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EXHIBIT 10.5
JOINT VENTURE AGREEMENT
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BETWEEN
SIONIX CORPORATION AND ENVIRONMENTAL PRODUCTS DIVISION OF
HOFFINGER INDUSTRIES, INC.
This Joint Venture Agreement (hereinafter "Agreement") is executed this 17th day
of October, 2000, by and between SIONIX CORPORATION ("SIONIX"), a Utah
corporation with a principal place of business in Irvine, California, and
ENVIRONMENTAL PRODUCTS DIVISION OF HOFFINGER INDUSTRIES, INC., ("EPD"), a
California corporation with a principal place of business in Rancho Cucamonga,
California. Both SIONIX and EPD are collectively referred to in this Agreement
as the "parties" unless otherwise stated. The parties desire and hereby do form
a Limited Liability Corporation (LLC) Joint Venture under the Laws of the State
of Nevada for the purposes and on the terms and conditions stated herein.
ARTICLE I
Name and Principal Place of Business
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Section 1.1 - Name and Organization: The Joint Venture shall be a separate
Nevada Limited Liability Corporation (LLC) and shall operate under the name of
SIONIX/EPD, hereinafter referred to as the "Joint Venture."
Section 1.2 - Location: The principal place of business of the Joint Venture
shall be the principal business location of SIONIX, with such other place of
business as may be agreed upon by the parties from time to time.
ARTICLE II
Creation of the Corporate Entity
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Section 2.1 - Time Period to Incorporate Joint Venture: The Joint Venture shall
become incorporated on or before October 30, 2000, in the State of Nevada. The
date of incorporation issued by the Secretary of State shall be the date by
which all other dates of performance of the Articles of this Agreement shall be
measured, unless otherwise stated, and will be referred to herein as "the date
of incorporation."
Section 2.2 - Incorporator, Duration, and Board of Directors: Although the
specific authority and duties of each corporate officer and director of the
Joint Venture shall be assigned by the Board of Directors, the parties shall
appoint Robert J. Zepfel, Attorney at Law as the incorporator of the Joint
Venture. The Board of Directors of the Joint Venture shall be determined by the
Joint Venture, but shall consist of five total directors comprising two (2)
members appointed by SIONIX and two (2) members appointed by E.P.D. The Chairman
of the Board of Directors shall be James J. Houtz, who shall have the powers
delegated to him by the Board of Directors of the Joint Venture. The Joint
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Venture shall automatically dissolve and wind-up exactly two (2) years from the
date of incorporation, unless otherwise directed by resolution of the Board of
Directors and a concurring vote of the parties.
Section 2.3 - Percentage of Share Ownership: The sole and only shareholders of
the Joint Venture shall be SIONIX and EPD. SIONIX shall own, at all times this
Agreement or any renewal hereof is in force and effect, fifty-one percent (51%)
of all shares of the Joint Venture. EPD shall own, at all times this Agreement
or any renewal hereof is in force and effect, forty-nine percent (49%) of all
shares of the Joint Venture.
Section 2.4 - Disposition of Joint Venture Assets, Property, and Things: Upon
any termination, dissolution, or wind-up of the Joint Venture, all assets,
property, intellectual property rights (including any trademarks, patents,
copyrights and/or rights to trade dress developed by our belonging to the Joint
Venture) and other things belonging to the Joint Venture shall become the sole
and exclusive property of SIONIX. EPD shall retain a right to obtain a
non-exclusive written license to distribute and sell Joint Venture products,
services, and/or SIONIX' products. EPD shall receive a ten percent (10%)
discount on such products and will be calculated off the price that Sionix
charges its other distributor(s).
ARTICLE III
Purpose of the Business
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The Joint Venture shall engage in the business of developing, marketing,
distributing, selling and maintaining SIONIX' water filtration technology,
products, and services, developing a market for these items, encouraging the
growth of the market, services and related products for use in the field of
water filtration technology, products and services. SIONIX has developed
technology and obtained various patents, both in the United States and foreign
countries, that memorialize the invention of the technology the Joint Venture is
being created to manufacture, market, advertise, distribute, sell, exploit and
maintain. While the purpose of the Joint Venture is to undertake these
functions, the parties expressly acknowledge and agree that all SIONIX' patents,
technology, trade secrets, and intellectual property rights remain vested
entirely in SIONIX, and that under no circumstances can or will any part or all
title in SIONIX patents, technology, trade secrets, and intellectual property
rights be assigned or transferred to the Joint Venture and/or EPD.
The Board of Directors of the Joint Venture shall, within a reasonable time pass
resolutions regarding manufacturing, marketing, and pricing of the products and
services to be offered, advertised, distributed, sold and maintained by the
Joint Venture. The parties agree that EPD shall be responsible for manufacturing
the water filtration products
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in accordance with the manufacturing plans and specifications provided by
SIONIX. SIONIX shall be responsible for manufacturing the water filtration
products identified in Exhibit 1, and shall have the right to sub-contract its
manufacturing responsibilities in whole or in part to third parties with
approval of the Board of Directors of the Joint Venture, subject to each third
party's execution of a written non-disclosure agreement and provision of
appropriate insurance to indemnify the Joint Venture and the parties from
product defect, fault, or other liability.
The Board of Directors shall, create a warranty policy of the Joint Venture.
Installation of water filtration systems shall be the joint responsibility of
the parties, who shall assist the Joint Venture with provision of their
engineering staffs. Installation duties may be amended, modified, or superseded
by the Board of Directors of the Joint Venture. Each party shall be jointly
obligated to provide appropriate employee and/or personnel to staff the
manufacture and day-to-day operations of the Joint Venture.
EPD shall provide the Joint Venture with EPD's existing distribution chain for
the marketing, sale and distribution of the Joint Venture products. All
promotional, advertising, distribution and sale of services and/or products, as
well as product packaging, shall be in the name of the Joint Venture, or under a
trademark, trade name, and/or service mark determined by the Board of Directors.
Any and all customer lists, identities and/or the like shall, upon termination
of the Joint Venture, become the sole property of SIONIX subject to the option
of licensing the same to EPD at SIONIX' discretion.
The parties hereto shall provide the Joint Venture with an inventory of required
parts required for the manufacture of the Joint Venture's products and services.
The parties shall provide the Joint Venture with the necessary information to
compute the appropriate sale prices for all products and services offered by the
Joint Venture. Discretion for setting such prices shall be vested solely in the
Board of Directors. Once established, neither party shall deviate from the
established price schedule of products and services without written approval of
the Board of Directors.
ARTICLE IV
Term of the Joint Venture
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The Joint Venture shall begin as of October 17, 2000, and shall continue until
terminated by written agreement of the parties hereto.
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ARTICLE V
Accounting Method
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The accounting for Joint Venture purposes shall be in accordance with generally
accepted accounting principles (GAAP).
ARTICLE VI
Capital Contributions
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Section 6.1 - Capital: Both original capital contributions and any additional
contributions to the Joint Venture shall consist of SIONIX' licensing of its
intellectual property rights to the Joint Venture, and EPD's provision of
manufacturing, assembly, advertising, marketing, sales, and distribution
services, plus reasonable expenses for procurement of necessary materials,
parts, labor, employees, and costs, fees, salaries, charges and other monies
related to these expenses. Notwithstanding these obligations and
responsibilities to be discharged by each party, SIONIX and EPD acknowledge and
agree that the expected aggregate amount of $25,000 will be provided as follows:
SIONIX: $12,500; EPD: $12,500, unless otherwise directed by the Board of
Directors. Capital contributions beyond the initial contributions shall be borne
equally by the parties.
Section 6.2. - Draws: Neither party shall be entitled to withdraw from the Joint
Venture any funds as "draws" without the written agreement of both parties in
advance.
Section 6.3 - Interest on Capital: No party shall be entitled to, and no party
shall be paid, interest on any capital contributions to the Joint Venture.
Section 6.4 - Loans to the Joint Venture: Except as set forth in Section 6.1, no
party may loan or advance money to or from the Joint Venture without the written
consent of both parties obtained in advance. Any such loan by a party to the
Joint Venture shall be separately entered in the books of the Joint Venture as a
loan to or from the Joint Venture and shall bear interest at such rate as may be
agreed upon by the lending party, limited only by the maximum interest rate
allowable by law, and shall be evidenced by a promissory note, secured or
unsecured, executed by the receiving party. Such loan or advance shall not
increase the individual capital account of the lending party or any other party.
ARTICLE VII
Capital Contributions; Income Accounts
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Section 7.1 - Capital Accounts: Unless otherwise modified by resolution of the
Board of Directors of the Joint Venture, one individual capital account shall be
opened. The capital interest of each party shall consist of his original
contribution of capital, increased by (1) additional capital contributions and
(2) any credit balances transferred from the income account to the capital
account and decreased by (a) distributions in reduction of Joint
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Venture capital and (b) his share of Joint Venture losses, if charged to the
capital account of the parties. The parties hereto shall evaluate the capital
contributions involved in this Joint Venture from time-to-time.
Section 7.2 - Income Accounts: The Board of Directors of the Joint Venture shall
agree upon and determine the necessity and requirements of Income Accounts
within forty-five (45) days of the date of incorporation of the Joint Venture.
ARTICLE VIII
Profits or Losses
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The net profits and losses of the Joint Venture, if any, shall be allocated
among the parties in a ratio, manner, and means as directed by the Board of
Directors, as governed by sound management principals. Distributable profit on
sales of Joint Venture products and/or services shall be distributed between the
parties as follows: SIONIX - fifty-one percent (51%), EPD, forty-nine percent
(49%).
ARTICLE IX
Administrative Provisions
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Section 9.1 - Voting: The Board of Directors shall have the sole vote in the
operation of the Joint Venture. Meetings of the Board of Directors for the
transaction of the business of the Joint Venture may be called subject to
reasonable notice by any party as it may consider necessary or desirable, which
shall be more completely established by the Board of Directors.
Section 9.2 - Management of the Joint Venture: The Board of Directors of the
Joint Venture shall have full responsibility and authority for the performance
of the Joint Venture purpose. Actions and decisions of the Board shall be by
majority vote. The Chairman of the Board of Directors shall break any tie in the
voting. Any majority vote shall be final, conclusive and binding upon the
parties.
Section 9.3 - Duties: The Board of Directors shall designate the party(s)
responsible for day- to-day operations of the Joint Venture. It shall be the
duty of the parties, and the parties shall be equally obligated to cooperate and
use their best efforts to fulfill the purpose of the Joint Venture.
Section 9.4 - Limitations on Action: No party shall take, nor have the right to
take, any of the following actions on behalf of the Joint Venture without the
unanimous written approval of the Board of Directors:
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A. Incur any liability or expense on behalf of the Joint Venture in
excess of $25,000.
B. Sell, lease, trade, exchange, convey, or dispose of all of the
property of the Joint Venture.
C. Borrow money (except in the ordinary course of business), mortgage,
or hypothecate or otherwise encumber the assets of this Joint Venture
as security.
D. Grant or obtain options for the sale or purchase of all of the Joint
Venture property.
E. Become a surety, guarantor, endorser, or accommodation endorser for
any person or firm in the name of the Joint Venture.
F. Submit a Joint Venture claim or liability to arbitration or to a
referee or confess a judgment against the Joint Venture.
G. Sell, mortgage, hypothecate or assign the parties' interest in the
Joint Venture profits or capital.
Any loss sustained by the Joint Venture because of a breach of this paragraph by
any party shall be deducted from such party's share of the net profits of the
Joint Venture, or if the net profits of the Joint Venture for the fiscal year in
which the breach occurred is insufficient, from such party's capital account in
the Joint Venture, without prejudice to the Joint Venturers' or remaining
parties' rights and civil remedies relating to such breach.
Section 9.5 - Time Devoted to Joint Venture: Each party shall devote the time
required to conduct the Joint Venture business.
Section 9.6 - Salaries: Neither party shall receive a wage or salary for their
work on the project and this is to continue until the parties reach some other
agreement in writing.
Section 9.7 - Reimbursement of Expenses: The Joint Venture shall reimburse a
party for payments made and personal liabilities reasonably incurred in the
ordinary and proper course of the Joint Venture business or for preservation of
the Joint Venture business or property.
Section 9.8 - Individual Debts: Each party shall pay and discharge as they
become due his separate obligations not a part of the Joint Venture business,
and indemnify and hold
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harmless the other party and the Joint Venture from all costs, claims and
demands in relation thereto.
Section 9.9 - Intellectual Property: The parties intend to create and use a
trademark(s), trade name(s), and/or service mark(s) in connection with the Joint
Venture's products and/or services. The Board of Directors shall agree upon such
mark(s) to be used within thirty (30) days of the date of incorporation, and the
Board of Directors shall seek appropriate registration of such marks. The Joint
Venture shall have the right to enter into written license agreements with
respect to such mark(s), as directed by the Board of Directors by sound
management principals. All intellectual property of the Joint Venture, including
the mark(s) identified and intended by this Section, shall become the sole and
exclusive property of SIONIX upon dissolution of the Joint Venture.
ARTICLE X
Books and Accounting
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Section 10.1 - Joint Venture Books: Proper and complete books of account of the
Joint Venture business shall be kept by SIONIX as part of its Joint Venture
duties. The Joint Venture shall have prepared and filed a state and federal
partnership return with appropriate tax forms provided where required.
Section 10.2 - Inspection of Books: The books of account and other records of
this Joint Venture shall be opened to inspection by the parties or their
accredited representatives at any reasonable time during normal business hours.
Section 10.3 - Annual Report to the Parties: Within ninety (90) days after the
end of each fiscal year, the Joint Venture shall furnish each party with a
report prepared by an independent certified public accountant retained and paid
for by the Joint Venture. The report shall consist of at least a profit and loss
statement, a copy of the Joint Venture's federal income tax return for the
immediately preceding fiscal year and a balance sheet showing the Joint
Venture's financial position as of the end of that fiscal year, as well as any
additional information that the parties may require for the preparation of their
individual federal, state and/or local income tax returns. The Audited Annual
Financial Statements shall be used as the annual report unless otherwise agreed
or otherwise required by law.
Section 10.4 - Fiscal Year. The fiscal year of the Joint Venture shall begin
October 1 and end September 30.
Section 10.5 - Bank Accounts: A general checking account shall be opened to pay
for expenses of the joint venture. In addition, an interest bearing account
shall be opened for
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income. The accounts shall be in the name of the joint venture at such bank or
banks, as may be selected, from time-to-time, by the board of directors. All
withdrawals or transfers from such account(s), shall only be executed by check,
telephone or other written instrument. A limit shall apply to a single signature
and amounts above this limit shall require two signatures, which will be
determined by the board of directors. Deposits or transfers from the interest
bearing account shall only fund the general account. This section may be
abrogated, modified or superseded, in whole or in part by the board of
directors.
ARTICLE XI
Withdrawal of a Party
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Section 11.1 - Withdrawal: A party may withdraw from the Joint Venture after
giving six (6) months written notice to the other party. This Section shall not
affect any termination of this Agreement by the express terms of this Agreement,
nor extend any period beyond the date of termination as stated above or in any
extension of this Agreement.
Section 11.2 - Effect of Withdrawal: The Joint Venture shall be dissolved by the
withdrawal of a party.
Section 11.3 - Winding-up of the Joint Venture: Upon dissolution, the Joint
Venture shall be wound up and all of its property distributed in liquidation
pursuant to the provisions of this Agreement.
ARTICLE XII
Sale of a Joint-Venture Interest
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A party's interest in the Joint Venture shall not be transferred, in whole or in
part, and any purported transfer of all or part of a party's interest shall be
void and of no effect against the Joint Venture, any other party, any creditor
of the Joint Venture or any claimant against the Joint Venture.
ARTICLE XIII
Voluntary Dissolution
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Section 13.1 - Winding-up the Joint Venture: Upon the parties' unanimous written
consent to voluntarily dissolve the Joint Venture, the Joint Venture shall
immediately commence to wind up its affairs. The parties shall continue to share
profits and losses during liquidation in the same proportions as before
dissolution. The proceeds from liquidation of Joint Venture assets shall be
applied as follows:
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1. Debts to the Joint Venture, other than to parties.
2. Amounts owed to parties for the credit balances in their respective
income accounts.
3. The capital contributions of the parties as reflected in their
respective capital accounts.
Section 13.2 - Gains or Losses in Winding-up: Any gain or loss on disposition of
Joint Venture property in the process of liquidation shall be credited or
charged to the parties in the proportion of their interests in profits and
losses. Any property distributed in kind in the liquidation shall be valued and
treated as though the property was sold and the cash proceeds were distributed.
The difference between the value of property distributed in kind and its book
value shall be treated as a gain or loss on sale of the property and shall be
credited or charged to the parties in the proportions of their interest in
profits and losses.
Section 13.3 - Balance Owed by a Party: Should any party have a debit balance in
its capital account, whether by reason of losses in liquidating Joint Venture
assets or otherwise, the debit balance shall represent an obligation to the
other party to be paid in cash within thirty (30) days of written demand by the
party sustaining the debit balance.
Section 13.4 - Post Wind-Up Events: The Joint Venture shall be authorized to
represent itself under the direction of SIONIX in the event any claim is brought
against the Joint Venture post wind-up. The Joint Venture shall be authorized to
represent itself under the direction of SIONIX in the event any outstanding
claim is owed to the Joint Venture post wind-up.
ARTICLE XIV
Waiver of Right to Conduct Decree of Dissolution
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The parties agree that irreparable damage would be done to the good will and
reputation of the Joint Venture if any party should bring an action in Court to
dissolve this Joint Venture. Care has been taken in this Agreement to provide
what the parties feel are fair and just payments to be made to a party whose
relation with the Joint Venture is terminated for any reason. Accordingly, each
of the parties accepts the provision under this Agreement as its sole
entitlement upon termination of this Joint Venture. Each party hereby waives and
renounces its right to seek a court decree of dissolution or to seek the
appointment, by a court, of a liquidator for the Joint Venture.
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ARTICLE XV
Miscellaneous Provisions
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The parties may amend this Agreement at any time during the continuance of the
Joint Venture but only in a writing that is signed by each of the parties.
Any notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been given by personal delivery or by
placing in the United States Mail, registered or certified, return receipt
requested, postage prepaid or personally delivered, addressed to the parties at
their addresses set forth in the beginning of this Agreement, or other address
as amended from time to time.
This Agreement is to be construed and interpreted under the laws of the State of
California. The exclusive place of venue for any proceeding under this Agreement
shall be any Court of competent jurisdiction in the State of California, County
of Orange. Any dispute arising from this Agreement to enforce, interpret or
otherwise avail a party's right(s) hereunder or related to this Agreement shall
be submitted to arbitration in accordance with the Rules of the American
Arbitration Association. The arbitrator shall have the power to award all
remedies available under law, including the right to grant permanent injunctive
relief, monetary and punitive damages, as well as monetary sanctions. The
arbitrator will be any retired jurist chosen by the parties in accordance with
the American Arbitration Rules. The parties will have full rights to discovery
in any arbitration, including the right to take deposition(s) without approval
of the arbitrator. The award of the arbitrator shall be binding and may be
reduced to judgment in any court of competent jurisdiction. Nothing in this
Agreement, however, shall prohibit any party hereto from filing an action in any
court of competent jurisdiction to obtain provisional injunctive relief of any
type or kind, and the parties hereto agree that the arbitration clause in this
Agreement shall not prohibit any court of competent jurisdiction from entering
any orders to compel or prohibit conduct or to maintain the status quo.
This Agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior or
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, in connection with the subject matter
hereof, except as specifically set forth herein.
Each person signing below on behalf of the parties warrants and covenants that
he or she does so with full authority to execute this document on behalf of the
party for which he or she signs, with the complete ratification of any
administrative, corporate or the like Board(s) of Directors of such party, and
that such person is authorized to bind to this Agreement and its terms the party
on whose behalf the party signs.
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All of the terms and provisions of this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their assigns, heirs,
administrators, executors or successors.
The parties hereto acknowledge and agree that each has been given an opportunity
to independently review this Agreement and seek further review with its own
legal counsel. In the event either party hereto shall commence legal proceedings
against the other to enforce the terms hereof, or to declare rights hereunder,
or any other claim arising out of this Agreement, as the result of a breach of
any covenant or condition of this Agreement or for any other legal reason, the
prevailing party in such proceeding shall be entitled to recover from the losing
party his costs of suit, including reasonable attorney's fees and costs of
expert witnesses.
Any litigation pending at the time of execution of this Agreement shall remain
the sole responsibility of the party hereto that is a party in such pending
litigation. The Joint Venture shall have no responsibility for the cost of such
litigation.
All duties given rise to by the terms of this Agreement shall survive the
termination of this Agreement, whether through voluntary dissolution,
dissolution by the terms of this Agreement, or insolvency and/or bankruptcy of
any party hereto.
The parties hereto signify their complete understanding and acceptance of each
and every term and condition set forth herein by placing their signatures below
in the spaces provided next to the date upon which they signed this Agreement.
This Agreement and copies thereof shall all operate as originals.
ENVIRONMENTAL PRODUCTS
DIVISION OF
SIONIX CORPORATION HOFFINGER, INDUSTRIES, INC.
By: /s/ James J. Houtz By: /s/ Brad Rinehart
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James J. Houtz Brad Rinehart
President President
Date: Date:
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