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 James A. Luksch and Robert J. Palle,
Jr., 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
Robert
J.
Palle,
Jr.,
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
Robert J.
Palle 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 au
