EXHIBIT 10.17
MANUFACTURING AGREEMENT
MANUFACTURING AGREEMENT ("Agreement") made as of this 22nd day of
September, 1997 by and between Toymax International, Inc., a Delaware
corporation (the "Toymax International"), as successor to Toymax (H.K.) Limited,
a private limited company organized under the laws of Hong Kong ("Toymax HK"),
Toymax Inc., a New York corporation ("Toymax US"), Toymax (Bermuda) Limited, an
exempted company organized under the laws of Bermuda ("Toymax Bermuda"), Tai Nam
Industrial Company Limited, a private limited company organized under the laws
of Hong Kong ("Tai Nam") and Jauntiway Investment Limited ("Jauntiway")
Throughout this Agreement, Toymax International, Toymax HK, Toymax Bermuda and
Toymax US shall be referred to collectively as the "Company" and all of the
parties hereto shall be referred to collectively as the "Parties."
WHEREAS, Tai Nam serves as the purchasing agent for Toymax US and Toymax
HK pursuant to the Agency Agreements each dated April 1, 1997, as amended (the
"Agency Agreement");
WHEREAS, pursuant to the Agency Agreement, Tai Nam performs certain
services including arranging for the manufacture of the Company's products;
WHEREAS, Jauntiway, an affiliate of Tai Nam, has been and is the principal
manufacturer used by Tai Nam to manufacture the Company's products;
NOW, THEREFORE, in consideration of the following and other good and
valuable consideration received to date, the Parties hereby agree as follows:
ARTICLE 1
MANUFACTURE OF PRODUCT
1.1 Jauntiway shall use its commercially reasonable efforts to
conduct such preparations, validations, testing, and analyses, as shall enable
it to manufacture products for the Company according to the descriptive,
quantitative and qualitative criteria agreed to in writing prior to production
by the Company, Tai Nam and Jauntiway (the "Specifications"). Attached as
Exhibit A is a Quoted Price List specifying the products of the Company which
the Company may order from time to time (the "Product and Price List"). Subject
to the covenants contained in this Agreement, the Product and Price List will be
subject to modification from time to time upon mutual agreement of
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the parties. "Products" shall mean each toy that is described in Exhibit A in
its then current form.
1.2 During the term of this Agreement, Jauntiway shall manufacture
each Product ordered by Tai Nam in accordance with the Specifications.
ARTICLE 2
PURCHASE PRICE
2.1 Within thirty (30) days of shipment by Tai Nam of a Product
to the Company or its designees or customers, the Company shall pay to Tai
Nam the "Purchase Price," which shall be the price set forth on the Product
and Price List, and, if not quoted on such list, as determined by the Parties
in writing prior to the manufacture of such Product; provided, however, that
with respect to Products manufactured by Jauntiway (i) until March 31, 1998,
Tai Nam shall provide the Company with extended payment terms (without
interest or penalty) of up to 120 days if needed by the Company and (ii) from
such date until March 31, 1999, in the event that the Company needs to extend
payment terms beyond 30 days (but not beyond 120 days, unless otherwise
agreed by Tai Nam), Tai Nam shall use its best efforts to accomodate such
needs (without interest or penalties) on such outstanding balances, subject,
however, to a maximum gross outstanding balance of extended receivables from the
Company at any time of US$ 5.0 million. Tai Nam agrees that the pricing shall
take into account raw material costs and Tai Nam agrees to treat the Company
as its most favored customer in connection with setting and adjusting all
pricing.
ARTICLE 3
FORECASTS AND FIRM ORDERS OF PRODUCT; DELIVERY
3.1 Each of the Company and Tai Nam agrees and accepts the minimum
unit forecast ("MUF") established for each of the Products set forth on
Exhibit B attached hereto, which shall set forth the quantity, set forth in
units, of a Product which the Company expects to sell during the period
covered by such MUF, and Jauntiway agrees to be prepared to manufacture and
sell such Products to the Company; provided, however, that no MUF will be
less than 5,000 pieces, provided that in the event that the minimum quantity
of raw materials which can be ordered by Jauntiway is greater than the order
by the Company, Jauntiway will so notify the Company and if the Company then
confirms the order, the Company shall be responsible for the cost of all such
raw materials not used by the earlier of (i) the end of the fiscal year
covered by the MUF or (ii) within thirty days of the Company's notification
to Tai Nam that it will end production of the Product. Notwithstanding
anything herein to the contrary, the Company agrees to purchase from Jauntiway
and Jauntiway agrees to sell to the Company the MUF for each such Product
during the time period set forth in Exhibit B hereto for such Product;
provided, however, regardless of any forecasts, the MUF for such Product
shall not be supplemented or otherwise subject to change without the written
consent of each of the Parties; provided, further, Tai Nam and Jauntiway
agree, without waiver of any rights hereunder if requested by the Company to
negotiate in good faith in order to increase or decrease the MUF for any
particular Product.
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3.2 Products shall be delivered to the Company F.O.B. the ports of
Yien Tiem (PRC) or Hong Kong or as otherwise directed. Tai Nam shall ship the
quantity of Product covered by such order to the location selected by the
Company.
3.3 Upon delivery of a Product in accordance with an order, Tai Nam
shall present the Company with an invoice for the quantity of the Product
covered thereby, in each case at a Purchase Price determined pursuant to the
terms of Article 2.1.
3.4 Payments to Tai Nam shall be made in U.S. Dollars. The
Company shall not be required to provide a letter of credit or other security
to Tai Nam or Jauntiway in connection with this Agreement or any purchase
order.
3.5 Any foreign, federal, state, county, or municipal sales or use
tax, excise or similar charge, or any other tax assessment (other than that
assessed against income) or other charge lawfully assessed or charged by any
governmental agency or authority on the sale, use, or transportation of any
Product delivered to the Company pursuant to this Agreement shall be immediately
paid by the Company at the time of payment of the related invoice for such
Product or when required by applicable law.
ARTICLE 4
CONFIDENTIALITY
4.1 During the term of this Agreement, the Company is willing to
disclose all proprietary know how and other data and information concerning each
and all of the Products ("Confidential Information") to Tai Nam and Jauntiway
and Tai Nam and Jauntiway are willing to disclose Confidential Information to
the Company on the following terms:
(a) The recipient will receive, maintain and hold Confidential
Information in strict confidence and will use the same level of care in
safeguarding it that it uses with its own confidential material of a similar
nature;
(b) The recipient will take all such steps as may be reasonably
necessary to prevent the disclosure of Confidential Information; and
(c) The recipient will not utilize Confidential Information, other
than strictly for meeting its obligations hereunder, without first having
obtained the disclosing party's written consent to such utilization.
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4.2 The commitments set forth in Section 4.1 shall not extend to (i)
any disclosure by Xxxxx Ki Xxxx Xxx in his capacity as Chairman or as a member
of the Board of Directors of Toymax International or any of its subsidiaries if
such disclosure is not in violation of his fiduciary duties to the Company or
any of its subsidiaries or (ii) any portion of Confidential Information:
(a) which is known to the recipient prior to disclosure (except for
non-public information concerning existing Company products or products under
development by or for the Company) or is information generally available to the
public;
(b) which was not acquired, directly or indirectly and/or in any
manner, from the disclosing party and which the recipient lawfully had in its
possession prior to the date of this Agreement;
(c) which, hereafter, through no act or omission on the part of the
recipient, becomes information generally available to the public;
(d) which corresponds in substance to information furnished to the
recipient on a nonconfidential basis by any third party having a legal right to
do so; or
(e) which is required in response to legal process, or to the extent
a Party is advised that such action is required to comply with foreign, federal
or state laws or regulations.
4.3 At any time upon written request by the disclosing party, (i)
the Confidential Information, including any copies, shall be returned to the
disclosing party and (ii) all documents, drawings, sketches, models, molds,
designs, data, memoranda, tapes, records, and any other material whatsoever
developed by the recipient which relates to such Confidential Information,
including all copies and/or any other form of reproduction and/or description
thereof made by the recipient, shall, at the disclosing party's option, be
returned to the disclosing party or destroyed.
Article 5
MANUFACTURING STANDARDS AND QUALITY ASSURANCE
5.1 Prior to any shipment to the Company, Tai Nam shall receive
approval from the Company with respect to such shipment. Prior to any initial
shipment of a Product by Tai Nam, or as otherwise requested by the Company, Tai
Nam and Jauntiway shall provide the Company with samples of such product for
inspection. In addition, Jauntiway and Tai Nam shall have each of the Products
tested
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in accordance with the testing procedures described in the applicable
Specifications and shall provide the Company, at the Company's expense, with a
certificate of compliance from an independent certified testing laboratory
approved by the Company.
5.2 The Company shall provide to Tai Nam written notice of rejection
of any shipment of Products if the subject Products do not meet the
Specifications. In order to permit a timely and accurate investigation by Tai
Nam, the Company shall provide supporting evidence in its possession on which
the Company has based such belief. The failure to provide such written notice
within a reasonable period of time after the Company's actual discovery of
nonconformity with the Specifications with respect to a particular shipment
shall be deemed an irrevocable waiver of the Company's right to reject such
shipment hereunder, except in the case of recall.
5.3 If the Parties disagree with respect to whether a shipment of
Product does not conform to the Specifications (a "Non-Conforming Product";
provided that no Product shall be deemed a Non-Conforming Product unless in
excess of 2.5% of such Product is not in conformity with the Specifications) the
Parties agree that the Product in question shall be submitted for testing to an
independent testing laboratory acceptable to both Parties. The determination of
such independent laboratory as to whether such Product meets and will continue
to meet all Specifications will be binding on both parties with respect to the
Company's right to return the shipment hereunder and refusal to pay the
applicable Purchase Price. The cost related to such testing will be paid by the
party who was in error with respect to whether the Product was a Non-Conforming
Product.
5.4 Within thirty (30) days of a determination that a Product is a
NonConforming Product by (i) the Company or (ii) an independent testing
laboratory as provided above, Tai Nam shall issue a credit to the Company in an
amount equal to the sum of (x) the amount invoiced to and paid by the Company
for the manufacturing and processing of such Non-Conforming Product, unless such
Product is replaced, (y) any applicable freight charges invoiced to and paid by
the Company for the shipment of such Non-Conforming Product, and (z) any
applicable transit, insurance premium, taxes, duties or other similar costs
related to the Non-Conforming Product. If there is any outstanding credit to the
Company upon the termination or expiration of this Agreement, Tai Nam shall
reimburse the Company in the amount of such credit within thirty (30) calendar
days of such termination or expiration.
5.5 The Parties agree that any complaint with respect to Products
will be processed by the Company. Where quantities of a Product returned in
connection with a complaint are sufficient in the Company's view, the Company
will immediately provide a sample of such Product to Tai Nam with notification
of the complaint.
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5.6 The Company shall have the right, at reasonable intervals, and
on reasonable prior notice, to inspect Jauntiway's manufacturing facilities.
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ARTICLE 6
TERMINATION
6.1 This Agreement shall have a term commencing on the date
hereof and ending on the close of business in New York, NY on March 31, 1999.
The Company shall have the right to terminate this Agreement with respect to
a particular Product, upon fifteen (15) days' prior written notice to Tai Nam
and Jauntiway in the event Tai Nam and Jauntiway shall fail to supply the
Company that particular Product within fifteen (15) days' of the requested
supply date set forth in the purchase order for such Product.
6.2 Tai Nam, Jauntiway or the Company may terminate this Agreement
by giving written notice thereof to the other Party in the event that the other
Party shall have breached or defaulted in any material respect in the
performance of an obligation imposed on such other Party hereunder; provided,
that the non-breaching Party shall have notified the breaching Party in writing
of such breach or default, and within thirty (30) calendar days after the date
of such notice, the breaching Party shall not have cured such breach or default.
6.3 If this Agreement is terminated pursuant to the provisions of
this Article 6, Tai Nam, Juantiway and the Company shall be bound by the
following provisions:
(a) Except with respect to Non-Conforming Products, all pending
orders placed by the Company on or before receipt of a notice of termination for
the Products shall be fulfilled by Tai Nam and delivered on the supply dates
requested by the Company, be paid for in accordance with the terms and
provisions hereof and with respect to quality remain subject to the provisions
hereof. At the end of the term of this Agreement, Tai Nam will provide the
Company with an accounting of any unfilled MUF and within 30 days of the
Company's receipt of such accounting, the Company shall make payment to Tai Nam
for such unfilled MUF and related raw materials, with such raw materails and
unshipped finished goods to be delivered by Tai Nam or Jauntiway to the Company
(b) After this Agreement is terminated, all Confidential Information
shall be returned by the recipients to the disclosing Parties as set forth in
Section 4.3.
ARTICLE 7
MISCELLANEOUS
7.1 This Agreement shall be governed and construed and interpreted
in accordance with the laws of New York, without giving effect to choice of laws
principles.
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7.2 This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
7.3 The headings of the Articles and Sections of this Agreement are
intended solely for convenience and shall not be deemed to constitute part of
this Agreement or to affect the construction or interpretation hereof.
7.4 Any delay in the performance of any of the duties or obligations
of either party hereto (except the payment of money owed) shall not be
considered a breach of this Agreement and the time required for performance
shall be extended for a period equal to the period of such delay, provided that
such delay has been caused by or is the result of any acts of God; act of the
public enemy; insurrections; riots; embargoes; labor disputes, including
strikes, lockouts, job actions or boycotts; fires; explosions; floods; shortages
of material or energy; delay in transportation; any discontinuance of the
manufacture, distribution, sale; or other unforeseeable causes beyond the
control and without the fault or negligence of the party so affected. The party
so affected shall give prompt notice to the other party of such cause, and shall
take whatever steps are necessary to relieve the effect of such cause as rapidly
as possible.
7.5 No waiver or modification or amendment of any of the terms of
this Agreement, including Appendices, shall be valid unless in writing and
signed by authorized representatives of both Parties hereto. Failure by either
Party to enforce any rights under this Agreement shall not be construed as
waiver of such rights nor shall a waiver by either party in one or more
instances be construed as constituting a continuing waiver or as a waiver in
other instances.
7.6 This Agreement constitutes the entire agreement between the
Parties concerning the subject matter hereof and supersedes all written or oral
prior agreements or understanding with respect thereto. No course of dealing or
usage of trade shall be used to modify the terms hereof.
7.7 This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that Tai Nam may delegate its
obligations hereunder to any of its affiliates so long as it remains liable for
the performance of all such obligations and the Company may enforce such
obligations against Tai Nam and Jauntiway and such affiliate jointly and
severally. Any assignment to which consent is given shall be binding upon, inure
to the benefit of, and be enforceable by, the assignee and any successors in
interest of the assignee.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
TOYMAX INC.
By:
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Name:
Title:
TOYMAX INTERNATIONAL, INC.
By:
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Name:
Title:
TOYMAX (H.K.) LIMITED
By:
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Name:
Title:
TOYMAX (BERMUDA) LIMITED
By:
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Name:
Title:
JAUNTIWAY INVESTMENT LIMITED
By:
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Name:
Title:
TAI NAM INDUSTRIAL COMPANY
LIMITED
By:
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Name:
Title:
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EXHIBIT A
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EXHIBIT B
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