EXHIBIT 10.3
C O N F I D E N T I A L T R E
A T M E N T
CONTRACT MANUFACTURING AGREEMENT
MATCO ELECTRONICS GROUP AND ▇▇▇▇▇ ▇▇▇▇▇▇
Version 8.0 11/14/97 1:00 PM
TABLE OF CONTENTS
SECTION: PAGE
PREFACE 3
1. AGREEMENT TO MANUFACTURE 3
2. PRICING 4
3. PURCHASING AND CANCELLATIONS 7
4. PAYMENT AND SHIPPING TERMS 11
5. ACCEPTANCE, INSPECTION, AND WARRANTY 12
6. ENGINEERING 15
7. TERMINATION 16
8. INDEMNIFICATION 18
9. CONFIDENTIAL AND PROPRIETARY INFORMATION 19
10. LICENSED PROPERTY 20
MISCELLANEOUS 21
Confidential portions of this exhibit have been omitted and
filed separately with the Securities and Exchange Commission
with a request for confidential treatment pursuant to Rule
24b-2. The location of an omitted portion is indicated by
[*******].
LIST OF EXHIBITS
SECTION: PAGE
EXHIBIT A: THE PRODUCTS 25
EXHIBIT E: THE PRICING MODEL 25
EXHIBIT B: THE MANUFACTURING SPECIFICATIONS 30
EXHIBIT C: THE QUALITY STANDARDS 31
EXHIBIT D: THE APPROVED SUPPLIERS 32
EXHIBIT F: THE MASTER SCHEDULE 33
EXHIBIT G: THE TOOL MAINTENANCE SCHEDULE 34
EXHIBIT H: THE LICENSED PROPERTY 36
EXHIBIT I THE WARRANTY RETURN HISTORY 37
EXHIBIT J THE ADVANCED MATERIAL PURCHASES 38
WITH BLANKET APPROVALS BY COMMODITY
EXHIBIT K THE PREPAID RAW MATERIALS 39
EXHIBIT L THE SUBCONTRACT CUSTOMER ORDERS 40
EXHIBIT M THE PURCHASE ORDERS 41
EXHIBIT N THE QUALITY ASSURANCE REPORT 42
EXHIBIT O ACCEPTANCE SAMPLING PLANS 43
PREFACE
This Agreement is entered into as of 12:01 AM EST November
24, 1997 (the "Effective Date"), by and between ▇▇▇▇▇ Corona
Corporation, a Delaware corporation, having its principle
place of business at ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
(hereafter referred to as "Purchaser" and/or "SCC") and the
MATCO Electronics Group, Inc., a New York corporation having
its principle place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereafter referred to as "Seller" and/or
"MEG").
Whereas, SCC desires to have MEG manufacture, test and
otherwise produce all products presently manufactured by SCC
at its Tijuana, MX facility as more fully itemized on
Exhibit A annexed hereto (the "Products"), and
Whereas, MEG is willing to manufacture, test and otherwise
produce all such Products pursuant to the terms and
conditions of this agreement,
Now therefore, in the consideration of the mutual covenants
and promises contained herein, the parties agree as follows:
SECTION 1.0 - AGREEMENT TO MANUFACTURE
1.1 Term
The initial term of this Agreement shall commence on
the Effective Date and continue in effect for a period of
five (5) years, unless sooner terminated pursuant to the
provisions of Section 7 hereof.
1.2 Renewal
This Agreement may be renewed for an additional five
(5) year term upon the mutual written agreement of the
parties provided the same is executed one hundred and
eighty (180) days prior to the expiration date of this
Agreement.
1.3 Scope of work
Subject to the terms and conditions hereof, SCC hereby
appoints MEG, and MEG hereby accepts such appointment, to
act as the sole manufacturer of the Products during the term
of this Agreement. MEG shall manufacture each of the
Products set forth on Exhibit A attached hereto and any
products which may, from time to time be added to Exhibit A
at the request of the SCC and agreement by MEG. Pricing for
such additional product will be established according to
paragraph 2.2 below, "New Product Pricing". MEG shall
manufacture components, assemblies, or all the Product(s) at
the Tijuana, MX facility, and/or with the prior written
approval of SCC, which will not be unreasonably withheld, at
one or more of MEG's affiliate's facilities (a "Facility").
An affiliate of MEG means any corporation, partnership or
other business entity which controls or is controlled by, or
is under common control with MEG. All Product will be
manufactured in accordance with the Manufacturing
Specifications provided by SCC as set forth in Exhibit B
attached hereto (the "Manufacturing Specifications"), and
the quality standards provided by SCC as set forth in
Exhibit C attached hereto (the "Quality Standards"), which
Manufacturing Specifications and Quality Standards may be
amended or modified from time to time by written mutual
agreement between MEG and SCC. MEG will use reasonable
efforts to comply with any additional, revised or amended
Manufacturing Specifications or Quality Standards. MEG
shall be responsible for purchasing the raw materials,
packaging and other components required to manufacture the
products (collectively, the "Raw Materials") from the
Approved Suppliers of such raw materials as set forth in
Exhibit D attached hereto (the "Approved Suppliers"). MEG
may use Raw Materials or suppliers not listed on Exhibit D
only with the prior written approval subject to SCC's
reasonable discretion, which approval will not be
unreasonably withheld. MEG shall be responsible for the
payment of all costs and expenses associated with the
purchase of Raw Materials and the transportation of the Raw
Materials to the Facility.
1.4 Exclusivity
SCC and MEG agree that SCC shall purchase all of its
manufactured Products as referenced in section 1.3 above for
the initial term of five (5) years and any renewal thereof
from MEG. SCC agrees to provide MEG with the opportunity to
quote the manufacturing cost of any product in which SCC
individually or as a joint developer/distributor may control
or direct the manufacturing thereof, for the term of the
Agreement, in which case MEG will respond within thirty (30)
days.
SECTION 2.0 - PRICING
2.1 Pricing Model
All pricing for the Products referenced in Exhibit A
shall be based on the Pricing Model defined in Exhibit E
attached hereto (the "Pricing Model"). Such pricing is
based on the annual volumes forecast by SCC. SCC
acknowledges that as an inducement for MEG to enter into
this contract, SCC is projecting certain minimum product
purchases . Price structures associated with this Agreement
are based upon MEG's reliance upon these minimum purchases
of Product and the resulting specific revenue commitments
thereby represented . During the term of the Agreement, the
pricing for Products set forth on Exhibit A and Exhibit E
may be adjusted upward from that set forth in the Pricing
Model for (i) adjustments in raw material and direct labor
expressly set forth below in 2.3, or (ii) inflationary or
other reasonable increases in the total pool of overhead
dollars, or (iii) reduction in SCC total dollar volume.
2.2 New Product Pricing
SCC may from time to time request pricing on new
product as described under paragraph 1.3 Scope of Work.
Upon receipt of prints, bills of material, and other
documentation as necessary, MEG agrees to quote pricing and
lead-time, based on the Pricing Model in a time period not
to exceed two weeks. Should such quotation be based on
advance information, MEG reserves the right to alter such
quotation based on the receipt of approved final
information. Upon the acceptance of the price and lead-time
by SCC, the pricing and effective date will be added to the
Pricing Model as set forth in Exhibit E attached hereto, and
the lead-time for the Product will be added to the Product
as set forth in Exhibit A attached hereto.
2.3 Annual Price Adjustments
SCC and MEG agree that annually the Pricing Model
will be adjusted based on SCC's projected volume of Product
for SCC's next fiscal year following the same methodology in
▇▇▇▇▇▇▇ ▇.▇, ▇.▇, ▇.▇, ▇.▇ except that the fixed overhead
rate shall be recalculated. MEG and SCC also agree to
perform an annual cost review during April of each year,
which will be a good faith review of changes in actual cost
of Raw Materials and direct labor. If MEG's actual Raw
Material costs for any Product are less than the same costs
as quoted by MEG in the prior year's selling price, the
selling price to SCC shall be reduced by [***] of the
decrease in such costs. If MEG's actual direct labor costs
for any Product, are less than the same costs quoted by MEG
in the prior year's price, then the selling price to SCC
shall be reduced by [***] of the decrease in such costs.
Such prices will become effective on the following July 1
(the start of SCC's fiscal year), and will be implemented by
the reissuance of the Pricing Model.
2.4 Pricing Adjustments, Raw Materials Increases
In the event there is a significant increase in the
cost of certain individual Raw Materials or a group of
substantially similar Raw Materials amounting to one-half
percent (0.5%) or more, of the material cost portion of any
Product as listed in the Pricing Model, MEG shall
immediately document such increase(s) to SCC. In that
event, both parties shall mutually pursue alternative
material in order to attempt to maintain the original cost.
If such alternative material cannot be found, MEG shall
provide SCC with new pricing and effective dates for
approval. Approval of new pricing for all Product affected
by the increased Raw Material cost shall not be unreasonably
withheld by SCC. In the event that approval is not given by
SCC within fifteen (15) days after notification, MEG, at its
option, may suspend production of the Product(s) affected.
Upon acceptance by SCC, the Pricing Model will be amended to
reflect such new pricing and effective date(s) for
Product(s) affected.
2.5 Price Adjustments, Product Quantities
SCC acknowledges that any significant reductions in
the purchases of any Product or any significant change in
the mix of the Products, or the discontinuance of any
Products resulting in a change in the projected revenue
stream, will result in a need to change both the existing
prices retroactively and the Pricing Model. It is
understood by both parties that prices are directly related
to the quantity of Products sold to SCC. Failure by SCC to
purchase the agreed on quantity of Product upon which
pricing in the Pricing Model is based, provided MEG is
prepared to manufacture and ship same quantity of Product,
may result in a retroactive unit price increase on Products
shipped by MEG. Conversely, exceeding the quantity of
Products upon which the Standard Cost in the Pricing Model
is based may result in a retroactive unit price decrease.
MEG and SCC agree to meet quarterly to review such quantity
changes which may result in price increases or decreases.
MEG agrees to offer price decreases and SCC agrees to accept
price increases as described above whenever the total
dollar volume of the quarter's business increases or
decreases by two percent (2%), except during the Initial
Period as defined by the Pricing Model in Exhibit E.
2.6 Economic Manufacturing Lot Sizes
Both parties recognize the need to build the Products
in economical manufacturing lot sizes in order to maintain
competitive prices. SCC agrees not to unreasonably withhold
its approval of a MEG request to build low volume Products
in advance of purchase order releases to maintain such
economical manufacturing lot sizes . It is understood MEG
does not desire to hold completed Product in its inventory.
Therefore, MEG will request to build low volume Products in
advance of Master Schedule requirements to maintain such
economical manufacturing lot sizes. Product run in economic
lot sizes approved by SCC will be shipped with the next
Master Schedule demand for that Product. Reference
paragraph 3.2 Master Schedule Releases. In addition, SCC
and MEG agree that quantities of less than 300 units of
current manufactured Product, in a single production run of
Product, will not be scheduled in the Master Schedule.
2.7 Access to Books and Records
SCC shall have reasonable access during normal
business hours, with prior agreed notice, to the books and
records of Assemblies de Mexico S. de ▇. ▇. de C. V.,
including the July 1 to June 30 total of factory overhead
dollars and standard earned direct labor hours for the sole
purpose of verifying the reasonableness of Product pricing.
SECTION 3.0 - PURCHASING AND CANCELLATIONS
3.1 Master Schedule
3.1.1 Master Schedule, Purpose
Commencing on the Effective Date of this Agreement
and continuing weekly thereafter throughout the term
hereof, SCC will issue a weekly Master Schedule ("Master
Schedule") covering specific Product requirements for a
minimum of twenty-six (26) weeks, the first of which is
attached hereto as Exhibit F. The purpose of the Master
Schedule is to plan the acquisition of Raw Materials and to
schedule the Facility using the Material Requirements
Planning System (hereafter "MRP") , in order to enable MEG
to meet SCC's delivery requirements, as well as to authorize
the procurement of Raw Material, the manufacture of Product,
and the shipment of Product as described in this section.
3.1.2 Master Schedule, The Frozen Zone
The first eight (8) weeks of each Master Schedule
issued will constitute firm commitments from SCC to accept
and firm commitments from MEG to deliver the Product in the
quantities and to the delivery schedule specified. This
eight (8) week period constitutes a frozen zone (the "Frozen
Zone") in which no changes will be made except as provided
under paragraph 3.3, Changes in Master Schedule. The
issuance of the Master Schedule weekly shall constitute and
have the same force and effect as the issuance of the
purchase order for the Product specified for the Frozen
Zone, and shall be non-cancelable.
3.1.3 Master Schedule, The Forecast
The eighteen (18) week period, defined as weeks
nine (9) through twenty-six (26) of the Master Schedule,
which directly follow the Frozen Zone will be deemed by both
parties to be Product specific forecasts (the "Forecast").
3.2 Master Schedule Releases
All Master Schedule Releases shall contain the
following information:
a. Type of Product by SCC item number
b. Quantity of Product to be delivered
c. Scheduled delivery dates
d. Reference to this Agreement
3.3 Changes in Master Schedule
MEG recognizes that SCC is engaged in the consumer
electronics business, which requires the ability to meet
rapidly changing customer requirements. MEG and SCC agree
to work together to meet these requirements.
3.3.1 SCC Requested Master Schedule Changes, Frozen Zone
From time to time SCC may request Master Schedule
changes within the Frozen Zone. SCC will document in
writing the requested change(s) to MEG. MEG agrees to
respond as soon as possible and on major changes no later
than within five (5) working days, accepting, modifying, or
rejecting the request. Upon written acceptance of MEG's
response, MEG will use its best efforts to comply with the
reschedule. Costs incurred by MEG as described in their
response will be paid for by SCC. SCC and MEG will work
together to minimize these costs.
3.3.2 MEG Requested Master Schedule Changes
Should Master Schedule changes be requested by MEG
and approved by SCC, the cost for such changes will be born
by MEG.
3.3.3 Failure to Issue Master Schedule Revisions
Should SCC fail to issue an updated Master
Schedule in any week, the entire Master Schedule will roll
week by week as if an update has been issued, with the prior
twenty-seventh week rolling to the twenty-sixth week etc.,
or if there was no forecast entered in the prior twenty-
seventh week, then the new twenty-sixth week should be in
all respects identical to the previous twenty-sixth week now
rolled to the twenty-fifth week. In the same manner the
twenty-seventh week rolls to the twenty-sixth week becoming
part of the Forecast, and the ninth week rolls into the
eighth week thereby becoming part of the Frozen Zone.
3.3.4 Master Schedule Decreases by SCC
Should the Master Schedule decrease, including but
not limited to the discontinuance of a Product, result in
the creation of excess or obsolete inventory, then the
provisions of paragraph 8.3 Inventory Indemnification shall
apply. For discontinuance of Raw Material, paragraph 6.1
Engineering Changes Proposed by SCC shall apply.
3.4 Acceptance/Rejection of SCC Requested Master Schedule
Changes
In addition to the criteria in paragraph 3.3, MEG
may, at its option, accept or reject any Master Schedule
change issued by SCC that is not in compliance with stated
Product Lead-time and/or Terms and Conditions of this
Agreement. MEG shall, however, use its best efforts to
comply with any such changes , and to work with SCC in a
Product Lead-time reduction program over the life of this
Agreement. MEG shall notify SCC of the rejection of any such
change(s) within three (3) working days of receipt of
request for such changes.
3.5 Advanced Material Purchases
3.5.1 Advanced Material Purchased - Raw Material Lead-times
MEG may be required to purchase certain Raw
Materials beyond sixteen (16) weeks of the Master Schedule
requirements, due to lead-time, lot size, or cost issues,
("Advanced Material Purchases"). The quantity of these
purchases shall be determined by using the annual forecast.
MEG shall request written authorization from SCC for the
procurement of these Advanced Material Purchases to the
specific planning leadtime plus an additional four (4) weeks
to cover the normal procurement ordering cycle, and SCC
shall be responsible for all such authorized purchases.
3.5.2 Advanced Material Purchases - SCC Requested Raw
Material
SCC may request that MEG purchase certain Raw
Materials for Product that SCC has not yet requested be
entered in the Master Schedule, and whose requirements,
therefore, are not shown in MRP. SCC shall provide MEG with
written authorization including the part number, the part
description, the part print, the approved manufacturer, the
approved manufacturer's part number, and any other purchase
specifications as may be required commercially to place a
purchase order for the specific Raw Material, the required
delivery dates and the corresponding required quantities.
MEG will provide reasonable efforts to purchase the
requested Raw Material in the quantities and by the dates
requested. In the event that MEG has received first
deliveries of such Raw Material at its Facility, and such
Raw Material has no requirements in the Master Schedule and
MRP, MEG, at its option, will request SCC issue a purchase
order to MEG for the total quantity and total cost of such
Raw Materials purchases.
3.5.3 Advanced Material Purchases - SCC Authorized
Personnel
SCC shall designate to MEG in writing the name of
the person authorized to approve Advanced Material Purchases
and an alternate in case that person is not available. No
other person(s) shall be authorized to approve Advanced
Material Purchases unless designated by SCC in writing.
Approval by an authorized person of SCC shall be binding
upon SCC and not subject to modification, rejection, or
reduction pursuant to the terms of this Agreement without
the written consent of MEG.
3.6 Spare Parts
MEG agrees to provide fabricated spare parts for the
Products purchased by SCC at SCC's written request for a
minimum of five (5) years after the discontinuance of the
Product or the expiration or termination of this Agreement,
whichever occurs first. Such spare parts shall be supplied
at actual cost plus five percent (5)%. Lead-time for such
spare parts should not exceed thirty (30) days from receipt
and acceptance of order by MEG. MEG agrees to provide
whatever assistance it can to SCC in the case of emergency
parts requirements without liability except as set forth
herein. In addition, MEG will maintain tooling licensed by
SCC to produce spare parts at SCC's sole cost and expense.
Parts other than fabricated spare parts shall be provided
within industry lead-times if not available in stock at
actual cost plus 5 percent (5%). MEG also agrees to
provide whatever assistance it can to SCC in obtaining any
parts other than fabricated parts, including but not limited
to attempting to identify replacements for obsolete
components, without liability except as set forth herein.
3.7 MEG Purchase of SCC Work in Process and Raw Materials
On the Effective Date of this Agreement, MEG agrees
to pay SCC an amount equal to the value at SCC's standard
costs, all of the rights, title and interests in the work-
in-process at the Tijuana, MX facility and Raw Materials,
together, sufficient in part or in total to fulfill the
requirements of the Product for the first quarter defined as
the first thirteen (13) weeks of the Master Schedule. At
the end of the first quarter, MEG and SCC will review MEG's
actual usage of SCC's Raw Materials during such quarter and
will review the requirements of the Product netted against
remaining on-hand inventory for Raw Materials for the next
thirteen (13) weeks of Master Schedule. SCC shall sell and
MEG shall buy such Raw Materials to the extent SCC has such
Raw Materials in its inventory. This will continue on a
quarterly basis until the final disposition of SCC's Raw
Material inventory. Coincident with each quarterly review,
SCC and MEG will jointly review remaining SCC Raw Material
inventory, and jointly identify Raw Material items that have
no requirements or have Raw Material inventory in excess of
a fifty-two (52) week Master Schedule as determined by MRP.
Such Raw Material shall then be promptly removed or disposed
of by SCC at SCC's expense.
3.8 Conversion of SCC Purchase Orders to MEG Purchase
Orders
On the first working day following the date this
Agreement is made public, under the direction of MEG, buyers
acting as agents of SCC and so designated by SCC in writing
will commence contacting suppliers holding SCC open purchase
orders for Raw Materials, with the intent to cancel purchase
order deliveries and quantities remaining, with delivery
dates following the Effective Date. Coincident with this
event, the same buyers acting on behalf of MEG will issue
MEG purchase orders replacing delivery and quantities
cancelled. Buyers will continue with this process acting
with reasonable diligence until all remaining SCC purchase
orders with open delivery dates and quantities have been
cancelled and replaced with MEG purchase orders.
Recognizing the lack of sufficient response time available
between the date this Agreement is made public, and the
Effective Date, and the need for confidentiality, SCC agrees
that during this transitional process, in order to avoid
potential disruption in the continuity of flow of Raw
Materials, the buyer, at MEG's discretion and with approval
of MEG's Director of Materials, shall have the right to
delay cancellation and reissue purchase orders for any
delivery and quantity. SCC hereby grants MEG blanket
approval for all Advanced Material Purchases pursuant to
section 3.5.1 which result from MEG issuing purchase orders
during the transition period for quantities of Raw Material
replacing SCC purchase orders for similar quantities of Raw
Material. The status of SCC open purchase orders on the
date this Agreement is made public is set forth in Exhibit M
(the "Purchase Orders for Raw Material").
3.9 Deliveries of Raw Material on SCC Purchase Orders After
the Effective Date
SCC and MEG agree that MEG will receive into its
inventory after the Effective Date, all valid deliveries and
quantities received against valid SCC purchase orders not
otherwise cancelled. SCC and MEG agree to meet weekly to
review and approve valid invoices for such purchase order
deliveries and quantities. Until the transition is
complete, SCC shall pay such purchase orders to invoice
terms and MEG shall pay SCC such purchase orders to the same
invoice terms for Raw Materials relating to the first
thirteen (13) weeks of the Master Schedule. All other Raw
Material shall be added to SCC's inventory. MEG agrees to
pay SCC for prepaid raw materials set forth in Exhibit K
(the "Prepaid Raw Materials") upon receipt of such Raw
Materials.
3.10 MEG Disposal of SCC Obsolescence - MEG Owned Inventory
Upon receipt of written instruction from SCC, MEG
will dispose of, and/or package and ship obsolete Raw
Material according to SCC's instructions. SCC will pay MEG
for the Raw Material owned by MEG at MEG's standard cost,
plus pay for all expenses incurred by MEG including but not
limited to picking, packing for shipment, shipping charges,
duties, brokerage fees, and disposal fees.
3.11 MEG Disposal of SCC Obsolescence - SCC Owned Inventory
Upon receipt of written instruction from SCC, MEG
will dispose of, and/or package and ship obsolete Raw
Material according to SCC's instructions. SCC will pay MEG
for all expenses incurred by MEG including but not limited
to picking, packing for shipment, shipping charges, duties,
brokerage fees, and disposal fees.
3.12 Raw Material for SCC Subcontract Customer Orders
MEG agrees to assume all obligations to complete
all subcontract customer orders for the products set forth
in Exhibit L, attached hereto (the "Subcontract Customer
Orders").
SECTION 4.0 - PAYMENT AND SHIPPING TERMS
4.1 Invoices and Payment
MEG shall invoice SCC upon shipment of Product or
upon a mutually agreed to invoicing schedule. Payment shall
be due and payable in US Dollars net 30 days from invoice
date. In the event SCC fails to make payment per the terms
of this Agreement: (1) delinquent payments shall bear
interest at the rate of one and one half percent (1.5%) per
month; (2) MEG may cease shipment to SCC immediately; and/or
(3) MEG may elect to make some or all future shipments
C.O.D. In the event of default by SCC, default provisions
under Section 7 apply.
2 Delivery of Product
4.2.1 Delivery to San Diego
Delivery of Product to SCC shall be F.O.B. SCC's
receiving dock located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇. Title and risk of loss for Products
shall pass to SCC upon receipt of Products by SCC. MEG
shall pay freight on all Products to SCC's receiving dock in
San Diego, California.
4.2.2 Shipment to other Destinations
SCC, at its election, may arrange for shipment of
Products to other destinations. In such event, MEG shall
deliver Product F.O.B. to SCC's shipping agent at the US
Port of Entry, Otay Mesa, CA. Title and risk of loss for
Products shall pass to SCC upon receipt of Products by SCC's
shipping agent. MEG shall pay freight on all Products to
SCC's shipping agent.
4.2.3 Licenses, Permits, Certificates, Fees and Duties
MEG shall have the responsibility of obtaining all
required licenses, approvals, and permits relating to the
export of goods from their country of origin, and shall pay
all export fees and duties. MEG shall also have the
responsibility to take all steps in order to obtain from
governmental authorities the import certificates and all
licenses, approvals, and permits required for importing
goods into the US.
4.3 Packaging
MEG shall package each unit of Product per SCC's
specifications.
4.4 Taxes
MEG shall be responsible for all applicable US,
federal, state, municipal and governmental taxes or duties,
as well as any taxes or duties imposed by the Government of
Mexico on Product manufactured under the terms of this
Agreement. SCC will cooperate with MEG or its agents,
employees, or professionals to minimize taxes or duties as
allowed by law. In addition SCC will verify, certify or
otherwise cooperate with the preparation and filing of any
applicable documentation to allow the reduction or
elimination of taxes or duties to the extent legally
permissible under applicable law.
SECTION 5.0 - ACCEPTANCE, INSPECTION, AND WARRANTY
5.1 Acceptance Criteria
The acceptance criteria shall be in conformance with
the Manufacturing Specifications, and Quality Standards.
MEG shall be held responsible for material and workmanship
of the Product as defined in the Manufacturing
Specifications, the Quality Standards, and SCC's Defect
Classification Manual. MEG shall not be held responsible
for defects determined to be caused by the design of the
Product. Prior to production of any Product, SCC shall
provide MEG a written inspection procedure for each Product,
which shall become part of the Quality Standards.
5.2 Acceptance
SCC shall inspect incoming lots at its warehouse in
San Diego, CA and/or Cortland, NY, promptly after receipt of
the goods, in accordance to the audit inspection procedures
contained in the Quality Standards and acceptance sampling
plans and AQLs set forth in Exhibit N and attached hereto
(the "Acceptance Sampling Plans"). Should an incoming lot
fail the audit inspection for defects for which MEG is
responsible, SCC will promptly notify MEG. MEG will advise
of a disposition for that lot within five work days. Such
disposition may include by mutual agreement, use as is,
screen and repair at MEG expense, or return the lot for
repair at MEG expense.
5.3 Returned Products
Prior to returning any goods, SCC will obtain from
MEG a Return Material Authorization number (hereafter
"RMA"). Defects on returned goods will be documented by SCC
and forwarded to MEG at the time such RMA number is
requested.
5.4 Quality Audit
SCC reserves the right to inspect the Facility upon
reasonable notice. SCC also reserves the right to review
MEG's quality and production records and MEG's quality
system to ensure on-going Product quality.
5.5 Liability
MEG is responsible for all liabilities and defects
proven to be caused by MEG and will pay all costs associated
with correcting such defective Product. MEG's liability for
a breach of the above warranties will in no event exceed the
unit purchase price that has been paid by SCC for the
defective Products, and will not include consequential
damages caused by manufacturing defect. MEG and SCC agree
to cooperate fully in investigating and correcting such
defects.
5.6 Customer Warranty Returns - Typewriters Only
SCC has summarized its actual customer warranty
return history which occurred during the period immediately
preceding the Effective Date as set forth in Exhibit I
attached hereto (the "Warranty Return History"). SCC agrees
commencing with the Effective Date to record and summarize
customer warranty returns classifying defects by cause and
provide this information to MEG monthly, within fifteen (15)
days following each month closing. SCC and MEG agree to
jointly review such information on a quarterly basis. SCC
and MEG agree that for the purposes of monthly and annual
measurement of workmanship defects, MEG's responsibility
commences with the seventh month following the Effective
Date. If the average actual percentage of customer warranty
returns attributable to workmanship for a year is less than
or equal to the average actual percentage of customer
warranty returns attributable to workmanship for the
customer warranty return history for the highest year as set
forth in Exhibit I, no adjustment will be made. If the
average actual percentage of customer warranty returns
attributable to workmanship for a year is greater than the
average actual percentage of customer warranty returns
attributable to workmanship for the customer warranty return
history for the highest year as set forth in Exhibit I, MEG
will credit SCC with the computed portion of actual cost
incurred by SCC for this difference subject to limits set
forth in 5.5 above.
5.7 Epidemic Failure
Epidemic failure is defined as occurring when the
failure rate of a Product from a single cause during a
period one (1) year from the date of manufacture exceeds six
percent (6%). SCC will promptly notify MEG of such
occurrence. If it is determined that epidemic failure was
caused by MEG or that MEG knew or reasonably should have
known of the existence of the conditions causing the
epidemic failure, MEG and SCC shall immediately commence
discussion of the steps to be taken by MEG to remedy the
problem. After the remedy is agreed upon, MEG will
diligently pursue incorporating the modification remedying
the defect. MEG, at its option, will either replace the
Product at its expense, authorize the return of the Product
for repair at its expense, or supply SCC without charge all
necessary Raw Materials necessary to correct the problem and
reimburse SCC for reasonable repair labor, but will not be
held responsible for consequential damages arising from such
defects.
5.8 Warranty
MEG warrants to SCC that items assembled or
manufactured by MEG, or its subcontractors will conform to
the Manufacturing Specifications and the Quality Standards
and be free from defects in workmanship upon shipment from
MEG's factory. MEG's obligation under this warranty is
limited to replacing or repairing at its option, without
charge, any of said items which shall within one (1) year
after shipment be returned to MEG's factory, transportation
charges prepaid, and which shall after examination be
disclosed to MEG's satisfaction to be thus defective.
Components and other Raw Material (other than those supplied
by SCC) shall be warranted on a pass-through basis from the
component/raw material supplier to SCC.
5.9 Warranty Limitation
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES
WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR
PURPOSE AND FOR ALL OTHER OBLIGATIONS OR LIABILITIES ON
MEG's PART. MEG NEITHER ASSUMES NOR AUTHORIZES ANY OTHER
PERSON TO ASSUME FOR MEG ANY OTHER LIABILITY IN CONNECTION
WITH THE SALE OF THE SAID ITEMS. THIS WARRANTY SHALL NOT
APPLY TO ANY OF SUCH PRODUCTS WHICH SHALL HAVE BEEN REPAIRED
OR ALTERED EXCEPT BY MEG OR WHICH SHALL HAVE BEEN SUBJECT TO
MISUSE, NEGLIGENCE OR ACCIDENT. MEG IS NOT LIABLE FOR
INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGE OF ANY KIND OR
FOR PERSONAL INJURY RESULTING DIRECTLY OR INDIRECTLY FROM
THE DESIGN, MATERIAL, OPERATION OR INSTALLATION OF THE ITEMS
BEING ASSEMBLED UNDER THIS AGREEMENT.
SECTION 6.0 - ENGINEERING
6.1 Engineering Changes Proposed by SCC
SCC may, during the term of this Agreement, request
changes in the specification of the Products by delivering
to MEG an Engineering Change Request (hereafter "ECR"),
describing the changes and the proposed effective date of
such changes. MEG will respond in writing, with such
response to include cost and delivery impact to affected
Product, and whether implementation will result in excess
parts and/or obsolete inventory or will require MEG to
terminate certain supply agreements with its third party
suppliers. Such response will be made by MEG to SCC within
five (5) working days. MEG will not be obligated to proceed
with the change until mutual agreement has been reached,
reduced to writing, signed by both parties and an
Engineering Change Notice (hereafter "ECN") is issued by
SCC. If SCC issues any such ECN, then within thirty (30)
days after the date of MEG's written request to SCC, SCC
will (a) pay MEG at actual cost for resulting excess and/or
obsolete inventory which the parties agree cannot be used by
MEG in other products or resold by MEG at its cost or
better, and (b) reimburse MEG for purchase order
cancellation charges which MEG cannot avoid using reasonable
commercial efforts. However, no SCC payment under clause
(a) or (b) is required for Advanced Material Purchases
unless such purchases were previously approved in writing by
SCC. The amounts to be reimbursed by SCC for cancellation
charges must be reasonable taking into consideration
component lead-time and assembly schedules. MEG will use
commercially reasonable efforts to minimize the amount of
SCC liability for compensation to be paid to MEG by SCC
under this Section.
6.2 Engineering Changes Proposed by MEG
MEG shall notify SCC of any proposed change and the
expected effect on the Product function and price with an
Engineering Change Request. SCC will process such ECRs in a
timely manner. If SCC agrees to the change, SCC will issue
an ECN as noted in Section 6.1. If SCC does not agree with
the change, the parties will work together to resolve the
disagreement. MEG will make no changes to the Product
without the expressed written consent of SCC, however MEG
may stop production of the affected Product prior to SCC
approving such requested change if in the opinion of MEG the
change is necessary to eliminate a defect in the Product as
defined in paragraphs 5.1, 5.2, and 5.4 of this agreement.
6.3 Test Program Approval
Any test programs which MEG develops, produces, or
procures shall be reviewed and approved by SCC for use by
MEG on the Products. This approval shall occur prior to
production use.
6.4 Raw Material Availability
If a Raw Material is not available from the approved
supplier, MEG shall immediately notify SCC of this
condition. MEG shall be relieved from its obligations to
produce affected Product until such time as SCC provides
approval of replacement or substitute Raw Material. SCC
approval shall be indicated by delivering an Engineering
Change Request and pricing pursuant to paragraph 6.1.
SECTION 7.0 - TERMINATION
7.1 - Conditions of Termination
This Agreement may only be terminated: (a) at any
time upon the mutual written agreement of both parties; (b)
by either party at any time upon failure of the other party
to perform any material obligation and to commence a cure of
such failure within five (5) days after receipt of written
notice from the non-defaulting party of each failure and
thereafter pursue efforts to cure diligently; or (c) the
entry of an Order of Bankruptcy Court of competent
jurisdiction rejecting this agreement.
7.2.1 Effect of Termination, SCC Obligations
SCC shall be liable, in the event of termination
except for termination by SCC because of failure of MEG to
perform as set forth in Section 7.1(b) or for termination at
the end of the term or renewal term as set forth in Sections
1.1 and 1.2 of this Agreement for:
a. Payment for all Products delivered to SCC, and in
transit, plus finished Products in inventory prior to, and
including, the effective date of termination at the pricing
applicable to the Product.
b. Payment for all "Work in Process" based upon
percentage of completion multiplied by the unit price of the
Product as listed in the Price Model, including Products
which were in process prior to receipt of notice of
cancellation and that could not be completed prior to the
date of termination. SCC may request MEG to complete and
deliver all Product including Work in Process.
c. Payment for the cost plus five percent (5%) ▇▇▇▇ up
of Raw Materials in house and those on order which cannot be
canceled and are related to the manufacture of the Products,
that fall within the sixteen (16) week period from receipt
of written notification, as well as any approved Advanced
Material Purchases made per Section 3.5.
d. Payment for any restocking charges, ▇▇▇▇-backs and
cancellation charges charged to MEG by suppliers of
components ordered for the manufacture of Products.
e. Payment to MEG of any additional charges borne by
MEG arising from such termination in an amount to be
negotiated by the parties in good faith within fifteen (15)
days after the effective date of cancellation which will
include but not be limited to all severance costs required
by Mexican law to be paid to any and all MEG employees
subject to any reduction in labor force caused by
termination of this Agreement.
7.2.2 Effect of Termination, MEG Obligations
Except as provided for otherwise in this section,
MEG shall upon termination of this Agreement, return all SCC
property, including, but not limited to tools, gages, jigs,
and fixtures, equipment, documentation and instructions
necessary to the manufacture and testing of SCC Product.
SCC has the right to purchase any Raw Material, or Work in
Process ("Work in Process") specific to the Product at
actual cost.
7.3 Right of Manufacture
In the event that SCC files a petition under Chapter 7
or Chapter 11 of the US Bankruptcy Code where (a) this
Agreement is not assumed without modification; (b) a
liquidation plan is filed that involves the dissolution of
that portion of SCC's business related to the Products; or
(c) the Bankruptcy Trustee or SCC rejects this Agreement,
MEG is hereby granted the right to use any licensed tools,
jigs, gages, fixtures and equipment, the proprietary
Specifications and all other available SCC manufacturing
documents related to the Products and all other
manufacturing level documents relating to the production of
the Products together with all other documents and
intellectual property above the manufacturing level as may
be necessary to modify or correct the manufacturing process,
including without limitation software and the source codes
therein, which SCC owns or is otherwise authorized to
license to third parties to produce the Product for the sole
purpose of exhausting the Product specific components then
in MEG's inventory and selling such Products until MEG has
recouped the documented supplier invoice cost for such
inventory, any actual out-of-pocket expenses attributable to
cancellation charges paid for terminating Product specific
supply contracts and all undisputed amounts outstanding
invoiced by MEG to SCC for Product delivered to SCC prior to
such filing. SCC also hereby grants to MEG the right to use
any customer lists relating to sale of the Product for the
purposes described above. Such use and sales rights shall
be granted to MEG under a nonexclusive paid-up royalty-free
license (except for any royalties payable to third parties
which shall be paid by MEG) which shall, among other things,
prohibit disclosure or transfer of whatsoever nature or kind
of documentation to third parties, reserve all ownership
rights in the documentation to SCC and provide for
termination upon MEG's recoupment of the aforementioned
expenses and receivables, which amount shall be calculated,
agreed upon and plainly stated in such license. MEG
specifically agrees that it shall not use, display or
otherwise publish the trademark or trademarks of SCC or its
affiliates in any other circumstance or for any other
purpose. During the term of this Agreement and renewal
thereof, the aforementioned documentation and specifications
shall, at the option and expense of MEG, be deposited with
an escrow agent with SCC having no right to seek the return
thereof from the escrow agent until the earlier of the
expiration of this Agreement or the recoupment by MEG of its
costs, expenses and damages. Upon filing a Chapter 7
petition in bankruptcy by SCC, or if in a Chapter 11
proceeding a liquidating plan of reorganization is filed by
SCC or a Trustee of SCC rejects this Agreement, upon written
notice of any such occurrence by MEG to the escrow agent and
SCC, delivery of such documentation and specifications shall
be immediately made to MEG. MEG shall maintain the right to
use all licensed tooling and equipment as defined in
paragraph 9.3 without cost or charge by SCC with a purpose
of exercising its right to manufacture set forth above. On
recovery of all costs and damages allowable under this
Agreement said licensed property will be returned to SCC's
dominion and control at SCC's sole cost and expense. The
obligations contained in this paragraph shall be binding
upon SCC regardless of the rejection of this Agreement in
the context of a pending bankruptcy proceeding.
SECTION 8.0 - INDEMNIFICATION
8.1.1 Product Indemnification SCC
SCC agrees that it will fully indemnify MEG
against any and all claims, liabilities, damages, or causes
of action hereafter brought or asserted by any person or
entity arising out of the design, installation or use of any
Product(s) manufactured by MEG under this Agreement unless
such claim, liabilities, damages, or cause of action is a
result of MEG's failure to properly manufacture such
Product(s) per this Agreement. Such indemnification shall
include reasonable attorney's fees and all other costs
incurred by MEG in the defense of such claims, asserted
liabilities or causes of action.
8.1.2 Product Indemnification MEG
MEG agrees that it will fully indemnify SCC
against any and all claims, liabilities, damages, or causes
of action hereafter brought or asserted by any person or
entity arising out of defects in workmanship on any Product
manufactured by MEG under this Agreement, such claim,
liabilities, damages, or cause of action being a result of
MEG's failure to properly manufacture such Product(s) per
this Agreement. Such indemnification shall include
reasonable attorney's fees and all other costs incurred by
SCC in the defense of such claims, asserted liabilities or
causes of action.
8.2 Patents, Copyright, Trade Secret and Other Proprietary
Rights
SCC agrees to defend at its expense any suit brought
against MEG based upon a claim that Product(s) manufactured
by MEG under this Agreement infringe a patent, copyright,
trade secret and/or other proprietary right, foreign or
domestic, and to pay the amount of any settlement or the
costs and damages finally awarded, provided that MEG
promptly notifies SCC and provides SCC with reasonable
assistance in the defense of any such action.
8.3 Inventory Indemnification
The parties recognize that this Agreement may require
MEG to purchase materials unique to the production and
manufacture of the Product which constitute minimum
purchases, reel or package size differentials, non-
cancelable and non-returnable items for the Products. In
the event of a schedule decrease or discontinuance of a
Product, in order to provide assurance that MEG will
recover all of its investment should such a
change in the Master Schedule occur, then within thirty (30)
days after the date of MEG's written request to SCC
identifying such an event, SCC will (a) pay MEG at actual
cost for inventory which the parties agree cannot be used
by MEG in other products or resold by MEG at its cost or
better, and (b) reimburse MEG for purchase order
cancellation charges which MEG cannot avoid using reasonable
commercial efforts. However, no SCC payment under clause
(a) or (b) is required for Advance Material Purchases unless
previously approved in writing by SCC. The amounts to be
reimbursed by SCC for cancellation charges must be
reasonable taking into consideration component lead-time and
assembly schedules. MEG will use commercially reasonable
efforts to minimize the amount of SCC liability for
compensation to be paid to MEG by SCC under this section.
8.4 Process Indemnification
If a claim is made that the manufacture of Product or
use of any other proprietary right or use of any
manufacturing process prescribed by SCC to MEG hereunder
infringes any patent, copyright, or trade secret, and MEG is
in compliance with all Specifications issued by SCC, SCC
shall either procure a license for MEG to use such
intellectual property, redesign the specifications and
processes so that they are non-infringing, or defend against
such claim and indemnify and hold harmless MEG from damages
resulting from such claim. SCC shall have sole control of
any defense, settlement or compromise of such claim and MEG
shall provide all necessary assistance to SCC for that
purpose.
8.5 No Express or Implied License
Nothing in this Agreement will be construed as
granting to MEG or conferring on MEG any rights by license
or otherwise to SCC's patents, trademarks, copyrights or
other proprietary or confidential rights except as
specifically set forth in this Agreement or other written
agreements between the parties hereto.
SECTION 9.0 - CONFIDENTIAL AND PROPRIETARY INFORMATION
The parties acknowledge that in the course of
performance of these obligations under this Agreement, each
party may obtain certain confidential and proprietary
information of the other party, including without limitation
information concerning copyrighted works, patented or patent
pending investigations or developments, and general
information regarding such party's financial, business and
marketing procedures. The parties hereby mutually agree
that all such information communicated to it by the other
party in written form, or in oral form if reduced to writing
within 10 days, will be held in strict confidence and not
disclosed to any third parties, and each party will use all
reasonable efforts to protect against the unauthorized use
and disclosure of the confidential information of the other
party, provided that each party may disclose each others
confidential information to their respective responsible
employees, but only to the extent necessary to carry out the
purposes for which the confidential information was
disclosed, and each party agrees to instruct all such
employees not to disclose such confidential information to
third parties, including consultants, without the prior
written permission of the party disclosing such confidential
information. Each party further agrees not to use or allow
the use of any confidential information of the other party
disclosed to it except in accordance with the purpose of
this Agreement. The provisions of this section will not
extend to confidential information that is already known to
the receiving party at the time that it is disclosed to the
receiving party and which knowledge is not wrongfully
obtained, or which, before being divulged by the receiving
party, (a) has become publicly known through no wrongful act
of the receiving party, (b) had been rightfully received
from a third party without restriction on disclosure and
without a breach of the Agreement, (c) has been
independently developed by the receiving party, (d) has been
approved for release by written authorization of the
disclosing party, or (e) has been or must be disclosed by
reason of legal, accounting or regulatory requirements
beyond the reasonable control of the receiving party or the
disclosing party.
SECTION 10.0 - LICENSED PROPERTY
10.1 License to use Tooling
SCC shall deliver all tools, gages, jigs, fixtures
and equipment, the proprietary specifications and all other
available SCC manufacturing documents related to the Product
and all other manufacturing level documents relating to the
production of the Product to MEG, required to manufacture
the Products contemporaneously with the Effective Date as
set forth in Exhibit H attached hereto (the "Licensed
Property"). SCC hereby grants MEG a license (the "License")
to use the Licensed Property and all other documents and
intellectual property which SCC owns or is otherwise
authorized to license to third parties, as may be necessary
to manufacture the Products pursuant to the terms of this
Agreement. The License will terminate upon expiration or
termination of this Agreement, provided that nothing
contained in this paragraph shall modify, condition, limit,
or diminish MEG's rights as granted in paragraph 7.3 herein.
10.2 Maintenance and Repair of SCC Licensed Tooling
MEG will perform all routine tooling maintenance
and repair at no cost to SCC, such cost being included in
overhead rates in the Pricing Model. All other tooling
maintenance, repair, or alteration performed by MEG shall be
paid by SCC. MEG will obtain approval from SCC and SCC
reserves the right to make alternate arrangements for such
maintenance, repair, or alteration. MEG will submit and SCC
will approve a Tool Maintenance Schedule (the "Tool
Maintenance Schedule") as set forth in Exhibit G attached
hereto.
10.3 Capability and Capacity
SCC warrants that the Licensed Property together
with other assets purchased by MEG are sufficient in both
quantity and capability for the manufacturing of the
Products. SCC shall remain responsible during the term of
this Agreement to provide all tooling and fixtures necessary
for the manufacturing of the Products. In the event SCC
wishes MEG to manufacture new or additional Products, it
shall be responsible for providing tooling and fixtures
sufficiently in advance of the Product introduction date to
permit MEG to manufacture and deliver Product in conformity
with the lead-time requirements of this Agreement. Failure
of SCC to provide such tooling, gages, jigs, and fixtures
shall relieve MEG of its obligation to meet the Product
delivery schedule as set forth herein.
10.4 Notification
MEG shall notify SCC of any tooling approaching end
of life at least ninety (90) days before it believes the end
of life will occur.
10.5 MEG Produced or Modified Tooling and Fixtures
SCC may from time to time contract with MEG to
produce new tooling or fixtures or modify existing tooling
or fixtures as needed to manufacture the Products.
10.6 Property of SCC
All Licensed Property shall remain the property of
SCC. SCC shall be obligated to dispose of such items and
replace the same in the ordinary course of business. SCC
shall retain the risk of loss on said items and shall at all
times maintain an insurable interest therein. MEG shall
have no obligation to insure said items against loss or
damage.
10.7 Risk of Loss
SCC acknowledges as owner of the Licensed Property
that the risk of loss for said Licensed Property remains
solely with SCC. SCC also acknowledges that in the event of
loss or damage to the Licensed Property MEG may be precluded
from meeting the production schedule set forth in this
Agreement. SCC shall pursuant to the provisions of
paragraph 11.10 "Disaster Plan" make provisions which in its
sole discretion deems adequate to provide for the
replacement of Licensed Property and other proprietary
materials in the event of loss or damage.
SECTION 11.0 - MISCELLANEOUS
11.1 Entire Agreement
This Agreement and the exhibits enclosed shall
constitute the entire Agreement between the parties with
respect to the transactions contemplated hereby and
supersedes all prior agreements and understanding between
the parties relating to such transactions.
11.2 Order of Precedence
SCC and MEG shall comply with all terms and
conditions stated in the Agreement and in SCC's purchase
orders issued hereunder, including the specifications
contained therein. In the event of inconsistency, the order
of precedence shall be as follows:
(1) This Agreement
(2) The face of any purchase order issued by SCC
11.3 Amendment
No amendment, modification, termination, extension,
or renewal of any provisions of this Agreement shall be
binding upon either party unless made in writing and signed
by an authorized officer of each of the parties.
11.4 Severability
In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, except in
those instances where removal or elimination of such
invalid, illegal, or unenforceable provision or provisions
would result in a failure of consideration under this
Agreement, such invalidity, illegality or enforceability
shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
11.6 Headings and References
The headings and captions used in this Agreement
are used for convenience only and are not to be considered
in construing or interpreting this Agreement. All reference
in this Agreement to Sections, Paragraphs, and Exhibits
will, unless otherwise provided, refer to Sections and
Paragraphs hereof and Exhibits attached hereto, all of which
are incorporated herein by this reference.
11.7 Assignment
This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors
and permitted assigns. Neither party hereto shall in any
way sell, transfer, assign, or otherwise dispose of any of
the rights, privileges, duties and obligations granted or
imposed upon it under this Agreement; provided however, that
MEG shall have the right, with the prior consent of SCC,
which will not be unreasonably withheld, to assign its
right, duties and responsibilities under this Agreement to
any affiliate of MEG. Any assignment by MEG of its rights,
duties and responsibilities under this Agreement shall not
relieve MEG of such rights, duties, and responsibilities and
MEG shall guarantee performance by its affiliates of any
obligations hereunder.
11.8 Force Majeure
Neither party shall be liable for any delay in
performance or failure to perform, in whole or in part any
obligation under this Agreement, or for the delay in such
performance, to the extent that such failure to perform is
caused by circumstances beyond its reasonable control,
including but not limited to, labor dispute, strike, war or
act of war (whether an actual declaration is made or not),
insurrection, riot, civil commotion, act of public enemy,
accident, fire, flood, or any other act of God, act of any
governmental authority, judicial action, or similar causes,
provided the party who cannot perform or is delayed has used
its best efforts to procure performance or to overcome the
obstacles preventing performance. If an event of force
majeure occurs, the party experiencing the force majeure
shall promptly notify the other in writing.
11.9 Governing Law
This Agreement will be governed by and construed in
accordance with the laws of the State of New York. The
federal or state courts located in the State of New York
will have exclusive jurisdiction to hear any dispute under
this Agreement.
11.10 Disaster Plan
Each party shall procure and maintain in force
throughout the term of this Agreement and any renewal
thereof for its own benefit, (i) a commercial general
liability insurance policy and (ii) a property insurance
policy covering such party and its property in connection
with its activities hereunder. In the event the Facility is
damaged to the extent that MEG cannot perform its
obligations hereunder, MEG and SCC shall use their
respective best efforts to repair the Facility, replace
Licensed Property, or proprietary equipment, or processes as
soon as practicable, and until the Facility is so repaired
MEG shall transfer production activities to another MEG
facility pursuant to a Disaster Plan which would be
reasonably acceptable to SCC.
11.11 Relationship of the Parties
The parties relationship during the term of this
Agreement and under any purchase orders placed hereunder
will be that of independent contractors. Neither party has,
and will not represent that it has, any power, right or
authority to bind or to incur any charges or expenses on
behalf of the other party or in the other party's name
without the written consent of the other party.
11.12 Waiver
No waiver of any provision of this Agreement
shall be effective except by written agreement signed by
both parties. The failure by any party at any time to
require performance of the other party of any provision of
this Agreement will in no way affect the right of such party
thereafter to enforce the same provision, nor will the
waiver by any party of any breach of any provision hereof be
taken or held to be a waiver of the provision itself.
11.13 Notices and Consents
All notices and other communications required or
permitted under this Agreement will be in writing and will
be deemed given (i) when delivered personally, (ii) when
sent by confirmed telex or facsimile transmission, or (iii)
one (1) day after having been sent by commercial or
overnight courier with written verification of receipt. All
communications will be sent to the receiving party's address
as follows:
MEG's address/fax for notice - with a copy to -
MATCO Electronics Group, Inc. MATCO Electronics Group, Inc.
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Sr. Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇ Fax (▇▇▇) ▇▇▇-▇▇▇▇
SCC's address/fax for notice - with a copy to -
▇▇▇▇▇ ▇▇▇▇▇▇ Corporation ▇▇▇▇▇ Corona Corporation
Attn.: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇ Fax (▇▇▇) ▇▇▇-▇▇▇▇
MEG or SCC may change the address or facsimile number to
which such communications are to be directed by giving
written notice to the other in the manner provided for in
this Agreement.
11.14 Attorney's Fees
If any action of law or equity is necessary to
enforce or interpret the terms of this Agreement, the
prevailing party will be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
11.15 Counterparts
This Agreement may be executed in two or more
counterparts, all of which together shall constitute one and
the same instrument.
11.16 Compliance with Laws
If either party violates any law, rule, or
ordinance of any national government or other political
subdivision with applicable jurisdiction including but not
limited to the United States, any state, or any other
governmental agency in the performance of this Agreement,
they will indemnify and hold the other party harmless for
any loss, cost, or expense resulting from such violation.
11.17 Gratuities
Each Party represents that is has not offered or
given and will not offer to give any employee, agent, or
representative of the other party any gratuity with a view
toward securing any business from such other party or
influencing such person with respect to the transaction of
business between the parties.
11.18 Finders or Brokers
The parties hereby state that no finders,
brokers or similar third parties have been used in
connection with this Agreement or renegotiations or other
discussions culminating in this Agreement. Each party
agrees to indemnify and hold the other harmless from any and
all claims asserted by any finder or broker purported to be
based on a relationship with a party hereto.
11.19 Limitation of Liability
In no event shall either party be liable to the
other for indirect, special or consequential damages or loss
of profits, arising out of or related to this Agreement, or
performance of breach thereof, (unless specified herein)
even if such party has been advised of the possibility of
such damages.
IN WITNESS THEREOF, the parties have duly executed this
Agreement on the date first
above written.
▇▇▇▇▇ ▇▇▇▇▇▇ CORPORATION MATCO ELECTRONICS GROUP, INC.
By: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer Title: Treasurer & CFO
Date: November 24, 1997 Date: November 24, 1997
EXHIBIT A: THE PRODUCT
EXHIBIT E: THE PRICING MODEL
[*******]. The Product and the Pricing Model have been
omitted due to their confidential nature and filed
separately with the Securites and Exchange Commission with a
request for confidential treatment pursuant to Rule 24b-2.
EXHIBIT B: THE MANUFACTURING SPECIFICATIONS
B.1 Engineering Specifications
Both MEG and SCC are in possession of identical
copies of the documents referenced below in this paragraph
as of the Effective Date. These documents have been
distributed as controlled documents under procedures
established prior to the Effective Date, which were designed
to insure that identical sets of these documents be
maintained in both the Tijuana, MX, and Cortland, NY,
locations. Engineering Specifications are written documents
including all engineering drawings, source approvals,
project releases, engineering change notices, safety agency
licenses (UL, ETL, CSA, TUV), as well as the configuration
control established by these documents to meet
electromagnetic emission specifications (FCC, TUV RF, DOC).
Revisions to these documents may be made from time to time
upon mutual written agreement by MEG and SCC utilizing the
same control document procedures as were utilized prior to
the Effective Date.
B.2 Fabrication an Assembly Routines
Complete identical sets of Fabrication and Assembly
Routines documenting the current processing specifications
and work instructions for all Products as of the Effective
Date will be printed and distributed to Tijuana, MX, and
Cortland, NY, locations. Revisions to these documents may
be made from time to time utilizing controlled document
distribution.
B.3 Pending Engineering Changes
Both MEG and SCC are in possession of identical printed
copies of the computer report provided by SCC and referenced
below, dated as of the Effective Date, and hereby
incorporated by reference into this Exhibit B. The subject
report lists changes approved and planned for future
implementation, but not yet implemented as of the Effective
Date and will indicate items with manufacturing
specifications currently under review and subject to change
in the future.
#4519-A & #4519-B WEEKLY PENDING CHANGE MASTER LIST
(A final computer report will be printed by SCC MIS as of
the Effective Date will be sent to ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇.)
EXHIBIT C: THE QUALITY STANDARDS
Both MEG and SCC are in possession of identical copies of
the control documents provided by SCC and referenced below,
as of the Effective Date, and hereby incorporated by
reference into this Exhibit C. Revisions to these documents
may be made from time to time upon mutual written agreement
by MEG and SCC.
QUALITY POLICY & PROCEDURE MANUAL - 11/03/97
DEFECT CLASSIFICATION MANUAL - 05/12/92
EXHIBIT D: THE APPROVED SUPPLIERS
Both MEG and SCC are in possession of identical copies of
the personal computer diskette provided by SCC with a
creation date of 10/20/97 01:46 PM. Both parties are
capable of producing a printed report from this diskette,
and have produced a printed copy with a print date of
11/13/97, which is hereby incorporated by reference into
this Exhibit D. The subject diskette contains personal
computer files and includes: Device, SCC Part Number, SCC
Part Description, Approved Supplier, and Approved Supplier's
Part Number. Additional suppliers and additional items may
be added at any time upon written approval by SCC
Engineering. Revisions to this diskette may be made and
issued on diskette from time to time by SCC Engineering.
SCC Approved Suppliers - Revision 2 (COMPON2)
EXHIBIT F: THE MASTER SCHEDULE
[*******]. The Master Schedule has been omitted due to its
confidential nature and filed separately with the Securities
and Exchange Commission with a request for confidential
treatment pursuant to Rule 24b-2.
EXHIBIT G: THE TOOL MAINTENANCE SCHEDULE
Tool No Part No Description Est ToolLife Vendor Est Cost Est Cmpl
771939 [*******] New Tool ▇▇▇▇▇ ▇▇▇▇▇▇ [*******] 11/28/97
Tooling Group
72614-01 953022 [*******] [*******] Mold Tech.
69641-00 771821 [*******] [*******] [*******]
69636-00 771818 [*******] [*******] [*******]
[*******]
69636-01 771818 [*******] [*******] [*******]
[*******]
69636-02 771818 [*******] [*******] [*******]
[*******]
68601-03 773552 [*******] [*******] [*******]
60921-00 712751 [*******] [*******]
[*******]
72619-00 953070 [*******]
67046-00 745560 [*******] [*******]
[*******]
67046-01 745560 [*******] [*******]
[*******]
67046-04 745560 [*******] [*******]
[*******]
T-52099-00 778345 [*******] [*******] [*******]
T-52099-01 778345 [*******] [*******] [*******]
T-52098-00 778344 [*******] [*******] [*******]
T-52098-01 778344 [*******] [*******] [*******]
T-52096-01 778816 [*******] [*******] [*******]
[*******]
T-70187-01 778810 [*******] [*******] [*******]
[*******]
T-70186-01 778811 [*******] [*******] [*******]
[*******]
T-52096-01 778816 [*******] [*******] [*******]
[*******]
T-70187-01 778810 [*******] [*******] [*******]
[*******]
T-70186-01 778811 [*******] [*******] [*******]
[*******]
745061 [*******] [*******] A-1 engr [*******]
[*******]
745070 [*******] [*******] A-1 engr [*******]
[*******]
745071 [*******] [*******] A-1 engr [*******]
[*******]
745107 [*******] [*******] A-1 engr [*******]
[*******]
745121 [*******] [*******] A-1 engr [*******]
[*******]
745122 [*******] [*******] A-1 engr [*******]
[*******]
EXHIBIT H: THE LICENSED PROPERTY
Both MEG and SCC are in possession of identical printed
copies of the computer report provided by SCC and referenced
below, dated 11/12/97 at 2:32 PM, and hereby incorporated by
reference into this Exhibit H. SCC is unable to provide any
listing except hard tooling and acknowledges that Exhibit H
is incomplete. Not included are all the jigs, fixtures,
inspection equipment and special tools which are used to
support the manufacture of current typewriters, accessories
and headsets set forth in Exhibit A and ▇.
▇▇▇▇▇ ▇▇▇▇▇▇ Corporation
MEXICO TOOLS (510) - NBV
EXHIBIT I: THE WARRANTY RETURN HISTORY
PRODUCT RETURNS FY'91 - FY 98
US SALES vs. US RETURNS (ONE YEAR OFFSET)
WORK-
TOTAL ▇▇▇▇▇▇▇
US US RETURN DEFECT DEFECT
YEAR PRODUCT SALES RETURNS RATE RATE RATE
FY91 TW [**] [**]
PWP [**] [**]
TOTAL [**] [**]
FY92 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY93 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY94 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY95 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY96 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY97 TW [**] [**] [**] [**] [**]
PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
FY98 TW [**] [**] [**] [**] [**]
EST TO
Y/E PWP [**] [**] [**] [**] [**]
TOTAL [**] [**] [**] [**] [**]
EXHIBIT J: THE ADVANCED MATERIAL PURCHASES
WITH BLANKET APPROVALS BY COMMODITY
Pursuant to section 3.5.1 "Advanced Material Purchases - Raw
Material Lead-times," following is a list of Raw Materials
which SCC, as of the Effective Date, has given blanket
approval for Advance Material Purchases for the period
specified. Leadtime refers to planning leadtime which is
the buyer's stated leadtime plus ten (10) days for
planning/purchase order processing.
Descending Lead Time Sequence: Part
Number Sequnce:
PN Description LT PN Description LT
796254 Screw [**] 200100 IC [**]
790008 Screw [**] 701091 Screw [**]
782219 Screw [**] 713930 Nut [**]
781910 Screw [**] 753580 Shaft [**]
780424 Screw [**] 760819 Data Disk [**]
778807 Screw [**] 770173 Motor [**]
777240 Screw [**] 770183 Motor [**]
771789 Screw [**] 770297 Screw [**]
770672 Screw [**] 770492 Plunger [**]
770297 Screw [**] 770672 Screw [**]
713930 Nut [**] 771789 Screw [**]
701091 Screw [**] 774860 Motor [**]
770492 Plunger [**] 774861 Motor [**]
089100 Spec Shape Stl [**] 774871 Motor [**]
200100 IC [**] 774873 Motor [**]
782900 IC [**] 777240 Screw [**]
084191 Screw rod [**] 778807 Screw [**]
072530 Steel, zinc
coated [**] 780424 Screw [**]
072604 Steel, zinc
coated [**] 781910 Screw [**]
072510 Steel, zinc
coated [**] 782219 Screw [**]
072342 Steel, zinc
coated [**] 782900 IC [**]
095957 PC/ABS [**] 790008 Screw [**]
095956 PC/ABS [**] 796254 Screw [**]
095955 PC/ABS [**] 797157 Motor [**]
095953 PC/ABS [**] 922731 Linecord [**]
095683 Polycarbonate [**] 922762 Linecord [**]
095679 Polycarbonate [**] 922766 Linecord [**]
095081 Clr Polycar-
bonate [**] 922767 Linecord [**]
753580 Shaft [**] 953107 Motor [**]
922767 Linecord [**] 953108 Motor [**]
922766 Linecord [**] 072342 Steel, zinc
coated [**]
922762 Linecord [**] 072510 Steel, zinc
coated [**]
922731 Linecord [**] 072530 Steel, zinc
coated [**]
797157 Motor [**] 072604 Steel, zinc
coated [**]
770173 Motor [**] 083720 Screw rod [**]
770183 Motor [**] 083723 Screw rod [**]
774861 Motor [**] 084191 Screw rod [**]
774871 Motor [**] 089100 Spec Shape
Steel [**]
774873 Motor [**] 095081 Clr Polycar-
bonate [**]
953107 Motor [**] 095679 Polycarbonate [**]
953108 Motor [**] 095683 Polycarbonate [**]
083723 Screw rod [**] 095953 PC/ABS [**]
083720 Screw rod [**] 095955 PC/ABS [**]
774860 Motor [**] 095956 PC/ABS [**]
760819 Data Disk [**] 095957 PC/ABS [**]
EXHIBIT K: THE PREPAID RAW MATERIALS
Both MEG and SCC are in possession of identical copies of
the Prepaid Raw Materials document, as of the Effective
Date, and hereby incorporated by reference into this Exhibit
K.
(A final list of SCC prepaid raw materials updated as of the
Effective Date will be reviewed and agreed to on the
Effective Date by ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇.)
EXHIBIT L: THE SUBCONTRACT CUSTOMER ORDERS
[*******]. The Subcontract Customer Orders Schedule has
been omitted due to its confidential nature and filed
separately with the Securities and Exchange Commission with
a request for confidential treatment pursuant to Rule 24b-2.
EXHIBIT M: THE PURCHASE ORDERS FOR RAW MATERIAL
Both MEG and SCC are in possession of identical printed
copies of the computer report referenced below, dated as of
the date this Agreement is made public, and hereby
incorporated by reference into this Exhibit M. The subject
report lists status of all valid SCC purchase orders for Raw
Material as of the Effective Date of this Agreement.
#2603-A PURCHASE ORDER STATUS BY BUYER
(A computer report will be printed by SCC MIS as of the
Announcement Date will be sent to ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇. Another computer report will be printed by SCC MIS
as of the Effective Date will be sent to ▇▇▇▇ ▇▇▇▇▇▇▇▇ and
▇▇▇ ▇▇▇▇▇.)
EXHIBIT N: THE QUALITY ASSURANCE ANNUAL REPORT
Both MEG and SCC are in possession of identical copies of a
report provided by SCC, which SCC represents as actual
quality measurements for the period January through
September of 1997 and referenced below, and hereby
incorporated by reference into this Exhibit ▇.
▇▇▇▇▇ ▇▇▇▇▇▇
QUALITY ASSURANCE ANNUAL REPORT
EXHIBIT O: ACCEPTANCE SAMPLING PLANS
TYPEWRITERS MIL STD 105D INSP PLAN "0" ACCEPTANCE INSP PLAN
[**]% AQL
# OF UNITS SAMPLE #DEFECTS #DEFECTS SAMPLE #DEFECTS #DEFECTS
IN LOT SIZE ACCEPT REJECT SIZE ACCEPT REJECT
RECEIVED # UNITS # UNITS (c=0) (c=1)
TO BE TO BE
INSPECTED INSPECTED
< 150 [**] [**] [**] [**] [**] [**]
151 - 280 [**] [**] [**] [**] [**] [**]
281 - 500 [**] [**] [**] [**] [**] [**]
501 - 1200 [**] [**] [**] [**] [**] [**]
1201 - 3000 [**] [**] [**] [**] [**] [**]
3001 > [**] [**] [**] [**] [**] [**]
ACCESSORIES MIL STD 105D INSP PLAN "0" ACCEPTANCE INSP PLAN
[**]% AQL
# OF UNITS SAMPLE #DEFECTS #DEFECTS SAMPLE #DEFECTS #DEFECTS
IN LOT SIZE ACCEPT REJECT SIZE ACCEPT REJECT
RECEIVED # UNITS # UNITS (c=0) (c=1)
TO BE TO BE
INSPECTED INSPECTED
< 3200 [**] [**] [**] [**] [**] [**]
3201 - 10000 [**] [**] [**] [**] [**] [**]
10001 - 35000 [**] [**] [**] [**] [**] [**]
35001 - 150000 [**] [**] [**] [**] [**] [**]
150000 > [**] [**] [**] [**] [**] [**]
HEADSETS MIL STD 105D INSP PLAN "0" ACCEPTANCE INSP PLAN
[**]% AQL
UNTIL 1-5-98# OF UNITS SAMPLE # DEFECTS # DEFECTS SAMPLE # DEFECTS # DEFECTS
THEN [**]% AQL IN LOT SIZE ACCEPT REJECT SIZE ACCEPT REJECT
RECEIVED # UNITS # UNITS (c=0) (c=1)
TO BE TO BE
INSPECTED INSPECTED
< 150 [**] [**] [**] [**] [**] [**]
151 - 280 [**] [**] [**] [**] [**] [**]
281 - 500 [**] [**] [**] [**] [**] [**]
501 - 1200 [**] [**] [**] [**] [**] [**]
1201 > [**] [**] [**] [**] [**] [**]
HEADSETS MIL STD 105D INSP PLAN "0" ACCEPTANCE INSP PLAN
[**]% AQL
# OF UNITS SAMPLE # DEFECTS #DEFECTS SAMPLE # DEFECTS # DEFECTS
IN LOT SIZE ACCEPT REJECT SIZE ACCEPT REJECT
RECEIVED # UNITS # UNITS (c=0) (c=1)
TO BE TO BE
INSPECTED INSPECTED
< 150 [**] [**] [**] [**] [**] [**]
151 - 280 [**] [**] [**] [**] [**] [**]
281 - 500 [**] [**] [**] [**] [**] [**]
501 - 1200 [**] [**] [**] [**] [**] [**]
1201 > [**] [**] [**] [**] [**] [**]