Model Joint Venture Agreement.doc

MODEL JOINT VENTURE AGREEMENTJOINT VENTURE AGREEMENTBETWEENINNOVATIVE TECHNOLOGIES, INC. OFCHARLOTTESVILLE, VIRGINIAUNITED STATES OF AMERICAANDTHE UNITED COMPUTER AND SOFTWARE ENTERPRISES OF MEXICOJOINT VENTURE AGREEMENTEntered into this _ day of _, 1994, By and Between United Computer and Software Enterprises of Mexico on the one hand (hereinafter called UNITED); and Innovative Technologies, Inc., a corporation organized and existing under the laws of the State of Virginia, United States of America, with its principal office at Charlottesville, Virginia, U.S.A., and Innovative Technologies, Ltd. (Europe) Ltd., a corporation organized and existing under the laws of the United Kingdom (IT (Europe) on the other hand (hereinafter collectively called IT).W I T N E S S E T HWHEREAS, UNITED and IT (hereinafter collectively called the parties) have entered into two memoranda of agreement dated June 18, 1994, for the procurement and transfer of computer technology; andWHEREAS, UNITED and IT desire to create the basis for a close and long-term relationship and, therefore, wish to establish an Equity Joint Venture in the form of a Limited Liability Joint Ownership Company to be know as Mexico-United States Computer Systems (hereinafter called the Joint Venture or the Company) in which both parties will have ownership interests and rights; andWHEREAS, the purpose of the Joint Venture is to own and operate a facility in Mexico for the assembly and manufacture of certain electronic products as hereinafter defined; andWHEREAS, it is the intention of the parties that financing for their agreed upon equity contributions to the Joint Venture will be guaranteed for each party by the Foreign Trade Bank of Mexico; and WHEREAS, UNITED is prepared to provide land and construct a building or buildings appropriate for such a facility, as well as to provide other assistance and services necessary to accomplish the purpose of the Joint Venture; andWHEREAS, in order to accomplish the foregoing IT is prepared to equip and assist in the construction, installation and erection of such a facility and to assist in the training of technicians, machine operators, supervisors and other management personnel for the operation and management of such a facility; andWHEREAS, IT is prepared to furnish to the Joint Venture certain licenses, know-how and technical assistance, as well as machines and processes, to be used in the production of such products; andWHEREAS, IT is willing to grant to the Joint Venture the right to assemble and manufacture such products under IT trademarks, which are the sole and exclusive property of IT; andWHEREAS, it is the desire of the parties that IT (Europe) shall have the exclusive rights to market all of the products produced by the Joint Venture, both in the Mexico and in overseas markets, as set forth in the Marketing Agreement attached hereto as Annex A.NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree as follows:ARTICLE IDEFINITIONS1.1.Definitions: The following terms shall have the following meanings:1.1.1. Agreement. This Joint Venture Agreement, together with the following Annexes hereto and any amendments as may later be adopted pursuant to Paragraph 11.7 hereof:Annex AJoint Venture Marketing AgreementAnnex BJoint Venture Articles of AssociationAnnex CJoint Venture By-lawsAnnex DList of Trademarks, trade names, service names, devices and registration particulars of IT Products1.1.2.Plant. The facility for the production of the Products as further described in Paragraph 1.1.3. hereof, together with related storage areas, utility areas, access routes and other structures, which are used by the Joint Venture Company in the activities contemplated hereunder. The Plant shall consist of at least three separate areas or buildings: one area or building where the HAL 69 Desk Top Computer and Video Scroller Terminal will be assembled, a second area or building where the multilayer printed circuit board process facility will be located, and a third area or building where floppy diskettes and Canterbury disk drives will be assembled or fabricated.1.1.3.Products. The finished items to be assembled and manufactured by the Joint Venture consisting of:(a) The HAL 69 Desk Top Computer(b) The Video Scroller Terminal(c)Multilayer Printed Circuit Boards(d)Canterbury Disk Drives(e)Floppy Diskettes1.1.4.Know-how. The technical data, drawings, designs, instructions, specifications, trade secrets and manufacturing information (except Trademarks, as hereinafter defined) owned and used by IT or its subsidiaries in the manufacture, production and quality control of the Products. Know-how shall also mean improvements covering the manufacture, production and quality control of the Products, including advancements or extensions of the aforesaid which are developed in the normal course of business and which do not constitute essentially new technology which would require a substantial alteration in the practice of Know-how as it is then being followed by IT.1.1.5.Trademarks. Those trade names, service marks, trademarks, devices and registration particulars listed in Annex D hereof, as it may be amended from time to time.1.1.6. Major Decisions. A Major Decision is any decision having or likely to have a material impact on the economic viability of the Company or affecting or likely to affect the general policy of the Company, including, without limitation, amendment of the Articles of Association; termination and dissolution of the Joint Venture; merger of the Joint Venture; equity and capital expansions; approval of or modification of the Companys budgets or initial five (5) year operations and production plan; production increases or decreases; increases in wages or a change in prices; conclusion of third-party contracts; borrowings, loans and financings; establishment of new factories; purchase or sale of major machinery or capital assets; acquisition of industrial property rights; changes in management structure or policies; prosecution, defense or settlement of arbitration, litigation or conciliation; and any other decisions of similar importance.1.2 Precedence Clause1.2.1.In the event that there is any discrepancy or ambiguity between the various documents which together constitute this Agreement, as specified in Paragraph 1.1.1., the basic document styled the Joint Venture Agreement shall take precedence over all other documents. As amongst the Annexes, the order in which they are listed in Paragraph 1.1.1. shall determine the order of precedence. Thus Annex A, the Joint Venture Marketing Agreement, shall take precedence over Annex B, the Articles of Association, which in turn shall take precedence over Annex C, the By-Laws, and so forth.1.2.2. Amendments to any of the documents comprising this Agreement shall have the same order of precedence as the document being amended.ARTICLE IIOBJECT AND SCOPE2.1.The object of this Agreement is the establishing of an Equity Joint Venture in the form of a Limited Liability Joint Ownership Company to equip, construct, manage and operate the Plant to be established in Mexico for the assembly and manufacture of Products. The Joint Venture intends to market all of its Products solely through IT (Europe) which will have exclusive marketing rights all over the world including Mexico with all profits to be shared equally by the Joint Venture and IT (Europe) as set forth in the Marketing Agreement.ARTICLE IIIFORMATION OF JOINT VENTURE COMPANY3.1Capitalization.3.1.1.The initial equity capital of the Joint Venture Company is Forty Five Million Two Hundred Thousand United States Dollars (U.S. $45,200,000), to be committed and contributed in the proportion of seventy five percent (75%) for UNITED and twenty five percent (25%) for IT. ITs contribution to the equity of the Joint Venture consists of Eleven Million Three Hundred Thousand United States Dollars (U.S. $11,300,000). UNITEDS contribution to the equity of the Joint Venture consists of Thirty-Three Million Nine Hundred Thousand Dollars (U.S. $33,900,000).3.1.2.The equity capital will be paid in by each party within thirty (30) days of any call or calls made by the Board of Directors. The Board may, at its discretion, require the equity capital to be paid all at once or in installments. 3.1.3.It is agreed that the Foreign Trade Bank of Mexico will guarantee each partys financing of its respective equity capital, and that this Agreement is subject to obtaining such guarantees. If the guarantee is exercised against Foreign Trade Bank of Mexico by either partys lending entity, then Foreign Trade Bank of Mexico shall have the right to that partys share of profits in the Joint Venture, until such time as the amounts owed to the Foreign Trade Bank of Mexico are paid off.3.2. Non-transferability of Ownership Interests.Neither party to this Joint Venture may assign all or part of its equity interest and ownership rights except that IT may transfer or assign all or part of its equity interest and ownership rights in the Company to IT (Europe) or any other subsidiary or affiliate (any entity in which IT owns at least forty percent (40%) equity or which owns at least forty percent (40%) of the equity of IT).3.3.Limited Liability.3.3.1.Neither IT nor UNITED shall be individually liable for the debts or obligations of the Joint Venture, or for any claim for losses or damages caused by the Joint Venture, except to the extent of their contributions to equity as specified in Paragraph 3. 1. above.3.3.2. shall be liable to the other except for acts, omissions to act or decisions constituting gross negligence or bad faith, nor in such case shall IT or UNITED be liable to each other for any indirect or consequential damages. Further, each party agrees to indemnify and hold the other party harmless from any actual damages, claims or causes of action of third parties arising from its gross negligence or bad faith. These indemnities shall apply to any acts, omissions to act or decisions taken concerning the Joint Venture whether before or after entry into force of this Agreement.3.4.Powers of the Joint Venture.3.4.1.The Joint Venture Company shall have all purposes and powers necessary to carry on the business for which it is established and all purposes and powers allied and incidental thereto, as permitted by the laws of Mexico. The purposes and powers of the Joint Venture are set forth in the Joint Ventures Articles of Association, which are attached hereto as Annex B.3.4.2.The Joint Venture reserves the right to add to, amend, alter, change or repeal any of its purposes and powers so as to conform with legal, business, marketing and other requirements or conditions now or hereafter in effect, provided that any such action shall constitute a Major Decision as defined in Paragraph 1.1.6. 3.4.3.UNITED undertakes to obtain, on behalf of the Joint Venture and each of the parties, as the case may be, any permission, approval, permit or license from the competent Mexican authorities which might be required by Mexican laws or regulations in connection with the performance of the Agreement. This shall include preparation and submission of project proposals, feasibility studies and procurement of all certificates or approvals required from the Ministry of Foreign Economic Relations and Trade of Mexico under the Law on Investment (1993).3.5.Management of the Joint Venture.3.5.1.The management of the business and the conduct of the affairs of the Joint Venture shall be vested in its Board of Directors, who shall be elected by UNITED and IT, exercising their ownership rights in the Company as provided in the Companys By-laws attached hereto as Annex C.3.5.2.The Board of Directors shall be comprised of five (5) individuals. UNITED shall nominate and elect three (3) Directors and IT shall nominate and elect two (2) Directors. The five (5) Directors shall hold office until their successors are elected and notified to the other party. The right to remove and replace a Director shall remain exclusively with that Directors nominating party. The number of Directors may be increased or decreased by a Major Decision of the Directors.3.5.3.The Directors will establish their own rules for proceeding, except as set forth below. Meetings shall be held at least once a year and at such time and place as the Board may determine except that the first meeting shall be held as soon as practicable after the entry into force of this Agreement. Meetings may also be called by any two (2) Directors giving a minimum of twenty (20) days notice to the other Directors of the time, place and subject of the meeting, it being understood, however, that each Director shall be entitled to waive, in writing, such advance notice requirement as it applies to him.3.5.4.For Board meetings in Mexico, UNITED, on behalf of the Joint Venture, shall ensure that all visas have been arranged and similar Mexican requirements satisfied so as to permit non-Mexican Directors (and their substitutes appointed pursuant to Paragraph 3.5.7. below) to attend Board meetings and carry out other functions for which they are responsible in accordance with this Agreement. For Board meetings in the United States, IT, on behalf of the Joint Venture, shall be similarly responsible for all visas and arrangements. The Joint Venture shall be responsible for reasonable overseas travel, transportation, living and other direct costs incurred by Directors in performance of their duties as Directors.3.5.5.The Chairman of the Board shall preside and have the right to vote at all meetings. The Chairman of the Board shall be a nominee of UNITED. IT shall nominate the Vice-Chairman of the Board, who will preside at meetings and act as Chairman if the Chairman of the Board is not present.3.5.6.Four (4) Directors shall constitute a quorum for any Board meeting. Except with respect to Major Decisions, which shall be by unanimous vote of all Board members present at the meeting, the vote of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board.3.5.7.Any member of the Board may participate in a meeting of the Board by means of telephone conference call, telex or similar communications, and any Director may authorize another Director to act for him by proxy in all matters in which the Director giving the proxy is entitled to participate. Any Director may, by written designation, appoint a substitute to act for such Director at any meeting of the Board in all matters in which the Director appointing the substitute is entitled to participate. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the Minutes of proceedings of the Board.3.5.8.The provisions of Paragraph 3.5.7. shall apply equally to committee and section meetings.3.5.9.Committees and Sections. The Board of Directors may be a Major Decision, appoint officers and establish one or more committees or sections which shall act under the authority of and be responsible to the Board. Committees and sections may consist of one or more Directors of the Joint Venture, officers, management personnel or other qualified persons as determined by the Board. Initially, the Joint Venture shall have the following committees and sections, which shall have the following functions:A.Production and Planning Control Committee, which shall be chaired by the Managing Director appointed initially by IT as specified in Paragraph 3.5.10., and shall have as members the Deputy Managing Director, the Chief Production Engineer and the Quality Control Supervisor, which officers are appointed by the parties. The Committee will prepare and submit to the Board an initial five (5) year operations and production plan, as well as annual, biannual and other production and planning reports as requested by the Board, including information with respect to production efficiency and quality control, projected output and actual output; the Committee may also prepare recommendations for the Board to improve production efficiency, expand production or introduce new Products. B.Personnel Section, which shall be chaired by the Employee Relations Manager provided by UNITED. The Section will have initial responsibility, subject to approval by the Board, for establishing the conditions of employment of all Mexican Joint Venture personnel, including for example, hiring and firing, compensation, working hours, work rules, overtime allowances, vacation and holidays, health and other benefits, all of which shall be based on Mexican law and the standards generally applicable in the high technology and electronics industry in Mexico as communicated to the Section and the Board by the Employee Relations Manager.C.Training Section, which shall be chaired by the Training Manager appointed by IT as specified in Paragraph 3.5.10. The Section shall have authority for coordinating with IT the training program as further described in Paragraph 5.4. below.D.Engineering Maintenance and Repair Section, which shall be chaired by the Maintenance Section Chief nominated initially by IT as specified in Paragraph 3.5.10. The Section shall have the primary responsibility for overseeing Plant maintenance and r