Gain, Newco Group may elect to
participate in such sale with respect to all (but not less than all) shares of
BT Stock held by Newco Group, by giving notice to BT within ten (10) days after
the receipt of the Purchase Notice. Upon receipt of such notice from Master
Gain, BT will be required to include all of the BT Stock (as reduced pursuant to
the provisions of Section 6(e), 15 and 20 hereof) held by Newco Group as of the
date of the closing of such transaction within the total shares of BT common
stock being sold pursuant to the Bona Fide Offer. In the event of a Change in
Control Transaction as contemplated by this Section 6(g), in addition to those
rights set forth in this Section 6(g), each of the parties shall also have the
additional right and obligations granted to such party in Section 15(d) of this
JV Agreement.
7. BT Intellectual Property.
(a) BT shall, at all times, retain ownership of all of its intellectual
property (whether registered or unregistered, registrable or unregistrable in
nature), including, without limitation, all patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications,
research, developments, designs, drawings, engineering, trade secrets, know-how,
inventions and ideas, manufacturing technology, computer software and programs
and database technologies, systems, structures and architectures, equipment,
hardware, technical engineering, technology, licenses, and similar information
(collectively, the "BT Intellectual Property"). BT shall protect and perfect its
ownership of, and all rights related to, all such BT Intellectual Property, as
it deems necessary, under the laws of the PRC or any other foreign jurisdiction.
Each of Master Gain, Offshore Newco and China Newco and each Additional Entity,
if any, shall execute agreements pursuant to which each shall agree not to (i)
use any BT Intellectual Property for any purpose without BT's prior written
consent as reflected in a license agreement with such party, (ii) challenge, or
assist any other person to challenge, the proprietorship of BT or the validity
of any BT Intellectual Property, (iii) apply for registration of any of the BT
Intellectual Property in any part of the world (if capable of registration), but
each shall agree to support, as needed, BT's efforts to secure or perfect its
rights in any BT Intellectual Property, or (iv) divulge or disclose or permit
the disclosure of the BT Intellectual Property to third parties.
(b) BT shall grant to Offshore Newco a license for the term of the Venture
(with revocability triggered by failure to maintain specified performance
standards and as provided elsewhere in this JV Agreement), which license may be
sublicensed by Offshore Newco to China Newco, to use such of the BT Intellectual
Property as BT, in its sole and absolute discretion, determines is necessary to
manufacture the Specified BT Products ("BT Licensed Technology") for (i) resale
by China Newco within the Newco Markets and (ii) BT, for sale in all parts of
the world other than the Newco Markets.
(c) BT shall enter into a services agreement with China Newco to provide
(i) engineering development support to convert, if necessary, the Specified BT
Products to the standards (i.e., TV standards, equivalent U/L standards)
required for sale of the Specified BT Products in the Newco Markets and (ii)
engineering and manufacturing support necessary to assist China Newco in
manufacturing the Specified BT Products with equivalent performance to the
Specified BT Products manufactured in the United States. The Newco Group shall
reimburse BT for all expenses incurred by BT in connection with the support
services set forth in this Section 7(c), including, without limitation, salaries
of personnel while providing this support, and travel and living costs
associated with this support.
8. Newly Developed Intellectual Property.
(a) Offshore Newco shall be the sole and exclusive owner of all inventions
and improvements, whether patentable or not, conceived or first reduced to
practice, together with all technical information and know-how, relating to any
of the Newco Products, developed by Offshore Newco, BT, BTFE, Master Gain, China
Newco or any Additional Entity.
(b) BT shall be the sole and exclusive owner of all inventions and
improvements, whether patentable or not, conceived or first reduced to practice,
together with all technical information and know-how, relating to any of the
Specified BT Products or BT Licensed Technology, developed by any of BT, BTFE,
Master Gain, Offshore Newco, China Newco any Additional Entity.
9. Master Gain Services. Master Gain, in addition to its other
responsibilities under this JV Agreement, shall provide the following services:
(a) Assisting China Newco in (i) submitting applications to, and obtaining
the approval or consent of this JV Agreement from any national, local or
provincial Chinese government authority (collectively, "Chinese Governmental
Authorities") whose approval or consent is required; (ii) completing
registration formalities with any or all Chinese Governmental Authority as
required and obtaining a valid business license for China Newco and any other
approval, permit or license necessary for the operation of China Newco; (iii)
registering China Newco with the relevant tax authorities and other relevant
registration authorities in China; and (iv) obtaining any certificate or
approval of status (i.e. as a Technologically Advanced Enterprise) which would
provide tax or other investment incentives beneficial to China Newco;
(b) Assisting China Newco, in cooperation with the relevant Chinese
Governmental Authorities, to handle registration procedures for China Newco's
land-use rights to the site or sites on which it will carry on its business
activities; and in handling all other necessary procedures to ensure that China
Newco has the right to use each such site or sites for operations throughout the
full term of its operation; and in making certain that China Newco is issued and
receives, from the relevant Chinese Governmental Authorities, a valid land-use
rights certificate(s) for the site or sites on which it carries on its business
activities;
(c) Assisting China Newco in obtaining approval from the relevant Chinese
Governmental Authorities confirming that all equipment and components, and other
machines and materials to be imported by China Newco for manufacturing purposes
are exempt from PRC customs duties and other import-related taxes; handling PRC
customs declaration procedures (including obtaining all relevant import and
export licenses, to be handled in accordance with existing tax and duty
stipulations of PRC) for imported raw materials, machinery, equipment,
materials, supplies, and related documentation and exported products of China
Newco; and arranging for the inland transportation of imports to the site or
sites on which China Newco shall carry on its business activities; and in
applying for other governmental approvals required for operation of China Newco
in China;
(d) Assisting China Newco in obtaining all required approvals, permits and
certificates relating to the construction, renovation, ownership, management and
maintenance of the site or sites on which China Newco shall carry on its
business activities;
(e) Assisting China Newco in obtaining, sourcing, purchasing or leasing
within China adequate supplies of fuels, raw materials, local equipment,
articles for office use, means of transportation, communication facilities, and
other products required to meet full operational requirements of China Newco at
the most preferential prices available;
(f) Assisting China Newco in contracting for, and obtaining, the
fundamental facilities, services and utilities required by China Newco,
including, without limitation, water, electricity, heating, sewage and waste
treatment, telecommunications, and transportation, on a continuous uninterrupted
basis, in quantities sufficient to meet the full operational requirements of
China Newco and in line with the practice of other comparable manufacturing
facilities in the general area where the site or sites are located, at a
favorable cost not higher than that paid by state-owned enterprises for similar
facilities, services and utilities in the area;
(g) Assisting expatriate personnel of China Newco and BT in handling the
necessary procedures for entry visas, work permits and traveling arrangements,
and assisting in arranging appropriate housing acceptable to BT for expatriate
employees of BT providing support services to China Newco as provided in Section
7(c) above, and hotel accommodations for BT personnel visiting China on
short-term assignment to China Newco;
(h) Using best efforts to avoid management and technical personnel and
workers hired and trained by China Newco from being transferred to competitors
of BT or China Newco operating in China;
(i) Assisting China Newco in opening bank accounts with the banking
institutions as determined pursuant to Section 16 and in obtaining local
currency and foreign exchange loans from financial institutions within China,
with no guarantees of Master Gain provided;
(j) Assisting China Newco in applying for and obtaining all possible tax
reductions and exemptions and all other relevant investment incentives,
privileges and preferences available to China Newco under PRC Law, including, if
appropriate, designation of China Newco as a technologically advanced enterprise
or a high-or-new technology enterprise;
(k) Assisting China Newco in applying for and being granted all necessary
approvals, permits, certificates and licenses required in connection with
safety, environmental matters (especially waste disposal) and other matters
regulated by relevant Chinese Governmental Authorities;
(l) Generally assisting China Newco in establishing and maintaining good
relations with the local government authorities and Chinese companies able to
contribute to the success of China Newco; and
(m) Handling such as other matters as are entrusted to it by China Newco
from time to time.
10. Distributions and Allocations.
(a) Distributions from Operations. Except as otherwise provided herein, any
distributions of cash flow from Offshore Newco (including, without limitation,
cash flow attributable to any entity within the Newco Group) that are
attributable to the operation of the business of Offshore Newco (or any entity
within the Newco Group) shall be distributed to BTFE and Master Gain in
accordance with their respective Economic Interests as set forth in Section
3(a).
(b) Distributions from Capital Transactions. Except as otherwise provided
herein, any distributions from Offshore Newco (including, without limitation,
cash flow attributable to any entity within the Newco Group) that are
attributable to a capital transaction of Offshore Newco (or any entity within
the Newco Group) or that are attributable to a Change in Control Transaction
shall be distributed to BTFE and Master Gain in accordance with the following:
(i) First, to the extent any portion of the value realized as a result
of such capital transaction or Change in Control Transaction is
attributable to the BT Stock, such amount shall be distributed to Master
Gain.
(ii) Second, any remaining amounts distributable as a result of such
capital transaction or Change in Control Transaction shall be distributed
to BTFE and Master Gain in accordance with their respective Economic
Interests as set forth in Section 3(a).
For purposes of the foregoing, (i) the term "capital transaction" means,
with respect to an entity, a sale or transfer of substantially all of the assets
of such entity, a merger of such entity with or into any other entity, the sale
of substantially all of the interests of such entity, or any other transaction
that fundamentally affects the ownership or assets of such entity, and (ii) the
term "Change in Control Transaction" means the (i) consolidation, merger, share
exchange or other business combination involving BT in which immediately
following such transaction either (x) less than 50% of the directors or managers
of the surviving parent entity immediately following the closing of the
transaction were directors or managers of BT immediately prior to the closing of
the transaction, or (y) less than 50% of the voting power of the surviving
parent entity immediately following the closing of the transaction is held by
persons who were stockholders of BT immediately prior to the closing of the
transaction, (ii) sale, transfer or other disposition of all or substantially
all of the assets of BT, (iii) acquisition by any entity, or group of entities
acting in concert, of beneficial ownership of 50% or more of the outstanding
voting securities of BT, or (iv) any combination of the foregoing.
(c) Capital Accounts. Offshore Newco will maintain capital accounts of for
BTFE and Master Gain in accordance with the requirements of Section
1.704-1(b)(2)(iv) of the Income Tax Regulations ("Regulations") promulgated
under the Code, and shall otherwise comply with the requirements of such Income
Tax Regulations with respect to allocations of profits and losses as determined
for book purposes and allocations of income, gain, loss, deduction and credit
for U.S. federal income tax purposes.
(d) Allocations. Profits and losses shall be allocated so the amounts of
any distributions are in accordance with the capital accounts of the persons to
whom such distributions are made. Notwithstanding the foregoing, allocations of
income, gain, loss, deduction and credit for U.S. federal income tax purposes
shall be made in accordance with Section 704 of the Code and the Regulations
promulgated so that such allocations are deemed to have substantial economic
effect as that term is used in the Code and Regulations. In addition, the
provisions of Section 704(c) and 721(c) of the Code shall apply so that (i) in
the event that the capital account of any person is credited with or adjusted to
reflect the fair market value of an asset (including, without limitation, the BT
Stock), the distributive share of gain or loss, as computed for tax purposes,
with respect to such property, shall be determined pursuant to Section 704(c) of
the Code and the Regulations thereunder, so as to take account of the variation
between the adjusted tax basis and fair market value of such property, and (ii)
any gain realized on the transfer of property (including, without limitation,
the BT Stock) to Offshore Newco (or any entity within the Newco Group) by BT or
BTFE will, when recognized, be includable in the gross income of BT or BTFE, as
appropriate.
(e) Modification of Structure. If the provisions of this Section 10 cannot
be complied with or if the transactions contemplated by this JV Agreement would
(after consultation with BT's legal and tax advisors) result in BT having any
significant adverse tax consequences (including, without limitation, recognition
of gain on the contribution of BT Stock or other property to Offshore Newco or
an entity within the Newco Group), the parties hereto agree to cooperate in
restructuring the proposed transaction to minimize or eliminate such adverse
consequence in such manner as preserves, to the fullest extent possible, the
economic benefits intended to be afforded to each of the parties.
11. Compliance with U.S. Laws.
(a) The U.S. Foreign Corrupt Practices Act (the "FCPA") makes it unlawful
for BT, or any BT agent or other third party acting on behalf of BT, to offer,
pay, promise or authorize to pay any money, gift or anything of value, including
but not limited to bribes, entertainment, kickbacks or any benefit, directly or
indirectly, (i) to any foreign official or any foreign political party or (ii)
to any person while knowing or suspecting that the payment or gift will be
passed on to a foreign official, in connection with any business activity of BT;
provided, however that the foregoing preclusions do not apply to facilitating or
expediting payments to a foreign official, political party, or party official
the purpose of which is to expedite or to secure the performance of a "routine
governmental action" by a foreign official, political party or party official.
(b) For the purpose of this JV Agreement, (i) a "foreign official" means
any employee or officer of the government of a foreign country, including any
federal, regional or local department, agency, instrumentality, enterprise owned
or controlled by the government of a foreign country, any official of a foreign
political party, any official or employee of a public international
organization, any person acting in an official capacity for, or on behalf of,
such entities, and any candidate for foreign political office; and (ii) the term
"routine governmental action" means only an action which is ordinarily and
commonly performed by a foreign official in (A) obtaining permits, licenses, or
other official documents to qualify a person to do business in a foreign
country; (B) processing governmental papers, such as visas and work orders; (C)
providing police protection, mail pick-up and delivery, or scheduling
inspections associated with contract performance or inspections related to
transit of goods across country; (D) providing phone service, power and water
supply, loading and unloading cargo, or protecting perishable products or
commodities from deterioration; or (E) actions of a similar nature.
(c) Master Gain agrees and acknowledges that BT and its legal
representatives have explained the requirements and prohibitions of the FCPA,
and that those Master Gain directors, officers, employees, agents and
representatives acting on BT's, Offshore Newco's, China Newco's, or any
Additional Entity's behalf understand those requirements and prohibitions and
will comply therewith. Master Gain shall advise and explain the requirements and
prohibitions of the FCPA to each new director, officer, employee, agent or
representative that will act on BT's, Offshore Newco's, China Newco's any
Additional Entity's behalf.
(d) Master Gain agrees that should BT reasonably and in good faith have
concerns that there has been a violation of this Section, Master Gain shall
cooperate in good faith with BT to determine whether such a violation has
occurred. If BT determines reasonably and in good faith that there has been such
a violation and can provide evidence supporting such determination, it shall
have the right to terminate this JV Agreement and the Venture pursuant to the
terms of Section 15(a) with immediate effect. If termination occurs pursuant to
this Section, BT shall be relieved of any further obligations under the
Agreement.
(e) Master Gain shall supply to BT all information and records that BT
determines, in its sole discretion, are needed to enable BT to comply or verify
compliance with U.S. laws and regulations.
(f) China Newco, at its own expense, shall indemnify and hold BT, its
directors, officers, employees, agents, subsidiaries, affiliates, customers,
designees, and assignees harmless from any loss, damage, liability or expense,
on account of any failure to comply with the terms of this JV Agreement or with
the laws and regulations of the Government the United States arising from any
occurrence caused by any act or omission of Master Gain, Offshore Newco, any
Additional Entity or China Newco related to the performance of this JV
Agreement. China Newco, at its expense, shall defend any suit or dispose of any
claim or other proceedings brought against said indemnities on account of such
damage or injury, and shall pay all expenses, including attorney's fees, and
satisfy all judgments which may be incurred by or rendered against said
indemnities.
12. Options. Upon payment of the Master Gain Investment to Offshore Newco,
consummation of the sale of the CMTS Assets to Offshore Newco, and approval of
the Venture by BT's primary lenders, BT will grant to Master Gain options to
purchase up to 500,000 shares of unregistered BT common stock (the "Stock
Options"). The exercise price of the Stock Options, payable in cash ("Strike
Price"), and the vesting schedule of such Stock Options will be in accordance
with the following schedule (i) options to purchase 50,000 shares at a Strike
Price of $5.00 per share will vest at such time as Master Gain has made its
capital contributions to Offshore Newco contemplated by Section 4 herein and has
sold and transferred the CMTS Assets to Offshore Newco and expire on September
30, 2008, (ii) options to purchase 150,000 shares at a Strike Price of $7.00 per
share will vest on April 15, 2007 and expire on April 14, 2010, and (iii)
options to purchase 300,000 shares at a Strike Price of $10.00 per share will
vest on April 15, 2008 and expire on April 14, 2011; provided, however, that for
each fiscal year of BT commencing with 2006, as and to the extent that the Newco
Group incurs a loss in any fiscal year that is reflected in or otherwise
adversely impacts the income statement of BT by virtue of BT's ownership
interest therein (whether under the equity method or as part of a consolidated
group with BT), such number of Stock Options as equals the amount of loss
recognized or to be recognized by BT divided by the Strike Price, will be deemed
cancelled and terminated, with the first Stock Options to vest being the first
Stock Options to be cancelled and terminated. Stock Options, once exercised and
full consideration paid (and the shares of stock issued upon the exercise
thereof) will not be subject to cancellation pursuant to the foregoing sentence.
In illustration of the foregoing, if BT recognizes a loss of $100,000 in fiscal
year 2006 attributable to the Newco Group, 20,000 of Master Gain's unexercised
Stock Options that vested as set forth in subsection (i) above would be
terminated and cancelled. In the event that this JV Agreement is terminated for
any reason, including termination of the Venture pursuant to Section 15(a) or
(b), within the three (3) year period immediately following the Effective Date
of this JV Agreement, then all unvested Stock Options then outstanding shall be
cancelled and terminated. In the event of a Change in Control Transaction, all
unvested Stock Options outstanding as of the closing date of such transaction
shall be cancelled and terminated. The provisions of this section will be
applied independently of the provisions of section 6(e) relating to the BT
Stock.
13. Governance. Except as the PRC Laws otherwise require, each of Offshore
Newco and China Newco shall have the following governance structure.
(a) Election of Directors. Each of Offshore Newco and China Newco shall be
managed by a board of directors (or other applicable governing body). Master
Gain, BTFE and Offshore Newco, as applicable, shall enter into operating
agreements related to Offshore Newco and China Newco, pursuant to which each
would agree to vote their equity interests in such a manner as to cause each
board of directors to be comprised of six (6) members, three (3) of whom shall
be nominees of and elected by BTFE (the "BT Directors") and three (3) of whom
shall be nominees of and elected by Master Gain (the "Master Gain Directors").
(b) Voting, Quorum and Actions. Each director on each board of directors
shall be entitled to one (1) vote on each matter to properly come before such
board of directors. The quorum required for each properly convened meeting of
each board of directors shall be four (4) directors, provided, however, that at
least two of such directors are BT Directors and at least two (2) of such
directors are Master Gain Directors. All resolutions shall be adopted by the
affirmative vote of at least two-thirds of the directors in attendance at a
properly convened meeting.
(c) Managing Directors. Each Board shall elect two Managing Directors, one
of whom shall be selected by the BT Directors and one of whom shall be selected
by the Master Gain Directors. Initially, it is contemplated that the managing
director selected by the BT Directors would be Xxxxxx X. Xxxxx, Xx., and the
managing director selected by the Master Gain Directors would be Eyal Lior. It
shall be a condition to the appointment of any managing director that is not a
citizen of PRC, that they waive any claim or right available under the laws of
the PRC resulting from their loss of office or employment upon termination of
the Venture or upon a buyout by one party or the other, as contemplated by
Xxxxxxx 00 xxxxxx.
(x) Officers. Each Board of Directors may from time-to-time elect such
other officers of Offshore Newco or China Newco, as applicable, as it shall deem
necessary or appropriate. Subject to the agreement of both managing directors,
each managing director shall have the authority to sign any and all agreements
and other documents in connection with Offshore Newco or China Newco, as
applicable.
(e) Budget. The Managing Directors of each of Offshore Newco and China
Newco shall prepare an annual line item operating budget for such entity for
each fiscal year, prepared at least sixty (60) days prior to the start of each
fiscal year, which budget shall set forth, on a monthly basis, all receipts
projected for the fiscal year and all expenses, by category, including any
capital expenditures, for the fiscal year ("Annual Budget"). The Annual Budget
must be approved by the Board of Directors of Offshore Newco and China Newco,
respectively, and may be revised from time to time upon the approval of the
Board of Directors, but no more frequently than quarterly. The Managing
Directors shall only have authority for expenditures within the Annual Budget.
Any expenditure in excess of five percent (5%) of the line amount budgeted
therefor in the Annual Budget shall require the approval of the Board of
Directors.
(f) Dispute Resolution.
(i) Each of the Managing Directors and the Boards of Directors shall
use their good faith best efforts to agree and compromise on each major
decision; provided, however, that in the event agreement cannot be obtained
for a major decision resulting in a stalemate or deadlock among the Board
of Directors or Managing Directors of either Offshore Newco or China Newco
that would have a material adverse effect on its business, either party may
give notice to the other of such major decision. Within twenty (20) days
after delivery of such notice, executives of each party involved in the
controversy shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, to exchange relevant
information and to attempt to resolve the dispute. If the matter has not
been resolved within sixty (60) days of the disputing party's notice, or if
the parties fail to meet within twenty (20) days of such notice, either
party may initiate mediation of the controversy as provided below. If a
negotiator intends to be accompanied at a meeting by an attorney, the other
negotiator(s) shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this Section shall be confidential and shall be treated as
compromise and settlement negotiations for purposes of the U.S. federal and
state rules of evidence.
(ii) If the controversy has not been resolved by negotiation as
provided above, the parties shall endeavor to settle the controversy by
mediation under the then-current CPR Institute for Dispute Resolution
("CPR") (xxx.xxxxxx.xxx) Model Procedure for Mediation of Business
Disputes. The neutral third party will be selected from the CPR Panels of
Neutrals. If the parties encounter difficulty in agreeing on a neutral,
they will seek the assistance of CPR in the selection process. The parties
shall agree upon a mutually acceptable time and place for each mediation
session and, if unable to do so, the mediator shall decide the time and
place. The costs of the mediation shall be shared equally by the parties.
Efforts to reach a settlement will continue until the conclusion of the
mediation proceeding, which is deemed to occur when: (a) a written
settlement is reached, or (b) the mediator concludes and informs the
parties in writing that further efforts would not be useful, or (c) the
parties agree in writing that an impasse has been reached. No party may
withdraw before the conclusion of the proceeding. The parties shall regard
this obligation to mediate as an essential provision of the organizational
documents governing the structure and governance of Offshore Newco or China
Newco, as applicable, and one that is legally binding on them. In case of a
violation of such obligation by one party, any other party may bring an
action to seek enforcement of such obligation in any court of law having
jurisdiction thereof.
(iii) If the controversy has not been resolved by negotiation or
mediation as provided above, the parties shall settle the controversy by
arbitration under the then-current CPR Commercial Arbitration Rules by
three neutral arbitrators. Each party shall appoint one neutral arbitrator
and these two arbitrators shall appoint the third. The governing law shall
be as defined in Paragraph 26 of this JV Agreement; the parties acknowledge
that the organizational documents governing the structure and governance of
Offshore Newco or China Newco, as applicable, evidences a transaction
involving international commerce, however, and the United States
Arbitration Act, 9 U.S.C. §§ 1 et seq., shall govern the interpretation,
enforcement, and proceedings pursuant to the arbitration clause in this JV
Agreement. The arbitration shall be in the English language, and the place
and time of the arbitration shall be mutually acceptable to the parties;
absent agreement, the place shall be Trenton, New Jersey, U.S.A., and the
parties consent to the personal jurisdiction of the state and federal
courts there for any controversy arising out of or otherwise related to
this arbitration, its conduct, and its enforcement. The arbitrators shall
make a reasoned award which shall be binding, final, and not subject to
appeal. Judgment upon the award rendered by the arbitrators may be entered
in any court of law having jurisdiction thereof. Each party shall bear its
own costs and expenses and an equal share of the arbitrators' and
administrative fees of the arbitration
(iv) The parties, their representatives, other participants, and the
mediator and arbitrators shall hold the existence, content, and result of
mediation and arbitration in confidence. A request by a party to a court
for interim measures shall not be deemed a waiver of the obligation to
mediate and arbitrate
(v) The parties shall agree on the nature of those matters that will
be considered "Major Decisions" in the organizational documents governing
the structure and governance of Offshore Newco or China Newco, as
applicable, provided, however, that such term shall include any proposed
action by Offshore Newco or China Newco that is beyond its ordinary course
of business, results in expenditures in excess of the approved budget, or
causes the incurrence of liabilities in excess of the budget.
(e) Unavailability of Governance Structure. To the extent the governance
structure set forth in this Section 13 is not available due to any PRC Law or
other applicable law, the parties shall work together to determine a governance
structure that complies with all requirements of the PRC Law or such other
applicable law, provided, however, that any governance structure selected must
be approved by both BTFE and Master Gain.
14. Dispute Resolution.
(a) Each of the parties hereto, including Offshore Newco, China Newco, any
Additional Entity and any other entity that shall become a party to this JV
Agreement shall use their good faith best efforts to agree and compromise any
questions, issues or disputes (each a "Dispute") arising out of or related to
this JV Agreement. Any party may give notice to the other parties of any of
Dispute not resolved in the normal course of business. Within twenty (20) days
after delivery of such notice, executives of each party involved in the Dispute
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the matter has not been resolved within sixty (60)
days of the disputing party's notice, or if the parties fail to meet within
twenty (20) days of such notice, either party may initiate mediation of the
controversy as provided below. If a negotiator intends to be accompanied at a
meeting by an attorney, the other negotiator(s) shall be given at least three
working days' notice of such intention and may also be accompanied by an
attorney. All negotiations pursuant to this Section shall be confidential and
shall be treated as compromise and settlement negotiations for purposes of the
U.S. federal and state rules of evidence.
(b) If the Dispute has not been resolved by negotiation as provided above,
the parties shall endeavor to settle the Dispute by mediation under the
then-current CPR Institute for Dispute Resolution ("CPR") (xxx.xxxxxx.xxx) Model
Procedure for Mediation of Business Disputes. The neutral third party will be
selected from the CPR Panels of Neutrals. If the parties encounter difficulty in
agreeing on a neutral, they will seek the assistance of CPR in the selection
process. The parties shall agree upon a mutually acceptable time and place for
each mediation session and, if unable to do so, the mediator shall decide the
time and place. The costs of the mediation shall be shared equally by the
parties. Efforts to reach a settlement will continue until the conclusion of the
mediation proceeding, which is deemed to occur when: (a) a written settlement is
reached, or (b) the mediator concludes and informs the parties in writing that
further efforts would not be useful, or (c) the parties agree in writing that an
impasse has been reached. No party may withdraw before the conclusion of the
proceeding. The parties shall regard this obligation to mediate as an essential
provision of this JV Agreement, and one that is legally binding on them. In case
of a violation of such obligation by one party, any other party may bring an
action to seek enforcement of such obligation in any court of law having
jurisdiction thereof.
(c) If the Dispute has not been resolved by negotiation or mediation as
provided above, the parties shall settle the Dispute by arbitration under the
then-current CPR Commercial Arbitration Rules by three neutral arbitrators. Each
party shall appoint one neutral arbitrator and these two arbitrators shall
appoint the third. The governing law shall be as defined in Paragraph 26 of this
JV Agreement; the parties acknowledge that this JV Agreement, evidences a
transaction involving international commerce, however, and the United States
Arbitration Act, 9 U.S.C. §§ 1 et seq., shall govern the interpretation,
enforcement, and proceedings pursuant to the arbitration clause in this JV
Agreement. The arbitration shall be in the English language, and the place and
time of the arbitration shall be mutually acceptable to the parties; absent
agreement, the place shall be Trenton, New Jersey, U.S.A., and the parties
consent to the personal jurisdiction of the state and federal courts there for
any controversy arising out of or otherwise related to this arbitration, its
conduct, and its enforcement. The arbitrators shall make a reasoned award which
shall be binding, final, and not subject to appeal. Judgment upon the award
rendered by the arbitrators may be entered in any court of law having
jurisdiction thereof. Each party shall bear its own costs and expenses and an
equal share of the arbitrators' and administrative fees of the arbitration.
(iv) The parties, their representatives, other participants, and the
mediator and arbitrators shall hold the existence, content, and result of
mediation and arbitration in confidence. A request by a party to a court
for interim measures shall not be deemed a waiver of the obligation to
mediate and arbitrate
15. Termination of Venture.
(a) In the event BT desires to terminate the Venture due to misconduct
(i.e., conviction of any felony, fraud or embezzlement or any violation by
Master Gain or by Newco Group of BT's intellectual property rights set forth
herein) by Master Gain or by any entity within the Newco Group or any party
affiliated or related to either Master Gain or any entity within the Newco
Group, then BT would be entitled, at its sole discretion, to (i) terminate all
agreements with, and revoke all licenses and other rights granted to, Master
Gain, Offshore Newco, China Newco or any Additional Entity, (ii) cancel all BT
Stock held by Offshore Newco or China Newco on the date of termination, (iii)
cancel and terminate all unexercised Stock Options, (iv) require Master Gain to
sell its ownership interest in Offshore Newco to BT for a purchase price equal
to (a) the book value thereof as of the last day of the most recent quarter of
Offshore Newco preceding the date of BT's notice of its intent to terminate the
Venture (ascribing no value whatsoever to the BT Stock), multiplied by (b)
Master Gain's equity ownership percentage of Offshore Newco, payable by delivery
of a promissory note for the purchase price thereof payable in 20 equal
consecutive quarterly installments, bearing interest at the lowest applicable
federal rate of interest necessary to avoid the imputation of interest.
(b) In the event that the Venture fails to become profitable within 12
months after the execution of this JV Agreement, or fails to meet the net profit
milestones set forth below, either BT or Master Gain may terminate the Venture
(hereinafter the "Terminating Party") and upon notice thereof, (i) BT shall have
the right to buy Master Gain's ownership interest in Offshore Newco for a
purchase price equal to (a) the book value thereof as of the last day of the
most recent quarter of Offshore Newco preceding the date of the Terminating
Party's notice of its intent to terminate the Venture (ascribing no value
whatsoever to the BT Stock), multiplied by (b) Master Gain's equity ownership
percentage of Offshore Newco ("Buyout Price"), payable by delivery of a
promissory note for the purchase price thereof payable in 20 equal consecutive
quarterly installments, bearing interest at the lowest applicable federal rate
of interest necessary to avoid the imputation of interest under applicable U.S.
Law, or (ii) if BT determines not to purchase Master Gain's ownership interest
in Offshore Newco, then (a) Master Gain shall have the right to buy BT's
ownership interest in Offshore Newco for the Buyout Price (as calculated in
connection with BTFE's equity ownership percentage of Offshore Newco), payable
in 20 equal consecutive quarterly installments, bearing interest at the lowest
applicable federal rate of interest necessary to avoid the imputation of
interest under applicable U.S. Law, (b) the then existing manufacturing, license
and distribution agreements between or among BT, BTFE, Master Gain, Offshore
Newco, China Newco and any Intermediate Entity or Additional Entity shall be
terminated, (c) BT shall have the right to cancel all BT Stock held by Offshore
Newco or China Newco on the date of termination, and (d) BT shall grant to
Offshore Newco, China Newco and/or any Additional Entity, as applicable, a
limited, non-exclusive license for a term to be negotiated (with revocability
triggered by failure to maintain specified performance standards) to use the BT
Licensed Technology for the manufacture and sale of products into the Newco
Markets to be agreed upon by the parties, with such royalty payments and other
terms as may be negotiated between the parties; provided, however, that if
either party gives notice of termination of the Venture as contemplated in this
Section 15(b), but neither party agrees to purchase the other party's ownership
interest in Offshore Newco, as contemplated by clauses (i) or (ii) above, then
(a) the existing manufacturing, license and distribution agreements between or
among BT, BTFE, Master Gain, Offshore Newco, China Newco or any Additional
Entity shall be terminated, (b) BT shall have the right to cancel all BT Stock
held by Offshore Newco or China Newco on the date of termination, (c) each of BT
and Master Gain would be permitted to exploit for their own economic gain all of
the Acquired Technology and the Newco Products and otherwise compete with
respect thereto, provided, however, Master Gain will be precluded from
manufacturing, marketing or selling the Specified BT Products or otherwise
exploiting any BT Intellectual Property and (d) each of China Newco, Offshore
Newco and any Additional Entity shall be dissolved.
(c) Net Profit Milestones. Offshore Newco shall achieve the following Net
Profit (determined on a consolidated basis with China Newco) (as defined below)
milestones as of the end of each of the quarterly periods following the
execution of this JV Agreement, as set forth below:
First Quarter Ending December 31, 2005 ($75,000)
Second Quarter Ending March 31, 2006 $100,000
Third Quarter Ending June 30, 2006 $200,000
Fourth Quarter Ending September 30, 2006 $200,000
Fifth Quarter Ending December 31, 2006 $300,000
Sixth Quarter Ending March 31, 2007 $500,000
Seventh Quarter Ending June 30, 2007 $500,000
Eighth Quarter Ending September 30, 2007 and each
quarter thereafter $500,000
For purposes of this JV Agreement, the term "Net Profit" shall mean net
income after applicable income taxes, determined in accordance with generally
accepted accounting principles applicable in the USA.
(d) Upon the occurrence of a Change in Control Transaction, either BT or
Master Gain may terminate the Venture (hereinafter the "Terminating Party") and
upon notice thereof, (i) BT shall have the right to buy Master Gain's ownership
interest in Offshore Newco for a purchase price equal to (a) the book value
thereof as of the last day of the most recent quarter of Offshore Newco
preceding the date of the Terminating Party's notice of its intent to terminate
the Venture (ascribing no value whatsoever to the BT Stock), multiplied by (b)
Master Gain's equity ownership percentage of Offshore Newco ("Buyout Price"),
payable by delivery of a promissory note for the purchase price thereof, payable
in 20 equal consecutive quarterly installments, bearing interest at the lowest
applicable federal rate of interest necessary to avoid the imputation of
interest under applicable U.S. Law, or (ii) if BT determines not to purchase
Master Gain's ownership interest in Offshore Newco, then (a) Master Gain shall
have the right to buy BT's ownership interest in Offshore Newco for the Buyout
Price (as calculated in connection with BTFE's equity ownership percentage of
Offshore Newco), payable in 20 equal consecutive quarterly installments, bearing
interest at the lowest applicable federal rate of interest necessary to avoid
the imputation of interest under applicable U.S. law, (b) the existing
manufacturing, license and distribution agreements between or among BT, BTFE,
Master Gain, Offshore Newco, China Newco and any Intermediate Entity or
Additional Entity shall be terminated, (c) all BT Stock held by Offshore Newco
or China Newco will be subject to the provisions of section 6(g) herein and the
proceeds thereof will be distributed to Master Gain as contemplated by section
10(b) herein, and (d) BT shall grant to Offshore Newco, China Newco and/or any
Additional Entity, as applicable, a limited, non-exclusive license for a term to
be negotiated (with revocability triggered by failure to maintain specified
performance standards) to use the BT Licensed Technology for the manufacture and
sale of products into the Newco Markets to be agreed upon by the parties, with
such royalty payments and other terms as may be negotiated between the parties;
provided, however, that if either party gives notice of termination of the
Venture as contemplated in this Section 15(d), but neither party agrees to
purchase the other party's ownership interest in Offshore Newco, as contemplated
by clauses (i) or (ii) above, then (a) the existing manufacturing, license and
distribution agreements between or among BT, Master Gain, Offshore Newco, China
Newco and any Additional Entity shall be terminated, (b) all BT Stock held by
Offshore Newco and China Newco on the date of termination will be subject to the
provisions of section 6(g) herein and the proceeds thereof will be distributed
to Master Gain as contemplated by section 10(b) herein, (c) each of BT and
Master Gain would be permitted to exploit for their own economic gain all of the
Acquired Technology and the Newco Products and otherwise compete with respect
thereto, provided, however, Master Gain will be precluded from manufacturing,
marketing or selling the Specified BT Products or otherwise exploiting any BT
Intellectual Property and (d) each of China Newco, Offshore Newco and any
Additional Entity shall be dissolved.
(e) Right of First Refusal. After five (5) years from the Effective Date,
if either BTFE or Master Gain (the "Selling Party") receives a bona fide offer
to purchase all, but not less than all, of its ownership interest in Offshore
Newco, which it desires to accept, such Selling Party must first offer to sell
such ownership interest to the other party (the "Non-Selling Party") by giving
written notice of the offer, including the offer price and offer terms, to the
Non-Selling Party (the "Offer Notice"). Except with the consent of the
Non-Selling Party, the Offer Notice shall be irrevocable. The Non-Selling Party
shall have a period of thirty (30) days from the date of the Offer Notice (the
"Acceptance Period") to exercise its right to purchase all, but not less than
all, of the Selling Party's ownership interest pursuant to the Offer Notice, for
the offer price and on the offer terms. If the Non-Selling Party does not
exercise its option to purchase the Selling Party's ownership interest during
the Acceptance Period, the Selling Party may, for a period of ninety (90) days
from the termination of the Acceptance Period, sell such ownership interest to
any third party ("Purchaser") for not less than the offer price and on the offer
terms, provided, however, that (i) the Non-Selling Party shall approve such
Purchaser, which approval shall not be unreasonably withheld, (ii) the Purchaser
shall agree to become a party to this JV Agreement and assume all of the Selling
Party's obligations hereunder, (iii) the Purchaser shall agree to become a party
to such of the Venture Agreements as the Non-Selling Party deems necessary, and
(iv) the purchase and sale of such ownership interest does not materially
adversely affect the Non-Selling Party, Offshore Newco or any other entity in
the Newco Group. The parties shall cause the Directors of Offshore Newco to
unanimously approve the purchase of the ownership interest by the Purchaser. In
the event that BTFE is the Selling Party, (i) BT shall be entitled, in its sole
discretion, to cancel any shares of BT Stock held by Newco Group as of the date
of the transaction and, in consideration thereof, pay to Offshore Newco the
Valuation Amount, calculated as of the Valuation Date, (ii) the then existing
manufacturing, license and distribution agreements between or among BT, BTFE,
Master Gain, Offshore Newco, China Newco and/or any Additional Entity shall be
terminated as of the date of the transaction, and (iii) BT shall grant Offshore
Newco, China Newco and/or any Additional Entity, as applicable, a limited,
non-exclusive license for a term to be negotiated (with revocability triggered
by failure to maintain specified performance standards) to use the BT Licensed
Technology for the manufacture and sale of products into the Newco Markets to be
agreed upon by the parties, with such royalty payments and other terms as may be
negotiated between the parties.
(f) Indemnification. In the event either BTFE's or Master Gain's ownership
interest in Offshore Newco is purchased by the other party pursuant to any
provision of this Section 15, the selling party's elected directors shall resign
from the board of directors and all other positions of both Offshore Newco and
China Newco and, in connection with such resignations, the selling party shall
indemnify the purchaser against any claim brought by such director in connection
with the loss of office or employment.
(g) Approval. In the event that either BTFE's or Master Gain's ownership
interest in Offshore Newco is purchased by the other party pursuant to any
provision of this Section 15, both parties shall work together to apply for and
obtain any consent or approval required for such purchase by any governmental
authority pursuant to applicable law.
16. Accounting Functions. The parties agree that BT shall manage, in
accordance with generally accepted accounting principals consistently applied
("GAAP"), all financial reporting and accounting functions for the Newco Group,
including, without limitation, all internal controls and compliance and receipt
of all cancelled checks; provided, however, that the check-writing function
shall be managed by the Managing Directors of each of Offshore Newco and China
Newco, under the guidance of their respective Boards of Directors. Each entity
within the Newco Group shall adopt the United States Dollar as the bookkeeping
base currency, but may also use other foreign currencies as supplemental
bookkeeping currencies. All bank accounts opened for Offshore Newco, China Newco
and/or any Intermediate Entity or Additional Entity, will be with such
international banking institutions, as BT shall determine, that, to the extent
possible, have operations in the United States as well as in China and in the
domiciliary jurisdiction of Offshore Newco. To the fullest extent allowed by PRC
Law, all accounts shall be held in United States Dollars. The parties agree to
work together to apply for and obtain any consent or approval required to open
accounts with such banking institutions required by any governmental authority
pursuant to applicable law. BT shall be permitted to charge a reasonable and
appropriate portion of its administrative overhead to the Newco Group as
consideration for the provision of such accounting functions and oversight (the
"Services Fee"), and the parties shall cooperate to the fullest extent necessary
to obtain any approval required for the payment of such Services Fee. Newco
Group's financial statements shall be audited as and to the extent required by
United States securities laws by virtue of BT's ownership interest therein, by
an accounting firm acceptable to the BT Directors. To the fullest extent allowed
by applicable law, such accounting firm shall audit all other matters relating,
directly or indirectly, to the financial condition of Newco Group. All fees for
such accounting firm shall be paid by Newco Group. Newco Group shall, to the
extent requested by BT, cooperate with BT to provide such information as
required by BT to reconcile Newco Group's financial statements with United
States GAAP reporting requirements. China Newco may be further audited by a
statutory auditor as may be required by any PRC Law.
17. Manufacturing Services Agreement. BT shall enter into a manufacturing
services agreement with China Newco pursuant to which China Newco shall
manufacture the Specified BT Products for such price and on such other terms and
conditions as may be mutually agreed to between the parties.
18. Distribution Agreements.
(a) China Distributorship. BT and entities comprising the Newco Group shall
enter into distributorship agreements as provided in Section 2(a)(v) above,
pursuant to which BT shall grant to entities comprising the Newco Group (as
determined by the parties) the Newco Distributorship which shall be an exclusive
distributorship within the Newco Markets for the term of the Venture.
(b) BT Distributorship. BT and entities comprising the Newco Group shall
enter into distributorship agreements as provided in Section 2(a)(viii) above,
pursuant to which China Newco or other entities comprising the Newco Group shall
grant BT the BT Distributorship which shall be an exclusive distributorship
within the BT Markets for the term of the Venture.
(c) Gross Profit Margin. Each distributorship agreement (or series of
distributorship agreements, as the case may be) shall provide that each party
shall sell their respective products to the other for resale within such other
party's markets (as set forth in Secti on 2), at such prices as shall permit the
Newco Group on the one hand and BT on the other hand to obtain a gross profit
margin of thirty percent (30%); provided, however, that if and to the extent a
particular product suffers from downward price competition at the resale level,
the parties shall negotiate a reasonable adjustment to the thirty percent (30%)
gross profit margin. All other terms and conditions of such distribution
agreements shall be as mutually agreed to between the parties.
19. Yitong Venture.
(a) The parties acknowledge and agree that it will take a period of time
until China Newco has acquired or constructed the Manufacturing Facility capable
of performing its intended functions. To facilitate the parties' ability to
obtain certain of the benefits contemplated by this JV Agreement, it is
anticipated that Offshore Newco shall enter into a joint venture agreement with
an entity formed under the laws of Hong Kong ("Yitong Hong Kong") and wholly
owned by Jiangsu Yitong High Tech Co. Ltd., a corporation formed under the laws
of the PRC, based on which these two entities form a new wholly foreign-owned
enterprise under the laws of the PRC ("Yitong/Newco Venture"), having the
following equity structure:
Equity Ownership Initial Cash
and Economic Interest Capital Contribution
Offshore Newco 50% US$1,200,000
Yitong Hong Kong 50% US$1,200,000
(b) To the extent the equity structure set forth in this Section 19 is not
available due to any PRC Law, the parties shall work together to determine a
equity structure that complies with all requirements of the PRC Law, provided,
however, that any equity structure selected must be approved by both BTFE and
Master Gain.
(c) Each of BTFE and Master Gain shall work with Yitong Hong Kong to
develop a governance structure for Yitong/Newco Venture that complies with all
requirements of the PRC Law, including all provisions related to dissolution of
the Yitong/Newco Venture, provided, however, that any governance structure
selected must be approved by both BTFE and Master Gain.
(d) Certain Specified BT Products, Newco Products and third party products
(collectively, the "Products") to be manufactured by China Newco shall be
subcontracted by China Newco to Yitong/Newco Venture pursuant to a manufacturing
services agreement between China Newco and Yitong/Newco Venture. Yitong/Newco
Venture shall contract manufacture the Products for China Newco at such prices
as would permit Yitong/Newco Venture to obtain a maximum gross margin of 11%. It
is envisioned that as China Newco's manufacturing capability is developed,
Yitong/Newco Venture shall continue to manufacture the Products at the
experienced volumes (the parameters of which shall be mutually agreed to between
the parties) and China Newco shall manufacture quantities of such Products in
excess of these experienced volumes as the sales volume develops.
20. Venture Agreements.
(a) Each of the parties hereto shall use their good faith best efforts to
(i) negotiate, execute and deliver, as expeditiously as practicable, of each of
the agreements and documents identified in or contemplated by this JV Agreement,
with each of such agreements or documents containing such terms, conditions,
representations, warranties and covenants customary in transactions of the
nature contemplated hereby and thereby, and supported by customary
indemnification provisions, including, without limitation, representations,
warranties and covenants to be made by each of BT, BTFE and Master Gain in
connection with its intellectual property rights (collectively, the "Venture
Agreements"), and (ii) apply for and obtain any and all consents, approvals,
permits, licenses and other authorizations required or desirable to achieve the
purposes set forth herein from any and all governmental authorities with proper
jurisdiction (collectively, the "Approvals and Licenses").
(b) In the event that (i) the Venture Agreements (other than any agreement
or document related to Yitong Hong Kong or the Yitong/Newco Venture) are not
executed within six (6) months following the Effective Date of this JV Agreement
or (ii) the Approvals and Licenses are not obtained within six (6) months
following the Effective Date of this JV Agreement, then for a period of thirty
(30) days after the expiration of such six (6) month period, either BT or Master
Gain shall have the right to terminate the Venture and this JV Agreement by
sending written notice of this election to the other party. Upon receipt of such
notice, (i) the parties shall work together in good faith to dissolve Offshore
Newco, China Newco (if formed) and any Additional Entities that have been
formed, (ii) any Venture Agreement previously executed shall be terminated,
(iii) BT and Master Gain shall cause Offshore Newco to distribute to each the
balance of their initial capital contribution to Offshore Newco, if any, net of
all expenses and fees incurred prior to the dissolution of Offshore Newco and
any reserve amount required in connection with the unwinding of the Venture,
(iv) BT and Master Gain shall cause Offshore Newco to distribute to Master Gain
the Master Gain Investment, net of all expenses and fees incurred prior to the
dissolution of Offshore Newco and any reserve amount required in connection with
the unwinding of the Venture which was not covered by the initial capital
contributions as set forth in subsection (iii) above, (v) BT shall have the
right to cancel all BT Stock held by Offshore Newco or China Newco, and (vi) all
unexercised Stock Options shall be cancelled and terminated.
21. Confidentiality. The parties hereto agree, except as disclosure is
required by applicable law, to maintain this JV Agreement, their discussions and
negotiations that are the subject of this JV Agreement, and all subsequent
correspondence in the strictest confidence; provided, however, that nothing
herein shall prohibit any party from discussing the matters contemplated in this
JV Agreement with its bankers, accountants, lawyers and other advisors who have
a need to know. In no event shall Master Gain, or any person or entity
affiliated with, or related to, Master Gain, (i) use any BT Intellectual
Property for any purpose without BT's prior written consent, (ii) challenge, or
assist any other person to challenge, the proprietorship of BT, or (iii) apply
for registration of any of the BT Intellectual Property in any part of the world
(if capable of registration).
22. RESERVED.
23. Representations and Warranties.
(a) BT Representations and Warranties. BT represents and warrants to Master
Gain as follows:
(i) BT is a corporation duly organized and validly existing under the
laws of the State of Delaware and has full corporate power and authority
(subject to Board approval) to execute this JV Agreement and each of the
Venture Agreements to which BT shall be a party, and to observe and perform
its obligations under this JV Agreement and each of the Venture Agreements
to which BT shall be a party.
(ii) BT is the sole owner of the BT Licensed Technology and with
respect thereto, BT has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any intellectual
property rights of third parties, and BT has not ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that BT
must license or refrain from using any intellectual property rights of any
third party) that has not been resolved.
(b) Master Gain Representations and Warranties. Master Gain represents and
warrants to BT as follows:
(i) Master Gain is a corporation duly organized and validly existing
under the laws of Hong Kong and has full power and authority to execute
this JV Agreement and each of the Venture Agreements to which Master Gain
shall be a party, and to observe and perform its obligations under this JV
Agreement and each of the Venture Agreements to which Master Gain shall be
a party.
(ii) Master Gain is the sole owner of the CMTS Technology and with
respect thereto, Master Gain has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any intellectual
property rights of third parties, and Master Gain has not ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Master Gain must license or refrain from using any intellectual property
rights of any third party). Master Gain will provide BT with all documents
relevant to Master Gain's ownership of the CMTS Assets.
(iii) All of the outstanding capital stock of Master Gain is owned by
Xxxx Xxx-Jun (5,000 shares) and Xxxxxx Xxxxxxxxx (5,000 shares). No person
or entity has an option to acquire a controlling interest in and to Master
Gain; provided, however, that within 30 days after the date hereof Xxxx
Xxx-Jun will assign and transfer to Eyal Lior all of her right, title and
interest in Master Gain, and Eyal Lior shall thereupon become and remain a
50% owner of Master Gain.
24. Termination of this JV Agreement. This JV Agreement may be terminated,
and the Venture terminated as provided in Section 15(b) upon the occurrence of
any of the following events:
(a) China Newco is unable to continue its operations for a period exceeding
one hundred and twenty (120) days due to the occurrence of an Event of Force
Majeure;
(b) China Newco is unable to operate due to the loss of its business
license for its core business, or its inability to renew such license, or it is
prohibited from pursuing its core business pursuant to any regulatory issue,
judicial action or other decision of a Chinese Governmental Authority, or
permanently cannot pursue its core business in a commercially practicable way
due to a change in the PRC Laws;
(c) China Newco files for bankruptcy;
(d) China Newco ceases to have the right to maintain foreign exchange bank
accounts or to have access to sufficient foreign exchange to perform its foreign
exchange payment obligations, including, without limitation, royalties, profits,
fees or other payments due to Offshore Newco, Master Gain, BTFE or BT, or other
legal means as provided under PRC Law;
(e) The parties agree in writing to terminate this JV Agreement and the
Venture and such termination is approved as required by the PRC Law;
(f) Any party has materially breached any term or condition of this JV
Agreement, or any of the Venture Agreements, which breach has a material adverse
effect on the non-breaching party or any entity within the Newco Group and has
not been cured within ninety (90) days after written notice from the
non-breaching party.
25. Force Majeure. If either party's performance of this JV Agreement or
any obligation hereunder is prevented, restricted or interfered with by causes
beyond its reasonable control including, but not limited to, acts of God, fire,
explosion, vandalism, loss of electrical power, cable cut, storm or other
similar occurrence, any law, order, regulation, direction, action or request of
the United States government or any foreign government, or state or local
governments, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more such governments, or of
any civil or military authority, or by national emergency, insurrection, riot,
war, strike, lockout or work stoppage or other labor difficulties, or supplier
failure, shortage, breach or delay (each, an "Event of Force Majeure"), then
such party shall be excused from such performance on a day-to-day basis to the
extent of such restriction or interference. The affected party shall use
commercially reasonable efforts to avoid or remove such causes or nonperformance
and shall proceed to perform with reasonable dispatch whenever such causes are
removed or cease.
26. Applicable Law.
(a) This JV Agreement shall be interpreted, enforced and governed under the
laws of the United States of America and State of New Jersey, U.S.A., without
regard to conflict of laws principles, and the parties consent and agree that
the federal and state courts of the State of New Jersey shall have exclusive
jurisdiction over any dispute relating to this JV Agreement, and consent to
service of process by United States mail or international delivery by Federal
Express, DHL, United Parcel Service or other internationally recognized courier
service.
(b) If, during the term of this JV Agreement, an adverse material change
occurs to either party's economic benefits derived from this JV Agreement due to
any change, amendment or new interpretation of the PRC Laws as in existence on
the Effective Date of this JV Agreement or due to a change in any relevant
governmental authorities treatment of either party, the parties shall promptly
work together and use their best efforts to identify and implement any
adjustments necessary to keep the damages party's economic benefits from this JV
Agreement substantially equivalent as they would have been if such event had not
occurred.
27. Transactions Prior to Formation of Newco Group. From the date hereof
and until the formation of Offshore Newco, and/or China Newco, Eyal Lior
("Lior") may seek out opportunities to acquire equipment, technology and other
business assets, manufacturing facilities and other business opportunities (both
inside and outside of the PRC), for the benefit of, and which may be of interest
to, the Venture (collectively "Venture Opportunities"). If the parties determine
that it would be in the interest of the Venture to acquire or obtain an option
to acquire any of such Venture Opportunities prior to the formation of Offshore
Newco and/or China Newco, Lior may enter into contracts to acquire such Venture
Opportunities or obtain an option to acquire such Venture Opportunities through
an entity controlled by him on terms and conditions satisfactory to the parties
hereto. Lior agrees that all right, title and interest in and to such Venture
Opportunities so acquired or optioned, as the case may be, shall be sold,
assigned and transferred to the Venture (on the same terms and conditions as
acquired or optioned by Lior) at such time as such of the entities comprising
the Newco Group as may be necessary to acquire such Venture Opportunities have
been formed and all applicable laws, rules and regulations have been complied
with.
28. Miscellaneous.
(a) This JV Agreement represents the entire understanding and agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior and contemporaneous negotiations, agreements, discussions and
proposals, both oral and written, between the parties.
(b) This JV Agreement may not be assigned by a party without the written
consent of the other party. This JV Agreement shall inure to the benefit of and
be binding upon the parties hereto and their successors and permitted assigns to
the extent set forth herein.
(c) Headings and captions contained in this JV Agreement are inserted only
as a matter of convenience and in no way define, limit, or extend the scope of
this JV Agreement or any provision hereof.
(d) The failure of any party to enforce any of the provisions of this JV
Agreement, or any rights with respect hereto, or the failure to exercise any
election provided for herein, will in no way be considered a waiver of such
provisions, rights, or elections, or in any way affect the validity of this JV
Agreement.
(e) This JV Agreement may be executed in any number of counterparts, each
of which so executed will be deemed an original, and all of which, when taken
together, shall be deemed one and the same instrument.
(f) Sections 14, 21, 26 and this Section 28(f) shall survive termination of
this JV Agreement.
29. Language. This JV Agreement has been executed in the English language.
If filing of this JV Agreement with any governmental authority is required, both
an English and Chinese version shall be submitted.
IN WITNESS WHEREOF, the parties have caused this JV Agreement to be
executed on the date first above written.
BLONDER TONGUE LABORATORIES, INC.
By: /s/Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx, Chief Executive Officer
BLONDER TONGUE FAR EAST, LLC.
By: /s/Xxxxxx X. Xxxxx, Xx.
Xxxxxx X. Xxxxx, Xx., Managing Director
MASTER GAIN INTERNATIONAL INDUSTRIAL LIMITED
By: /s/Eyal Xxxx
Xxxx Lior, Authorized Representative
