Joint Venture Agreement

Exhibit 10.10


JOINT VENTURE AGREEMENT
BETWEEN
NAGOYA SCREW MANUFACTURING CO., LTD.
AND
ELCO INDUSTRIES, INC.


THIS AGREEMENT, made this 14th day of June, 1989, by and between NAGOYA SCREW MANUFACTURING CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place of business at 17-15, Tsubaki-cho, Nakamura-ku Nagoya, Japan (hereinafter referred to as "Nagoya") and ELCO INDUSTRIES, INC., a corporation duly organized and existing under the laws of the State of Delaware, U.S.A., with its principal place of business at 1111 Samuelson Road, Rockford, Illinois 61125-7009, United States of America (hereinafter referred to as "Elco").

WITNESSETH THAT

WHEREAS, NAGOYA is engaged in the manufacture and sale of fasteners used in production in Japan, and has-acquired valuable experience, technical data and know-how as to such manufacture and sale to Japanese original equipment manufacturers.

WHEREAS, ELCO is engaged in the manufacture and sale of fasteners used in production in the United States of America, and has acquired valuable experience, technical data and know-how as to such manufacture and sale to original equipment manufacturers in the United States Of America.

WHEREAS, ELCO and NAGOYA wish to establish a joint venture company under the laws of the State of Delaware to engaging manufacturing and marketing of fasteners initially to Japanese original equipment manufacturers in the United States of America.

NOW, THEREFORE, in consideration of the mutual promises and other covenants contained herein, the parties agree as follows.

DEFINITIONS

1.1. Definitions. For the purpose of this Agreement:

(a) "Company" shall mean the corporation incorporated under the laws of the State of Delaware by Nagoya and Elco in accordance with this Agreement.
(b) "Certificate of Incorporation" shall mean the certificate of incorporation in the form attached as Appendix A and made a part hereof.
(c) "By-Laws" shall mean the by-laws in the form attached as Appendix B and made a part hereof.
(d) "Products" shall mean nuts, bolts, screws and similar fasteners other than those manufactured and intended to be sold to the aerospace industry.
(e) "Confidential Information" shall mean technical information relating to the manufacture and sale of the Products, including but not limited to
(i) the necessary prints and designs for the manufacture of Products;
(ii) manufacturing and engineering information such as drawings, material specifications, technical specifications, manufacturing processes and part lists; and
(iii) technical, commercial and marketing information and application data on Products.
(f) "Territory" shall mean the United States, Canada and Mexico.
(g) "Business of the Company" shall mean the business of manufacturing Products in the Territory initially for sale directly to original equipment manufacturers in the Territory directly or indirectly controlled by Japanese entities, for sale to Japanese controlled suppliers or subcontractors to such manufacturers and for sale to such other suppliers or subcontractors to such manufacturers mutually agreed upon by Elco and Nagoya (such other suppliers or subcontractors hereinafter "Designated Suppliers").
(h) "Stockholders" shall mean Elco and Nagoya.
(i) For purposes of this Agreement, an entity shall be deemed to be in "control" of another entity (a) when it owns in excess of 50% of the voting stock or other equity interest in such other entity, or (b) when it owns in excess of 30% of the voting stock or other equity interest in such other entity and actually exercises control over such other entity.
(j.) "Technical Assistance Agreement" shall mean the agreement entered into March 17, 1988 between Nagoya and Elco relating to the manufacture and sale of high tensile fasteners.


EFFECTIVE DATE


2.1. Effective Date. The effective date of this Agreement shall be July 1, 1989.

ORGANIZATION OF COMPANY


3.1. Organization of the Company. Promptly after execution of this Agreement Elco, for and on behalf of Elco and Nagoya, shall cause the Company to be incorporated under the Delaware General Corporation Law for the purpose of conducting the Business of the Company as provided herein.
The corporate name of the Company shall be Rocknel Fastener, Inc., or such other name as is agreed to between Elco and Nagoya.
The Certificate of Incorporation of the company shall be as stated in the document attached hereto as Appendix A and entitled "Certificate of Incorporation"of the Company". The By-Laws of the Company shall be as stated in the document attached hereto as Appendix B and entitled "By-Laws of the Company."


3.2. Qualification. As soon as practicable after its incorporation, the Company shall take such action as may be required to be qualified to conduct the Business of the Company as a foreign corporation in Illinois and in such other states, if any, as the Business of the Company may require. The main office of the Company shall be located in Rockford, Illinois.


3.3. Capital on Organization. At the time of its incorporation, the Company shall be authorized to issue 500 shares of Class A Common Stock, no par value, and 500 shares of Class B Common Stock, no par value.
The total share capital of the Company upon its organization shall be $3,000,000, with the shares of its common stock being subscribed for and issued as follows:
To NAGOYA - 100 shares of Class A Common Stock in consideration of and in exchange for payment in cash by Nagoya to the Company of US$ 1,500,000 (50% of the total issued shares)
To ELCO - 100 shares of Class B Common Stock in consideration of and in exchange for payment in cash by Elco to the Company of US$ 1,500,000 (50% of the total issued shares)
It is the intent of the parties hereto that Elco shall at all times own and control a 50% equity interest in the Company and Nagoya shall at all times own and control a 50% equity interest in the Company.


3.4 Meeting of Stockholders. The annual Stockholders meeting shall be held at the main office of the Company between May 10 and May 31 of each year as mutually determined by the Stockholders.


FUTURE FINANCING OF THE COMPANY


4.1. Additional Finance Requirements. Nagoya and Elco anticipate that the Company may require finance in the future, in addition to the share capital provided pursuant to Article III hereof. Upon the mutual written agreement of Elco and Nagoya, any such additional finance shall be obtained from any of the following sources:
(a) loans to be obtained by the Company from Elco and Nagoya equally and upon the same terms and conditions;
(b) loans to be obtained by the Company from banks and other independent sources; provided that in such event Nagoya and Elco shall exert their best efforts to assist the Company in obtaining any such loans without the guarantee of either Nagoya or Elco, but if guarantees of loans made to the Company are required by third-party lenders and agreed to by each of the Stockholders, the guarantees provided by Elco and Nagoya shall obligate them equally to reflect their equal shareholdings;
(c) retained earnings of the Company; and
(d) increases in the share capital of the Company, which shall be provided by the Stockholders equally.

MANAGEMENT OF THE COMPANY


5.1. Board of Directors.
(a) The business and affairs of the Company shall be managed by or under the direction of the Board of Directors of the Company. The Board of Directors of the Company shall consist of six directors. The holders of Class A Common Stock shall be entitled to elect three directors (the "Class A Directors" or "Nagoya Directors") and the holders of Class B Common Stock shall be entitled to elect three directors (the "Class B Directors" or "Elco Directors"). Class A Common Stock and Class B Common Stock shall have the same rights in all respects except that one of the Nagoya Directors elected by the holders of Class A Common Stock and designated as Chairman by such holders shall have the right to two votes upon all matters coming before the Board of Directors of the Company, and every reference in this Agreement, in the Certificate of Incorporation and By-Laws to a majority or other proportion of directors, other than with respect to or for purposes of constituting a quorum, shall refer to and mean a majority or other proportion of the votes of such directors to the same extent and as if the Chairman were two Directors. In the event a vacancy occurs among the Class A Directors, the vacancy may be filled only (i) by a majority vote of the remaining Class A Directors or (ii) by the holders of all of the Class A Common Stock. In the event a vacancy occurs among the Class B Directors, the vacancy may be filled only (i) by a majority vote of the remaining Class B Directors or (ii) by the holders of all of the Class B Common Stock. A director may not be removed, either for cause or without cause, except by the vote of the Stockholder who elected such director. No committees of the Board of Directors shall be created.
(b) Quorum. No business shall be any meeting of the Board of Directors unless a quorum is present at such time. A quorum shall exist only upon the presence of an even number of directors but no fewer than four directors, no fewer than two of whom shall be Nagoya Directors and no fewer than two of whom shall be Elco Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
(c) Issues Reserved to the Board of Directors. In furtherance of its responsibility to manage the business and affairs of the Company, the Board of Directors shall reserve for decision by the Board of Directors the following issues:
(1) entering into any contractual arrangement which may extend for more than one year or involve more than $ 1,000,000 or is otherwise of material importance to the Company;
(2) entering into a technical assistance or license agreement with a third party or otherwise providing a third party with any material technical assistance or information;
(3) approving a long term business plan;
(4) approving the Company's financial statements;
(5) fixing wage levels;
(6) appointing and removing officers and executing employment agreements with officers;
(7) the development of new products;
(8) materially expanding a manufacturing capacity;
(9) incurrence of indebtedness for borrowed money;
(10) establishment of a line of credit;
(11) lending any amount or guaranteeing a third party's obligation (other than by way of endorsement of checks of customers for deposit in the Company's account);
(12) purchasing any capital asset other than in furtherance of the annual business plan;
(13) selling assets out of the ordinary course of business and assigning, leasing or pledging of assets of the Company;
(14) formation or incorporation of subsidiaries;
(15) approval of any act within a state which is sufficient to require qualification as a foreign corporation in such state;
(16) all issues or matters specified in Section 5.1(d) of this Agreement.
(d) Voting by the Directors. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless a unanimous vote of those directors present is required by the following sentence, the By-Laws or the Certificate of Incorporation. Board action with respect to the following issues shall be decided or taken only upon a unanimous vote of all directors present at a meeting at which a quorum is present:
(1) increase or decrease of the share capital of the Company;
(2) any change in the equity structure;
(3) the sale, lease, pledge or other disposal of assets in a transaction or related series of transactions out of the ordinary course of business (i) the aggregate book value of which assets exceeds 10% of the book value of all of the assets of the Company, or (ii) without which the Company would not reasonably be able to conduct its business substantially as it is being conducted prior to such disposition;
(4) change in number of directors;
(5) amendment of the Certificate of Incorporation or By-Laws of the Company;
(6) making investments in others, or merger, consolidation or amalgamation into or with or acquisition of another company or part thereof;
(7) dissolution, liquidation and winding up of the Company;
(8) approval of the long term business plans of the Company;
(9) change in the Business of the Company from that set forth in this Agreement;
(10) approval of the annual operating plans including budgets for all major sales, income and expense categories and capital expenditures;
(11) incurrence of indebtedness for borrowed money or providing a guaranty of an obligation (which shall not include the execution and delivery of performance bonds, making advance payments, or other similar trade transactions arising in the ordinary course of business) which results in an aggregate amount of indebtedness and guaranties at any one time outstanding in excess of $2,500,000;
(12) creation of any lien upon the Company's properties other than in the ordinary course of business;
(13) creation or extension of a loan or other credit not in the ordinary course of business;
(14) entering into, terminating, extending, amending or otherwise modifying any agreement between the Company and a Stockholder;
(15) institution or settlement of any litigation or claim with a Stockholder and any litigation out of the Company's ordinary course of business;
(16) declaration of dividends or adoption of a policy regarding the payment of dividends;
(17) entering into a contractual arrangement which may extend for more than one year or involve more than $2,000,000 or is otherwise of material importance to the Company;
(18) employment and discharge of independent certified public accountants;
(19) election, compensation and removal of the Secretary, the Treasurer and any Vice-President.
(e) Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent in writing thereto.
(f) Remuneration for Directors. The Company shall not pay salaries or retirement allowances to directors in their capacities as directors but shall pay traveling and lodging expenses for any director of the Company for attendance at meetings of the Board of Directors.


5.2. Meetings of the Board of Directors. Meetings of the Board of Directors shall be held in Rockford, Illinois at the offices of the Company, or such other place as the Directors may determine. A regular meeting shall be held each year immediately following and at the same place as the annual meeting of Stockholders. Special meetings may be called as provided in the By-Laws of the Company. An interpreter invited by Nagoya may attend each meeting of the Stockholders and the Board of Directors and the expenses of such interpreter shall be borne by the Company.


5.3. Officers. The Chairman shall be nominated by Nagoya. The Chairman shall preside over meetings of the Board of Directors and shall have two votes on all matters coming before the Board. The President shall be nominated by Elco and shall be the chief executive officer of the Company. As chief executive officer, the President shall be responsible for all decisions relating to the conduct of business by the Company not reserved for decision by the Stockholders or Board of Directors.


5.4. Fiscal Year. Accounting and Auditing. The fiscal year of the Company shall end on December 31 in each year. Complete books of account and records shall be kept by the Company in English and in accordance with generally accepted accounting practices in the United States for a manufacturing business similar to the Company's business. All financial statements shall be prepared in English and in accordance with generally accepted accounting principles as applied generally in the United States.
The financial statements of the Company shall be audited at the Company's expense by an independent certified public accountant selected by mutual agreement between the Stockholders. The parties agree that initially the accounting firm shall be Coopers & Lybrand. Such certified public accountant shall furnish copies of its report on the financial statements of the Company to the Stockholders within sixty (60) days after the end of the Company's fiscal period.

5.5. Properties and Books and Records. Elco and Nagoya or such person or persons as either may designate may visit and inspect any of the properties and assets of the Company and examine the books of account and other records of the Company and make copies of the extracts therefrom, and the affairs, finances and accounts of the Company with its officers, employees or with its independent accountants or legal counsel.
Any such inspection or review shall be at the expense of the party making the same.


5.6. Reporting. The Company shall submit to Elco and Nagoya reports in such forms and at such times as either Elco or Nagoya may reasonably request.

RESTRICTIONS, SALES AND TRANSFERS


6.1 Restrictions on Shares. Elco and Nagoya each agree that it will not pledge, mortgage, sell, assign, transfer, or otherwise dispose of all or any part of its shares in the Company (a) in such manner as to violate the U.S. Securities Act of 1933, as amended (the "Securities Act"), or any rules and regulations thereunder, or any similar act of any jurisdiction or (b) other than in accordance with this Agreement.

6.2 Transfer to Corporate Successor. Each Stockholder shall have the right to transfer all, but not a part, of the shares of the Company owned by it to any successor of such Stockholder by amalgamation, merger or consolidation, or to any person, firm or corporation to which, at the same time, all or substantially all of the property, business and assets of such party associated with the Products subject to this Agreement are transferred (such a transferee being herein referred to as the "Corporate Successor"); provided, however, no such transfer may be made unless (i) the transferring Stockholder shall first provide the other Stockholder thirty days advance notice of its intention to transfer, identifying the proposed Corporate Successor and the nature of the transaction in connection with which the proposed transfer will occur, (ii) no offer to sell has been made by the other Stockholder pursuant to Section 6.3 hereof, and (iii) the Corporate Successor agrees to become bound hereby and to succeed to all of the rights and obligations of the transferor hereunder.


6.3 Mandatory Sell-Buy. At any time beginning three years after the effective date of this Agreement, and at any time after the effective date of this Agreement upon notice of a proposed transfer to a Corporate Successor pursuant to Section 6.2 hereof, either Stockholder (the "Initiating Stockholder") may at its option offer to sell all but not part of its shares of stock of the Company (the "Shares") to the other Stockholder (the "Other Stockholder") at such price and upon such terms as the Initiating Stockholder may determine in its sole discretion ("Purchase Price"). Upon receipt of such offer, the Other Stockholder shall have the right to purchase the Shares of the Initiating Stockholder at the Purchase Price or to sell the Shares owned by it to the Initiating Stockholder at the Purchase Price. If the Other Stockholder has not advised the Initiating Stockholder of its election within 90 days following receipt of the offer from the Initiating Stockholder, it shall be conclusively deemed that the Other Stockholder has accepted the offer of the Initiating Stockholder to sell all of the Shares of the Initiating Stockholder to the Other Stockholder at the Purchase Price. Within 30 days after the earlier of (i) the expiration of said 90-day period and (ii) the date on which the Other Stockholder shall advise the Initiating Stockholder of its election, the purchasing Stockholder shall pay to the selling Stockholder the Purchase Price and the selling Stockholder shall deliver to the purchasing Stockholder the certificates representing the Shares owned by it, duly endorsed for transfer or accompanied by stock transfer powers duly executed.

OPERATIONS


7.1 Exclusive Manufacturing and Sales. Except for the provisions of the second paragraph of this Section 7.1, it is the intent of the Stockholders that the Company shall have the exclusive right to manufacture Products in the Territory for sale to original equipment manufacturers in the Territory directly or indirectly controlled by Japanese entities (such Japanese or Japanese controlled manufacturers in the Territory hereinafter "Japanese Manufacturers") and for sale to such Japanese Manufacturers' Japanese controlled suppliers and subcontractors ("Japanese Suppliers") and Designated Suppliers in the Territory. Except as permitted in the second paragraph of this Section 7.1, Nagoya agrees that it shall not sell Products to such Japanese Manufacturers in the Territory or their Japanese Suppliers or Designated Suppliers in the Territory and shall not design or manufacture Products for sale to such Japanese Manufacturers, Japanese Suppliers or Designated Suppliers by third parties (other than the Company) and Elco agrees that it shall not sell Products to such Japanese Manufacturers in the Territory or such Japanese Suppliers or Designated Suppliers in the Territory and shall not design or manufacture Products for sale to such Japanese Manufacturers, Japanese Suppliers or Designated Suppliers by third parties (other than the Company).
In the event the Company from time to time lacks the design, manufacturing or production capability or otherwise chooses not to manufacture Products for which it receives a specific inquiry, an invitation to bid or an order from, or with respect to which it understands inquiries, bids or solicitations will be considered by, Japanese Manufacturers or Japanese Suppliers in the Territory, then Nagoya or Elco may manufacture or sell such Products in response to such specific inquiry, bid solicitation or order. In the further event, should a Japanese Manufacturer, Japanese Supplier or Designated Supplier in the Territory indicate a preference to purchase Products other than from the Company (and such preference has not been solicited by or on behalf of Elco or Nagoya), then the Company shall permit Elco and Nagoya and Elco and Nagoya shall be entitled to manufacture and sell such Products to such Japanese Manufacturer, Japanese Supplier, or Designated Supplier, and should a non-Japanese controlled supplier or subcontractor to a Japanese Manufacturer indicate a preference to purchase from the Company rather than from Elco or any other person (and such preference has not been solicited by or on behalf of the Company), then the Company shall be permitted to manufacture and sell such Products to such supplier and subcontractor.

7.2. Technical Assistance. Nagoya and Elco shall each contribute to the Company without royalty all of their existing and future Confidential Information, data and know how relating to the manufacture and sale of the Products as may be reasonably useful to the Company in conducting the Business of the Company, except that the royalty to be paid by Elco as provided in the Technical Assistance Agreement for products manufactured by Know-how as defined therein shall continue thereunder until expiration of the Technical assistance Agreement.


7.3. Confidentiality. Nagoya and Elco to take appropriate steps to keep, and will cause the Company to enter into an agreement with them to keep, strictly secret and confidential and not to disclose to any third party, any of the Confidential Information, data or know-how acquired from the Company or from each other, unless disclosure of such information is required by law or permitted by any subsequent or supplemental agreement of both of the parties hereto.

7.4. Use of Information. Nagoya and Elco each agree that it shall not use, and agree that they will cause the Company to agree not to use, any information described in Section 7.3 and obtained from the other or from the Company, or in the case of use by the Company, obtained by the Company from Nagoya or Elco for any purpose whatsoever except in a manner expressly provided in this Agreement, the Technical Assistance Agreement or any subsequent or supplemental agreements.

7.5. Exceptions to Confidentiality and Use Restrictions.


Nothing contained in this Agreement shall be construed to restrict or limit Elco's, Nagoya's or the Company's right to use, disclose or otherwise dispose of any information which:
(a) is in the possession of Elco or Nagoya, as the case may be, prior to the disclosure of information to one of them by the other after the date hereof, provided that if such possession was obtained by one of them from the other in accordance with agreements then or now existing, including the Technical Assistance Agreement, such right of Nagoya or Elco shall be exercised in accordance therewith; or
(b) at the time of disclosure is or thereafter becomes, through no act or failure to act on the part of Elco, Nagoya or the Company, as the case may be, part of the public domain by publication or otherwise.


7.6. Office and Plant Site. Elco presently leases property commonly known as Brearley Plant #2, 5309 Eleventh Street, Rockford, Illinois (the "Leased Premises') pursuant to an industrial lease agreement dated August 2, 1984 between Elco, as lessee, and Rowe Properties-Rockford, a Virginia limited partnership, as lessor. Subject to such consents of the lessor as may be required, Nagoya and Elco shall cause the Company to enter into a sublease with Elco covering approximately 49,600 square feet of the Leased Premises upon the terms and conditions set out in the Sub-Lease Agreement attached hereto as Appendix C.


TERMINATION


8.1. Termination. This Agreement shall continue in effect until terminated by mutual agreement of the parties, or until either party hereto transfers all of its shares in the Company pursuant to Section 6.3 hereof; provided, however, that if either party suspends payment of its debts or enters into or becomes subject to corporate rehabilitation procedures, liquidation, dissolution or bankruptcy proceedings, or shall make a composition with its creditors, or shall make an assignment for the benefit of its creditors, or shall seek relief under any similar laws for debtor's relief, then the other party, at its option, may thereupon immediately terminate this Agreement.


8.2. Discontinuance of Name. In the event of a purchase and sale provided for in Section 6.3 of this Agreement, the name of the Company shall be promptly changed so that it does not contain the word "Elco" if Elco is the selling Stockholder and does not contain the word "Nagoya" if Nagoya is the selling stockholder.


8.3 Change of Law. In the event there is a new, or a change in any, law or administrative regulation or ruling or action of any administrative agency of either Japan or the United States or a decision of a court having jurisdiction over either of the parties hereto or a consent decree under the United States or Japanese antitrust laws binding upon Nagoya or Elco, which requires modification of this Agreement in a way which would be unacceptable to either party, then such party may request the other to renegotiate in good faith the terms of this Agreement so as to conform to such new or changed law, regulation, ruling or action, court decision or consent decree in a way which will be acceptable to both parties.
In the event that an agreement cannot be reached by the parties within ninety (90) days after such renegotiations have commenced, either party may, by written notice to ...