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EXHIBIT 10.12
EQUITY JOINT VENTURE AGREEMENT
BETWEEN
COMTECH GROUP INC.,
AND
BROADWELL GROUP LTD.,
December 8, 2004
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TABLE OF CONTENTS
Acticle 1.
DEFINITION.....................................................3
Article 2.
ESTABLISHMENT AND LEGAL FORM OF THE JV
COMPANY.................6
Acticle 3. PURPOSE
AND BUSINESS SCOPE.....................................7
Acticle 4. TOTAL
INVESTMENT AND REGISTERED CAPITAL........................8
Acticle 5.
OBLIGATIONS AND RIGHTS OF THE
PARTIES..........................9
Acticle 6.
REPRESENTATIONS, WARRANTIES AND
INDEMNITY.....................11
Acticle 7. BOARD OF
DIRECTORS............................................12
Acticle 8. MANAGEMENT
ORGANIZATION.......................................17
Acticle 9. LABOR
MANAGEMENT..............................................19
Acticle 10. FINANCIAL
AFFAIRS AND ACCOUNTING..............................20
Acticle 11. DISTRIBUTION OF
PROFITS.......................................22
Acticle 12. TAXATION AND
INSURANCE........................................23
Acticle 13. NON
COMPETITION...............................................24
Acticle 14.
CONFIDENTIALITY...............................................25
Acticle 15. TERM OF THE JV
COMPANY........................................27
Acticle 16. MERGER,
DIVISION, BANKRUPTCY, TERMINATION AND LIQUIDATION.....28
Acticle 17. FORCE
MAJEURE.................................................31
Acticle 18. SETTLEMENT OF
DISPUTES........................................32
Acticle 19. APPLICABLE
LAW................................................33
Acticle 20. MISCELLANEOUS
PROVISIONS......................................34
Acticle 21.
MILESTONES....................................................36
1
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PRELIMINARY STATEMENT
This EQUITY JOINT VENTURE AGREEMENT
(hereinafter referred to as "AGREEMENT" or
"CONTRACT") is entered into in Hongkong on
January 17, 2005 by and between
COMTECH GROUP INC., (hereinafter referred
as "GROUP") a OCTBB listed company
under the symbol of COGO and BROADWELL
GROUP LTD., (hereinafter referred as
"BROADWELL, or THE TEAM") a British Virgin
Island (BVI) company in accordance
with the Company Law of Hong Kong and other
relevant laws and regulations. After
friendly consultations conducted in
accordance with the principles of equality
and mutual benefits, the parties have
agreed to establish an Equity Joint
Venture Enterprise------COMTECH BROADBAND
INC, (hereafter referred to as the "JV
COMPANY, JV, JOINT VENTURE, or BROADBAND")
in Hong Kong, and therefore make
agreements herein below:
2
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ACTICLE 1. DEFINITION
DEFINITIONS
-----------
Unless otherwise provided herein, the following terms used in
this
Agreement shall have the meanings set forth below:
"AFFILIATE" means, with respect to any entity, any other entity,
which,
directly or indirectly, is controlled by, under common control
with, or
in control of, such entity; the term "CONTROL" shall mean ownership
of
fifty per cent. (50%) or more of the voting stock or registered
capital, or the power to appoint or elect a majority of the
directors
or to direct the management of an entity.
"APPROVAL AUTHORITIES" means the governmental departments,
authorized
under the laws of the PRC and the State Council administrative
regulations regarding the examination and approval of foreign
investment projects, which have the power to examine and approve
this
Contract and the Articles of Association.
"ARTICLES OF ASSOCIATION" means the articles of association of the
JV
Company signed by each of the Parties immediately following
execution
of this Contract and approved by the Approval Authorities
simultaneously with the approval of this Contract and any
amendment
thereto approved in accordance with the provisions of this
Contract.
"BOARD OF DIRECTORs" or "BOARD" means the board of directors of the
JV
Company established pursuant to Article 7 hereof.
"BUSINESS LICENSE" means the business license of the JV Company
issued
by the State Administration of Industry and Commerce or its
authorized
local Administration of Industry and Commerce.
"CEO" means the chief executive officer.
"CFO" means the
chief financial officer.
"CTO" means the chief technical officer.
"DIRECTOR" means a director of the JV Company.
"EFFECTIVE DATE" means the effective date on which this
Agreement
becomes effective, which shall be the date upon which the Agreement
and
the Articles of Association are approved by the Approval
Authorities.
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"ENCUMBER" means to, directly or indirectly, pledge, mortgage,
grant a
security interest, or otherwise encumber, or enter into any
contract,
any voting trust or other agreement or arrangement therefore;
and
"ENCUMBRANCE" shall have correlative meanings.
"EQUITY INTERESTS" means, in respect of any Party, its
proportional
shareholding in the JV Company as a result of its capital
contribution
to the JV Company in accordance with the terms of this Contract and
all
rights in relation to the JV Company accruing to and/or enjoyed by
such
Party as a result of such capital contribution including,
without
limitation, voting rights and rights to profits. Such Equity
Interests
shall changed from time to time according to this Contract, and may
be
adjusted in accordance with the actual capital contributions of
Parties.
"FISCAL YEAR" has the meaning ascribed to it in Article 10.
"HONG KONG" means the Hong Kong Special Administrative Region of
the
PRC.
"MANAGEMENT PERSONNEl" means the JV Company's CEO, CFO, CTO and
any
other management personnel who report directly to the CEO.
"PARTIES" means, collectively, Comtech Group, The Steve Team, and
any
other party which becomes a party to this Agreement pursuant to
the
terms hereof; "Party" means any one of them.
"PRC" means the People's Republic of China, for the purposes of
this
Agreement only, excluding Hong Kong, Macau Special
Administrative
Region and Taiwan.
"RIGHT OF FIRST REFUSAL" is a Company's Option. The Company shall
have
an option for a period of thirty (30) days from receipt of the
Transfer
Notice to elect to purchase the Offered Shares at the same price
and
subject to the same material terms and conditions as described in
the
Transfer Notice. The Company may exercise such purchase option
and,
thereby, purchase all (or a portion of) the Offered Shares by
notifying
the
Founder in writing before expiration of such thirty (30) day
period
as to the number of such shares which it wishes to purchase.
"RMB" or "RENMINBI" means the legal currency of the PRC.
"SPECIFIED ACCOUNTANTS" means PricewaterhouseCoopers, KPMG, Ernst
&
Young, and Deloitte & Touche.
"SUBSIDIARY" means, with respect to any entity, any other entity
with
legal person status, which, directly or indirectly, is controlled
by,
such entity; the term "control" shall mean ownership of fifty per
cent.
(50%) or more of the voting stock or registered capital, or the
power
to appoint or elect a majority of the directors or to direct
the
management of an entity.
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"THIRD PARTY" means any natural person, legal person or other
organization or entity other than the Parties to this Contract.
"THREE FUNDS" means the JV Company's reserve fund, expansion fund
and
employee bonus and welfare fund constituted in accordance with
and
subject to the laws and regulations governing Sino-foreign
joint
ventures in the PRC.
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ACTICLE 2. ESTABLISHMENT AND LEGAL FORM OF THE JV COMPANY
ESTABLISHMENT OF THE JV COMPANY
-------------------------------
The Parties hereby agree to establish and operate, and keep
maintaining
the nature of, the JV Company as an equity joint venture enterprise
in
accordance with the laws of Hongkong, laws of jurisdiction at which
the
JV's subsidiary, or subsidiaries, may present, and the provisions
in
this Agreement.
NAME AND ADDRESS OF THE JV COMPANY
----------------------------------
The name of the JV Company shall be Comtech Broadband Inc., in
English
and [__________________] in Chinese.
The legal address of the JV Company is
Rm, 514 5/ F., Manhattan Centre, 8 Kwai Cheong Road, Kwai
Chung,
Hongkong
LEGAL FORM
----------
The JV Company shall be a limited liability company with
independent
legal status. The liability of each of the Parties for the debts
and
obligations of the JV Company shall be limited to its
respective
contribution to the registered capital of the JV Company. Creditors
of
the JV Company shall have recourse only to the assets of the JV
Company.
LAWS OF REGULATIONS
-------------------
The activities of the JV Company shall comply with the laws and
relevant regulations of BVI and jurisdictions under which the
JV
Company conducts business, and its legitimate rights and
interests
shall be protected by such laws and relevant regulations.
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ACTICLE 3. PURPOSE AND BUSINESS SCOPE
PURPOSE OF THE JV COMPANY
-------------------------
The purpose of the JV is to serve as an independent distributor
promoting IC's and components into China market in start with
distributing products made by Broadcom Corporation, a NASDAQ
listed
company under the symbol of BRCM, into China.
BUSINESS SCOPE OF THE JV
------------------------
Business scope of the JV shall be: sales of Broadcom's products,
and/or
other products, which were originally initiated or later are
captured
by BROADWELL.
CERTAIN BUSINESS PRACTICES
--------------------------
1) each
Party shall use its best efforts to cause the JV Company
to, and the JV Company shall, take all necessary actions to
cause the Management Personnel, representatives, consultants,
employees and agents of the JV Company and its Subsidiaries to
comply with all applicable laws, rules and regulations of the
USA and all other applicable countries (as they may be amended
from time to time) of which such party is or ought reasonably
to have been aware, including, without limitation, the USA
Foreign Corrupt Practices Act of 1977 (as amended), and any
other law regulating payments to government officials;
2)
without limiting the generality of the foregoing, each Party
shall use its best efforts to cause the JV Company to be aware
of the USA Foreign Corrupt Practices Act of 1977 (as amended),
and shall cause the JV Company not to knowingly, directly or
indirectly, make any offer, payment or promise to pay or
authorize the payment of any money or anything of value to any
Non-US official, candidate for political office or political
party for the purpose of influencing any act or decision of
such Non-US official, political party or candidate for office,
or for the purpose of inducing such Non-US official, political
party or candidate for office to use his or her influence with
any Non-US government or instrumentality thereof to affect or
influence any act or decision of such government or
instrumentality in order to obtain or retain business for or
with, or directing to, any person in violation of the U.S.
Foreign Corrupt Practices Act of 1977 (as amended);
3)
no Party shall
knowingly take or omit to take any action that
would cause the JV Company, its Management Personnel,
representatives, consultants, employees or agents to violate
or otherwise fail to comply with any applicable laws, rules
and regulations.
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ACTICLE 4. TOTAL INVESTMENT AND REGISTERED CAPITAL
TOTAL INVESTMENT
----------------
The total investment of the JV Company shall be HKD1,000,000
CAPITAL CONTRIBUTION
--------------------
The JV is to issue 10,000,000 common shares at the par value of
HKD0.1/share. The Team is to buy 4,500,000 or 45% of its total
outstanding common shares while Group is to buy 5,500,000 or 55% of
its
total outstanding common shares.
ENCUMBRANCE ON EQUITY RIGHTS
----------------------------
None of the Parties may, without the written consent of each of
the
other parties, encumber all or any part of its Equity
Interests.
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ACTICLE 5. OBLIGATIONS AND RIGHTS OF THE PARTIES
THE OBLIGATIONS AND RIGHTS OF GROUP
-----------------------------------
1) In order for the JV to
function properly, Group is responsible to provide
the credit
line of four million dollars for Broadband for the first year
as soon as
the JV is eligible to conduct business legally and increase the
credit
line to five million and six million for the second and third
year
respectively.
2) Notwithstanding
Article 7, Group should be in charge of the JV's legal and
financial
control, including, without limitation, determining the
legitimacy
of JV's business operations, proving or terminating JV's
certain
practice, appointing CFO, consulting on tax issues and deciding
on
customer's
trade credits.
3) Group shall use its
best efforts to assist the JV to establish Comtech
Broadband
China in PRC and obtain its business license, tax registration,
and the
certification of Value Added Tax (VAT) status from Chinese
taxation
authorities.
4) Group shall use its
best efforts to assist the JV to obtain any tax
privilege,
and/or exemption.
5) Group shall have the
right of first refusal to purchase JV's shares
offered by
The Team.
THE OBLIGATIONS AND RIGHTS OF THE TEAM
--------------------------------------
1) The Team is
responsible for carrying out normal business functions,
including,
without limitation, market promotion, negotiation with clients
and
suppliers, product development, business operation, research
and
development, customer selection, human resources control, and
technical
cooperation with outside sources.
2) Without violating
labor laws and other regulations, The Team should be
able to
nominate CEO, CTO, any key members of the management team,
and/or
any
employees except CFO and members of accounting department, of the
JV
Company.
3) The Team should be
able to decide on establishment or termination of
offices or
subsidiaries for the JV Company.
4) The Team shall use its
best efforts to generate business for the JV
Company.
5) In the event that the
JV gets listed on NASDAQ, The Team has the right to
purchase
back 500,000 common shares from Group at par value.
6) Once the right of The
Team in this section 5) of this Article 5 is
satisfied,
all the rights listed in the Article 11 DISTRIBUTION OF PROFITS
(1), (2),
(4) will be terminated.
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7) Due to the licensing
requirements and timing issues, Group and Comtech
Communication Technology (Shenzhen) Co., Ltd (hereinafter referred
as
"COMTECH
COMMUNICATION") needs to perform the duties for the JV Company
written in
this Agreement prior to the formation and finalization of the
JV Company
and its subsidiaries. Any business conducted through Group and
Comtech
Communication shall not be, in any ways, discounting the JV
Company's
annual performance in terms of revenue calculation, bonus,
and/or
profit distribution. The JV Company will take back the duties
and
rights
presented in this Agreement as soon as the JV is able to
operate
normally.
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ACTICLE 6. REPRESENTATIONS, WARRANTIES AND INDEMNITY
MUTUAL REPRESENTATIONS AND WARRANTIES
-------------------------------------
Each Party hereby represents and warrants to each other Party that,
as
of the date hereof and as of the Effective Date:
1) it
is duly incorporated, validly existing and in good standing
under the laws of the place of its establishment or
incorporation and it has full power and authority under those
laws to enter into this Agreement and to perform all of its
obligations hereunder;
2) the
execution and delivery of this Agreement by it has been
duly authorized and, upon the Effective Date, this Agreement
shall be legally binding on it, and enforceable in accordance
with its terms against such Party, subject to bankruptcy,
insolvency or other similar laws affecting creditors' rights
generally, in each case, applicable to such Party.
3)
neither the execution of this Agreement nor the performance of
its obligations hereunder will conflict with, or result in a
breach of, or constitute a default under, any provision of its
Articles of Association, or other constitutive documents or
internal regulations, or any law, regulation, rule,
authorization or approval of any applicable government agency
or body, or of any contract or agreement to which it is a
party or subject;
4) no
lawsuit, arbitration, other legal or administrative
proceeding or governmental investigation against it which
would materially affect its ability to enter into or perform
its obligations under this Agreement is in progress or, to the
best of its knowledge, any threatened against it.
INDEMNITY
---------
Each Party hereby respectively undertakes to indemnify each of
the
other Parties against only direct losses and costs (including
legal
costs) or any other direct liability suffered or incurred by the
other
Parties as a consequence of the indemnifying Party's breach of
the
representations, warranties or undertakings given or made by it
hereunder or the occurrence of any Event of Default in relation to
it,
provided that the aggregate liabilities of any Party shall be
limited
to an amount equal to its respective capital contribution to
the
registered capital of the JV Company.
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ACTICLE 7. BOARD OF DIRECTORS
FORMATION OF THE BOARD OF DIRECTORS
-----------------------------------
1) The
Board of Directors shall be the highest authority of the
JV Company. The date of issue of the Business License shall be
deemed to be the date of establishment of the Board of
Directors.
2) The
Board of Directors shall be composed of three (3)
Directors for the first fiscal year, two (2) of whom shall be
appointed by Group, one (1) of whom shall be appointed by The
Team. One more Director from each party shall be appointed
into the Board pursuant to the procedure of election of
directors in the ARTICLE OF ASSOCIATION of the JV Company at
the beginning of the second fiscal year. Therefore, starting
from the second fiscal year, the Board shall be composed of
five (5) directors, three (3) of whom shall be appointed by
Group, (2) of whom shall be appointed by The Team. The Board
shall have one Chairman. The Director or one of the Directors
appointed by the Party with the largest Equity Interest shall
serve as Chairman of the Board, who shall be the legal
representative of the JV Company. Whenever the Chairman is
unable to perform his responsibilities for any reason, upon
the authorization of the Chairman, another appointed Director
may represent him temporarily.
3) In
the case of equality between affirmative and negative
votes, the Chairman shall not have a second or casting vote.
4) Each
Director shall be appointed for a term of one (1) year,
but the Party, which has appointed a Director, may remove that
Director and appoint a replacement from time to time. A
Director may serve consecutive terms if reappointed by the
Party that originally appointed him. If a seat on the Board of
Directors is vacated for the reason of retirement,
resignation, removal, disability or death of a Director, the
Party that originally appointed such Director shall appoint a
successor to serve the remaining term of such Director.
5)
Directors shall serve without any remuneration. The reasonable
expenses incurred by the Directors for the performance of
their duties as Directors shall be reimbursed by the JV
Company following approval by the Board of Directors. This
Article shall not restrict the JV Company from paying salaries
to Directors in their role, if any, as employees of the JV
Company.
6) To
appoint or remove a Director, or to designate or change the
Chairman, the relevant Party shall notify each other Party in
writing. The appointment and removal of a Director, and the
designation and change of the Chairman, shall become effective
upon receipt of such notice by each other Party. Any such
appointment, removal, designation or change shall be filed by
the JV Company with the relevant authority and registered with
the relevant Administration of Industry and Commerce to the
extent required by law.
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INDEMNIFICATION OF DIRECTORS
----------------------------
The JV Company shall indemnify each Director against any claim
or
liability arising from his performing his obligations as a
Director,
provided that such claim or liability is not a result of any
misconduct
or violation of any laws, regulations and Articles of Association
of
the JV Company by such Director.
MEETINGS OF THE BOARD
---------------------
1) The
first meeting of the Board of Directors shall be held
within sixty(60) days of the date of issue of the Business
License. Thereafter, the Board of Directors shall hold at
least two (2) meetings in each calendar year. Upon the written
request of one-third or more of the Directors or of any Party
and specifying the matters to be discussed, the Chairman of
the Board shall, within ten (10) days of receipt of such
request, convene an interim meeting of the Board of Directors.
2) The
Chairman of the Board shall give written notice,
specifying the time, place and agenda of the meeting, to each
of the Directors at least ten (10) days prior to any meeting
of the Board. A Board meeting held without proper notice
having been given to any Director shall be invalid unless such
Director, before the meeting, delivers a written notice of
waiver to the Chairman. Meetings shall be held at the
registered address of the JV Company or such other address(es)
in or outside of the PRC as agreed by the Chairman. The
Chairman of the Board shall determine the agenda for Board
meetings from proposals of Directors and shall be responsible
for convening and presiding over such meetings. If the
Chairman of the Board fails to attend a Board meeting, or
another Director appointed, by the Chairman of the Board shall
convene and preside over the meeting.
A meeting of the Board may be held through video conference,
telephone conference or other communication equipment agreed
to by all Directors which allows everybody to take part in the
meeting by being able to hear each of the other people at the
meeting and by being able to speak to all of them at the same
time. Any board resolution, which is passed through video
conference or telephone conference or other communication
equipment, shall come into effect upon voting by the Directors
and shall be signed by such Directors after the relevant Board
meeting. Any director or proxy participating in a Board
meeting through any of the above means shall be deemed to be
present thereat for the purposes of this Agreement.
3) If a
Director is unable to attend a Board meeting, such
Director may issue a letter of authorization and appoint a
representative to attend the meeting on his behalf. The letter
of authorization shall state the scope of authorization. The
representative so appointed shall have the same rights and
powers as the Director who appointed him. One person is able
to represent more than one Director by proxy.
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4) The
Board of Directors shall keep complete and accurate
minutes in English and in Chinese of all Board meetings, which
shall be signed by the Directors present. The draft minutes of
each Board meeting shall be distributed within fifteen (15)
days after the relevant meeting to all Directors. Any
suggested revision or supplement of the draft minutes shall be
delivered in writing to the Chairman of the Board within
fifteen (15) days of receipt. The Chairman shall finalize the
minutes within sixty (60) days after the meeting and
distribute a copy to each Director and each Party. The JV
Company shall keep the minutes of the Board meetings, which
shall be provided upon request of any Party or its authorized
representatives.
POWERS OF THE BOARD
-------------------
The Board of Directors shall have the power to make all major
decisions
pertaining to the JV Company. Subject to Articles 7 POWERS OF THE
BOARD
(1) and (2), all major decisions shall require the approval of a
simple
majority of Directors present in person or by proxy at a duly
convened
meeting of the Board of Directors.
1) The
approval of all the Directors present in person or by
proxy or by any manner permitted by Article 7 MEETINGS OF THE
BOARD at a duly convened meeting of the Board of Directors
shall be required for each of the following matters:
a) any
increase or adjustment of the JV Company's total
investment and/or registered capital;
b) any
amendment to the Articles of Association;
c)
division of the JV Comp
