MANUFACTURING AGREEMENT
EXHIBIT
10.15
THIS
AGREEMENT made the 30th day of September, Two Thousand and Five
BETWEEN
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(1)
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Mingkeda
Industries CO., LTD., Mingkeda Building #1825 Renmin e. Road, Heshan
City,
GuangDong, PRC and its affiliates and partner corporations in China
and
Hong Kong (hereinafter called "MKD");
and
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(2)
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Source
Plus, Inc. of 0000 Xxxxxxxxx Xxxxxxxxx Xx. Xxxxx 000 Xxxxxxxx,
XX 00000
(hereinafter called "SP"); and
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(3)
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AeroGrow
International, Inc. of 000 00xx Xxxxxx, Xxxxx 000, Xxxxxxx, XX
00000
(hereinafter called "AeroGrow").
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MKD,
SP
and AeroGrow are hereinafter collectively referred to as the "Parties" and
individually referred to as "Party".
WHEREAS:
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(A)
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AeroGrow
is a company duly incorporated under the Laws of the United States
of
America with plans for listing on a United States stock exchange,
and owns
the intellectual proprietary rights in the invention and/or design
of an
aeroponic growing device and accessory and lamp components, known
as the
"AeroGrow Kitchen Garden" and seed kit components ("the Product").
The
Product is more particularly depicted in the design drawings and
specifications annexed to this Agreement as Attachment A which
includes
the specific components and raw materials that must be included
in the
Product.
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(B)
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MKD,
and its affiliate factory, YueQing, a company located in China
and Hong
Kong, is engaged in the business of manufacturing and assembling
products
for sale on a contract basis. AeroGrow desires to contract with
MKD for
the building of the Tooling required to manufacture the Product,
and then
to have MKD manufacture/assemble the Product at an agreed cost,
to agreed
quality standards in quantities and on a schedule to be provided
by
AeroGrow. In turn MKD desires to contract with AeroGrow to provide
such
services.
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(C)
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SP
is a United States corporation engaged in the sourcing of products
for
companies. At the behest of AeroGrow, SP has identified MKD as
a factory
capable of building the Tooling for, and then manufacturing the
Product.
SP has also agreed to advance payment to MKD for all or a portion
of such
Tooling, and perform other designated services on behalf of
AeroGrow.
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NOW
IT IS
HEREBY AGREED between the parties hereto as follows:
| 1 | Making of the Tooling/Molds/Production Line/Test Equipment |
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1.01
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SP
will contract with MKD on behalf of AeroGrow to have MKD construct
a set
of steel tooling / molds for the molding and shaping of all the
component
parts of the Product ("the Tooling") as reflected in Attachment
A from
drawings and specifications provided by AeroGrow. The Tooling shall
be
designed to sustain a production capacity of up to 30,000 B units
per
month, and a life expectancy of up to 500,000 molding cycles. If
any
portion of the injection molding Tooling requires replacement prior
to
completion of 500,000 molding cycles, MKD will replace that portion
of the
Tooling without cost to AeroGrow.
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1.02
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MKD's
price for making each item of Tooling shall be confirmed in writing
by
MKD, and approved in writing by AeroGrow, prior to starting production
of
that item of Tooling. In case of any changes in the Product's
specification made by AeroGrow from time to time, MKD and SP shall
submit
a revised Tooling cost to AeroGrow for its approval. Upon receipt
of
AeroGrow's written approval of the revised cost, MKD shall proceed
to make
the necessary tooling modifications. AG shall employ its best efforts
to
inform SP of tooling changes and modifications in a timely
manner.
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1.03
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The
Tooling is commissioned by AeroGrow, and AeroGrow will be the owner
of the
same subject to SP's right of lien. SP will pay MKD for the Tooling
on
behalf of AeroGrow in the manner hereafter
mentioned.
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1.04
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MKD
will ensure that the Tooling meets AeroGrow's specifications. In
the event
that Products do not meet specifications based upon faulty Tooling,
MKD
will revise the Tooling at MKD's cost and bear all costs associated
with
replacing defective Products. In the event product does not meet
specifications due to incorrect written direction provided by AeroGrow,
AeroGrow will be responsible for payment related to any tooling
modifications required.
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1.05
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SP
shall pay MKD for the cost of the Tooling and Molds on behalf of
AeroGrow,
up to a maximum of USD155,000. Payment by SP to MKD will be made
on the
following schedule: SP will pay 50% of the total Tooling cost to
MKD with
the placement of the initial order for the Tooling, and the balance
upon
approval of the Tooling by AeroGrow's employees or designated
agents.
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1.06
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Tooling
costs in excess of USD155,000 will be paid to MKD on the same schedule
as
set forth above in Section 1.05 by either AeroGrow, or by SP on
behalf of
AeroGrow, pursuant to the terms of Section
1.07.
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AeroGrow
will pay SP for the Tooling upon approval of the Tooling by AeroGrow's employees
or designated agents. Payment will be made in the form of shares or stocks
of
AeroGrow ("Shares"). AeroGrow undertakes to SP that the Shares will be offered
on a United States Stock Exchange for a price of not less than USD1.00 per
share
at the time of its Initial Public Offering. AeroGrow shall pay SP for SP's
portion of the Tooling by issuing, transferring or allotting (at the sole
cost
and expense of AeroGrow) a quantity of the Shares to SP at the agreed valuation
of USD0.50 per share, so that the quantity of the Shares thereby issued,
allotted or transferred to SP will be equivalent to the cost divided by an
unit
sum of USD0.50. For example, 310,000 Shares at the currently projected Initial
Public Offering value of USD1.00 each will be issued, allotted or transferred
to
SP in the event of SP's portion of the cost being finalized at USD155,000.00.
Both the number of Shares and the Purchase Price shall be adjusted to reflect
any stock split, combination or similar change in the capitalization of AeroGrow
after January 25, 2005. Further, disposition, transfer-ability, and sale
of the
Shares shall be governed by any and all conditions regulating share ownership.
The Shares represented herein cannot be sold, transferred or otherwise disposed
of by the holder unless such transaction is registered under the Securities
Act
of 1933, as amended, and under applicable laws of the state or jurisdiction
where such transaction occurs, or unless such transaction shall qualify under
an
allowed exemption to such registration. SP may sell up to twenty-five (25%)
of
the shares represented in the public market six (6) months from the date
of
AeroGrow's initial public offering is concluded; twenty-five (25%) of the
shares
twelve (12) months from the date of AeroGrow's initial public offering is
concluded; and twenty-five (25%) of the shares eighteen (18) months from
the
date of AeroGrow's initial public offering. Any and all of the remaining
half of
such shares may be sold in the public market twenty-four months (24) from
the
conclusion of AeroGrow's initial public offering.
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2
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1.07
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Should
there be further Tooling needs over and above the making of the
initial
Tooling and/or should the cost for the initial Tooling exceed USD155,000,
and should SP elect to advance payment to MKD for such further
Tooling, SP
will make payment directly to MKD on behalf of AeroGrow. AeroGrow
shall in
turn pay SP for the additional cost of such further Tooling at
AeroGrow's
option by either cash or the issue, allotment or transfer of Shares
in the
same manner mentioned above, and AeroGrow guarantees that the conversion
rate of USD1.00 Share to every USD0.50 in the cost, adjusted to
reflect
any stock split, combination or similar change in the capitalization
of
AeroGrow, will be maintained if such further Tooling is ordered
within six
months from the approval for production of the initial set of
Tooling.
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1.08
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For
purposes of this Agreement, "SP Tooling Stock" shall mean all shares
issued by AeroGrow to SP in payment of Tooling, including further
Tooling
as described in Section 1.07 above. "SP Tooling Outlay" shall mean
the
total amount paid by SP to MKD for the Tooling, including further
Tooling
as described in Section 1.07 above. If the envisaged Initial Public
Offering listing of the Shares in the United States of America
shall fall
to materialize for whatever reason prior to June 1, 2006, SP shall
have an
option to require AeroGrow to pay for the Tooling in full in a
monetary
sum. Such option must be exercised by notice in writing from SP.
On the
receipt of such notice, AeroGrow shall forthwith pay to SP an amount
equal
to the Tooling Outlay, and subject to such actual payment, AeroGrow
shall
be released from its obligation to issue, transfer or allot SP
Tooling
Stock. On receipt of the monetary payment so described from AeroGrow,
SP
shall immediately return to AeroGrow all SP Tooling
Stock.
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1.09
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For
purposes of this Agreement, "SP Tooling Stock Valuation" shall
mean the
post-IPO value of the SP Tooling Stock, as indicated by the 20-day
moving
average of the closing price. If the envisaged IPO occurs prior
to June 1,
2006, but the SP Tooling Stock Valuation is less than the SP Tooling
Outlay as of the one-year anniversary of the IPO, then AeroGrow
shall make
a cash payment to SP equal to the difference between a) the SP
Tooling
Outlay and b) SP Tooling Stock Valuation as of the one-year anniversary
of
the IPO, plus 5% per annum simple interest. The interest will be
calculated from the date of the first Tooling Outlay payment made
by SP to
the date of the AeroGrow cash payment, and will be applied only
to the
difference described above, not the entire amount of the Tooling
Outlay.
Said amount shall be paid 60 days after the one-year anniversary
of the
IPO.
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3
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1.10
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AeroGrow's
non-exclusive license to MKD is only to make use of the Tooling
to
manufacture the Product solely for sale to AeroGrow as specified
in
AeroGrow's Purchase Orders, and no royalty or other payment will
be
payable by MKD to AeroGrow for such use and application of the
Tooling.
This license will last only for the term of the Agreement and only
for the
manufacture of the Products at MKD's facility, and AeroGrow's Tooling,
Tooling drawings, and technology will not be used in any other
way or
transferred to any other party. The Tooling is subject to SP's
lien as
detailed in section 1.03.
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1.11
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MKD
agrees to maintain all the Tooling and Molds in good working order
(following the AeroGrow Tooling Maintenance Specifications which
are
attached) and carry appropriate insurance against loss or theft.
AeroGrow
agrees to reimburse MKD for premiums that are mutually agreed upon
in
advance. Should MKD or AeroGrow terminate their relationship for
any
reason, and if SP has received payment in full as described in
section
1.08, MKD agrees to properly pack and ship the Tooling to a location
designated by AeroGrow within 30 days following the receipt of
such notice
by AeroGrow subject to payment terms and schedule dates noted in
subsequent clauses, including 9.06. Should payment for the Tooling
be due
from AeroGrow to SP, then AeroGrow will immediately make such payment
to
SP. The cost of packing and shipping the Tooling will be borne
by
AeroGrow. MKD shall confirm with SP that AeroGrow has paid in full
to pack
and ship the Tooling. SP and MKD may not retain any Tooling or
Tooling
drawings for their benefit. Tooling drawings and all Product
specifications are the confidential property of
AeroGrow.
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1.12
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MKD
and SP acknowledge AeroGrow as the sole owner of all the Tooling,
Valve
Gates, Specific Heat Zone Controls, and Hot Manifolds upon the
issue,
allotment or transfer of the SP Tooling
Stock.
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AeroGrow
may, at its sole option, remove all or any portion of the Tooling from MKD
for
reasons including but not limited to the following:
| • |
If
MKD chooses to decline Purchase Orders which would require acquisition
of
additional plastic injection molding
presses.
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If
MKD changes its lead time requirement, or if MKD repeatedly fails
to meet
its ship date commitments.
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If
AeroGrow selects an alternate plastic molding vendor with existing
plastic
molding capacity, instead of requiring MKD to add plastic molding
capacity.
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If
MKD fails to meet AeroGrow's quality requirements for plastic components
as specified in Attachment B.
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If
MKD chooses not to install molding press features, modifications,
or
ancillary equipment that AeroGrow believes is required for Product
aesthetics or functionality.
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While
MKD is increasing molding capacity to meet AeroGrow's requirements,
and
before such molding capacity is actually available for production.
In this
case AeroGrow will return the Tooling to MKD as soon as possible
after
such molding capacity and quality is actually available for
production.
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If
MKD pricing is not competitive with other available
sources.
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4
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It
is
AeroGrow's intent, but not guarantee, that even if AeroGrow removes all or
any
portion of the Tooling from MKD, MKD will continue to be the primary source
for
light bulb manufacturing, printed circuit board assembly, and assembly and
packaging of the B unit Kitchen Garden.
Before
removing any Tooling AeroGrow must pay all outstanding costs associated with
the
Tooling to be removed, including but not limited to parts actually run on
the
Tooling to be removed and modification costs incurred by AeroGrow on the
Tooling
to be removed.
Should
AeroGrow totally remove Tooling or production from MKD, AeroGrow will consider,
but not guarantee additional financial incentives or compensation to MKD
for
production development time, and effort.
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1.13
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MKD
will absorb all costs for the set-up of the production
lines.
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1.14
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MKD
will absorb all costs for the test equipment required to ensure
that the
Products meet the agreed-upon QA/QC Specification based on Attachment
B.
Should costs for test equipment exceed $2,000 USD then AeroGrow
will
provide MKD with direct payment for AeroGrow specified test equipment,
and
MKD will credit AeroGrow with the identical amount towards the
first
shipment of product. Ownership of such test equipment will remain
with
MKD, upon completion of the first purchase order transaction. AeroGrow
must approve of all test equipment and corresponding costs for
said
equipment in advance of purchase.
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2
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Pricing
of the Products/Cost Reductions
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2.01
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MKD
will produce the Products for sale to AeroGrow pursuant to and
on the
receipt of written Purchase Orders. For a period of 120 days beginning
with the issuance of the first Purchase Order, AeroGrow will issue
Purchase Orders to SP, and SP in turn will issue Purchase Orders
to MKD to
manufacture the Product in the same quantities, on the same schedule,
and
at the same cost as specified in AeroGrow's Purchase Orders to
SP. When
AeroGrow issues Purchase Orders through SP, SP will issue a corresponding
Purchase Order to MKD within two (2) working days of receipt of
AeroGrow's
Purchase Order. SP will provide a copy of such Purchase Order to
AeroGrow
at the time of issuance. In the event such copy is not received
within two
(2) working days, AeroGrow may, at its option, thereafter place
Purchase
Orders directly to MKD. After 120 days from the issuance of the
first
Purchase Order, AeroGrow at its sole option may elect to issue
Purchase
Orders directly to MKD. In this event, AeroGrow will provide copies
of
such Purchase Orders to SP at the same time the Purchase Orders
are issued
to MKD.
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2.02
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Attachment
A to this document includes the Bills of Material (BOMs) and itemized
component costs for the Product to be sold by MKD to AeroGrow under
this
Agreement. "Base Price" is explicitly detailed as a column on the
BOMs
with a minimum order per PO of the quantity of Product required
to fill
two (2) standard forty-foot (40') containers. It is agreed between
the
parties that any changes to any items in the Bills of Material
must
receive the expressed written consent of AeroGrow, and further
that the
vendor and specifications of each outsourced item must be approved
by
AeroGrow prior to use in manufacturing AeroGrow
Products.
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2.03
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The
Base Prices of the B unit and seed kit components quoted in Attachment
A
will be subject to upward or downward adjustments to reflect changes
in
the cost of purchased materials and components. Base Price adjustments
shall be limited to changes due to three factors: 1) market-price
fluctuations in the cost of purchased materials and components,
2) design
changes made by AeroGrow relative to the specifications contained
in
Attachment A, and 3) correction of legitimate errors and omissions.
Adjustments shall be priced at MKD's actual cost of materials and
direct
labor
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MKD
shall
advise AeroGrow of all material cost adjustments as they occur, with an itemized
explanation of each adjustment. Any price increase in raw materials must
be
substantiated with written quotes or invoices from at least three vendors.
Each
AeroGrow purchase order will be issued at the most recently advised and accepted
price. In no event shall price adjustments apply to Product after MKD receives
(a) Letter(s) of Credit for the full price of such Product.
In
the
event that the adjustment described above exceeds plus or minus five percent
(5.0%) between consecutive Purchase Orders, then MKD must indicate in writing
a
full description of said increase and said increase must be agreed to in
writing
by AeroGrow. AeroGrow, MKD or SP, also known as the Parties, shall have the
right to terminate this Agreement on 180 days written notice to the other
Parties, subject to all of the requirements elsewhere in this Agreement
including section 9.05, should one Party find it not sufficiently profitable
to
proceed due to cost increases.
MKD
pricing is based upon a 29% xxxx-up on cost of materials and labor for most
materials and components except light bulbs which are calculated at a 14%
xxxx-up. MKD will provide additional financial incentives including a .50
discount for the B Unit which is reflected in the net selling price found
in the
BOM.
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2.04
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The
Base Price in effect at the time of each Purchase Order will be
subject to
upward or downward adjustments to reflect fluctuations in the exchange
rate between the US Dollar (USD) and Yuan or Renminbi (RMB). The
Base
Exchange Rate will be RMB8.28 per USD 1.00. Price adjustments due
to
exchange rate fluctuations will be made in the exact proportion
of the
Base Exchange Rate with respect to the exchange rate as of the
At Sight LC
issuance date. The exchange rate as of the At Sight LC issuance
date shall
be the People's Bank of China Buy rate for
Checks.
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2.05
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MKD
hereby grants AeroGrow the right to conduct on-site audits of MKD's
costs
for manufacturing the Product, which includes component and assembly
costs. Such audit must be scheduled by AeroGrow at least fourteen
(14)
days in advance of the scheduled audit date via written notification
to
MKD. Such audit will be restricted to AeroGrow
production.
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2.06
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MKD
will maintain accurate records regarding the manufacturing of the
Products, inspection results from each receiving and manufacturing
lot,
and other production data that will insure a complete record of
MKD's
production of AeroGrow products.
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| 3 | Payment for the Products |
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3.01
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AeroGrow,
SP and MKD have agreed on QA/QC Specifications which are attached
to this
Agreement as Attachment B. Specifications detailed in Attachment
B are
subject to revision based upon mutual
agreement.
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3.02
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All
shipments will be paid in full in the manner described in Section
3.03
unless AeroGrow has provided written notification to MKD and SP
that the
Product, or a portion of the Product, has failed to meet the
specifications to be described in Attachment B by an authorized
AG
inspection agent at least twenty four (24) hours prior to
shipment.
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3.03
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AeroGrow
shall pay MKD on the following schedule via wire transfers. 30%
of
projected total payment including xxxx-up less incentives 25 days
prior to
ship date, 50% of total payment less incentives plus exchange rate
adjustment on ship date after AeroGrow receives documentation from
the
freight forwarder that Products are on-board, and the remaining
balance
20% 30 days after ship date. The actual Product price for each
order will
be set with exchange rate adjustment as of the on-board
date.
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MKD
will
order, receive, inspect, and safely store all purchased components and
materials, regardless of markup percentage received, in addition to resolving
quality and delivery issues with respect the vendors of the prepaid goods
for no
additional cost.
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3.04
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MKD
and SP will work with AeroGrow to provide an unsecured line of
credit
after a positive pattern of payment has been established between
the
parties.
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3.05
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In
return for the .00 xxxx price concession applied for the B unit
contained
in this Agreement, AeroGrow will grant MKD, at no cost, 50,000
shares of
AeroGrow stock valued at US$50,000, as of January 25, 2005. The
number of
shares will be based on a value of US$1.00 per share (as of January
25,
2005), with adjustment up or down to reflect any stock split or
change in
market value. The first 50,000 shares shall be issued with the
first PO.
This stock will be subject to the same restrictions as reflected
in the
AeroGrow/XX xxxxx found in Paragraph
1.06.
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| 4 | Services Provided by SP to AeroGrow/Payments to SP |
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4.01
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SP
shall provide all of the services to AeroGrow enumerated in Attachment
C.
AeroGrow will pay for all AeroGrow pre-approved direct travel expenses
incurred by SP (Shenzhen Office Employees only) as a result of
a specific
request for SP support at Chinese factories. AeroGrow will pay
SP invoices
for travel expenses within 30 days of invoice
receipt.
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4.02
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For
the services provided by SP, AeroGrow will pay to SP two percent
(2%) of
the total amount paid for the Product, due and payable on the date
on
which payment for the Product is paid by AeroGrow to either MKD
or SP. No
payments will be made by MKD to SP in connection with the manufacturing
of
the Product.
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7
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4.03
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Should
any payments be made by MKD to SP in connection with the manufacturing
of
the Products, this Agreement will be considered to be breached
as of the
date of the earliest of such payments. In the event of such breach,
SP
shall forfeit all rights to compensation from AeroGrow after the
date of
the breach, and SP shall immediately pay to AeroGrow any and all
funds
received from MKD. Additionally, the Non-Circumvention Agreement
between
AeroGrow and SP dated July 27, 2004 will immediately become null
and
void.
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4.04
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Should
SP fail to provide the services enumerated in Attachment C, and
such
failure is not cured within 60 days after the receipt of written
notice
from AeroGrow, this Agreement will be considered to be breached.
Written
notice from AeroGrow will describe the services SP has failed to
provide.
In the event of such breach, SP will not be entitled to any future
compensation from AeroGrow. Additionally, the Non-Circumvention
Agreement
between AeroGrow and SP dated July 27, 2004 will immediately become
null
and void.
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4.05
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SP
is designated as AeroGrow's exclusive agent for the AeroGrow Kitchen
Garden Product Line (A, B, or Subsequent Units) for 18 months after
the
first shipment of Product, as long as the Agreement is not considered
breached under Sections 4.03 or 4.04. As AeroGrow's exclusive agent,
SP is
charged with identifying additional factory(ies) capable of producing
the
Product. This Agreement shall apply to additional factories introduced
by
SP and used by AeroGrow, and the same percentage fee and SP services
described herein shall apply.
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5
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Ordering
of Raw Materials, Products / Cancellation of Liability /
Shipments
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5.01
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MKD
guarantees to AeroGrow and SP that it can develop sufficient capacity
to
manufacture at least 100,000 units per month, subject only to limitations
imposed by the available Tooling. MKD also guarantees that it can
acquire
sufficient molding machines to manufacture 30,000 units per month
per set
of injection molding tooling.
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5.02
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AeroGrow
will provide MKD and SP with a rolling production forecast by the
5th
business day of each month. MKD and SP acknowledge that the forecast
does
not represent a guarantee of production volumes. Written Purchase
Orders
provided by AeroGrow directly to MKD, or via SP to MKD, will be
the sole
means of authorizing production. Purchase Orders will be issued
at least
forty (40) days prior to the requested On Board date for orders
equal to
or less than factory capacity. Purchase Orders which require MKD
to exceed
capacity and acquire new injection molding presses, will be issued
at
least ninety (90) days prior to the On Board date. Lead times will
be
extended by the length of Chinese national holidays to the extent
that
such holidays fall between Purchase order date and the requested
On-Board
date. MKD will provide a National holiday schedule to AeroGrow
and
SP.
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5.03
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MKD
will identify all long-lead time components (those requiring the
placing
of orders more than 40 days in advance) and notify AeroGrow of
those
components and, on AeroGrow's written authorization order such
components.
Without AeroGrow's written authorization, long-lead time components
will
not be ordered. Purchase Orders will be the sole method of authorize
MKD
to order raw material, long lead and minimum order components (materials).
Any unused material remaining from a given Purchase Order due to
minimum
order quantities is subject to the inventory carrying charge noted
in
5.07.
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5.04
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On
receipt of AeroGrow's Purchase Orders, or Purchase Orders placed
by
AeroGrow to MKD via SP, MKD will immediately order and maintain
inventories of the raw materials required to meet the production
schedule
for the Products.
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5.05
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In
the event AeroGrow cancels a Purchase Order or a portion thereof,
MKD, SP
and AeroGrow agree to the following cancellation
terms:
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| • |
Purchase
orders cannot be cancelled within 30 days of ship
date
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| • |
If
a purchase order is cancelled, then AeroGrow shall be liable for
all
material costs associated with the purchase order that have been
incurred
by MKD up to the cancellation date, less prepayments by AeroGrow
associated with the purchase order. MKD must provide written documentation
of all material costs associated with a cancelled purchase order.
Payment
for charges due to cancelled purchase orders must be made by AeroGrow
within 30 days of receipt of such written
documentation.
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5.06
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In
the event AeroGrow requests that shipments for issued Purchase
Orders be
rescheduled beyond the On Board date previously specified in the
Purchase
Order, the Products so inventoried by MKD will be subject to a
one per
cent (1.0%) per month inventory carrying charge. If inventory is
carried
for more than 15 days but less than one month, the carrying charge
will
equal the charge for one full month. If inventory is carried for
less than
15 days, then the charge will be calculated on a pro-rated monthly
basis.
Should shipments be delayed at AeroGrow's request, the monies due
MKD will
be calculated from the target ship date as specified in the Purchase
Order
and not the on board date.
|
|
5.07
|
The
shipment of all Products shall be suitably packed in accordance
with
AeroGrow's specifications, and delivered to a carrier or agent
at a
location designated by AeroGrow. At the time of such delivery,
title for
the Products shall pass to AeroGrow or AeroGrow's designated
agents.
|
|
5.08
|
MKD
is expected to achieve 100% on-time delivery performance, which
is defined
as up to 3 days prior to and up to 7 days beyond the scheduled
delivery
date. If Product is more than 7 days late, and required to meet
AeroGrow's
customer commitments, AeroGrow may require MKD to air ship the
Product to
a location designated by AeroGrow. In such instances, MKD agrees
to pay
the difference between the costs of sea shipment and air freight.
AeroGrow
acknowledges that delays attributable to acts of God, acts of war,
typhoon, fire, labor strikes, power shortages, country-wide material
shortages, and delays caused by AeroGrow's freight forwarder are
out of
MKD's control, and MKD will not be penalized for not achieving
on-time
delivery as noted.
|
-
9
-
|
5.09
|
MKD
hereby agrees that it will not subcontract out any portion of AeroGrow's
manufacture of the Products without AeroGrow's prior express written
permission.
|
|
5.10
|
MKD
will be responsible for sourcing all raw materials and components
to be
used in the building, assembly and shipment of the Products and
ensure
that they are available on a timely basis to meet the date(s) designated
in either SP's or AeroGrow's Purchase
Order(s).
|
|
5.11
|
MKD
will submit a list of raw materials, sourced components and suppliers
to
be used in production of the Products for AeroGrow's written approval,
which approval shall not be unreasonably withheld. Materials, components
and suppliers which are referenced in Attachment A, may not be
substituted
without AeroGrow's prior written approval, which approval shall
not be
unreasonably withheld.
|
|
6
|
Engineering
Changes/Third party Certifications
|
|
6.01
|
AeroGrow
may request in writing that MKD incorporate engineering changes
into the
Product. MKD shall make an evaluation of such requested changes,
and
advise AeroGrow in writing of the feasibility, costs and timing
of
implementation, impact on the delivery schedule, and the pricing
of the
Product. On written approval by AeroGrow, MKD will proceed to implement
the changes. AeroGrow will bear the cost of finished Products and/or
component inventories that are obsoleted by the engineering changes.
Payment for these costs will be due 30 days from their date of
billing by
MKD.
|
|
6.02
|
MKD
will manage the third party certification process such as UL
(Underwriter's Laboratories) on behalf of AeroGrow. AeroGrow will
specify
which third party certifications are desired, and MKD will provide
AeroGrow cost and time estimate to ensure compliance with the
certification process. Upon AeroGrow's approval MKD will begin
the
process. Any third parties involved in the certification process
will
invoice AeroGrow directly.
|
|
7
|
Quality
Assurance/ Test Equipment
|
|
7.01
|
AeroGrow
will, in cooperation with MKD and SP, establish mutually agreeable
QA/QC
Specifications for the Products and for Mold and Tool maintenance
based on
the draft of these specifications that is set forth in Attachment
B and
incorporated as part of this
Agreement.
|
|
7.02
|
MKD
guarantees that the flood deck and grow deck will meet the flatness
specifications enumerated in Attachment B, and will implement processes
to
ensure compliance with the specified tolerances, including but
not limited
to integration of cavity pressure switchover technology, press
upgrades,
upgrade of ABS raw materials to a more stable composition, and
the
incorporation of gas assist technology, as necessary. All components
of
any cavity pressure switchover system(s) shall be paid for by MKD.
MKD and
AeroGrow will work together to find acceptable solutions to meet
product
specification requirements and tolerances. Should gas assist technology
be
required, both MKD and AeroGrow will fund the investment in such
equipment.
|
-
10
-
|
7.03
|
SP
will inspect two percent (2%) of each production run to insure
that the
Product meets the agreed-upon QA/QC Specification based on Attachment
B.
Inspection must be completed no later than 24 hours prior to the
scheduled
ship date, or shipment delays will result. MKD shall not be held
responsible for shipment delays due to late inspection by
SP.
|
|
7.04
|
In
addition to SP's inspection, AeroGrow reserves the right to pre-shipment
inspection for quality control compliance in MKD's facility by
random
sampling. Should AeroGrow decide to place their own agents in MKD's
facility, MKD agrees to accommodate all reasonable requests from
AeroGrow
in this regard so long as advance notice has been provided by AeroGrow
or
it's agents to MKD.
|
|
7.05
|
MKD
will provide a work area for a designated AeroGrow or SP employee
or agent
within the MKD factories at no cost to AeroGrow. The work area
is to be
equipped with a phone, Internet connection, access to a printer,
as well
as a desk and chair. AeroGrow will pay MKD for the cost of the
phone and
Internet connection for any direct expenses incurred by the AeroGrow
personnel.
|
|
8
|
Product
Acceptance and Warranties
|
|
8.01
|
MKD
is expected to deliver quality product in conformance to all Product
specifications, workmanship standards, and the agreed-upon QA/QC
Specification based on Attachment B. MKD is expected to institute
appropriate quality controls at its factory to prevent the shipment
of any
defective Product to AeroGrow or its designee. In the addition
to the
previously stated right to sample and approve each production lot
at MKD's
factory prior to shipment, AeroGrow reserves the right to audit
MKD's
facilities, conduct source inspections, and/or inspect Product
at MKD's
factory, and distribution and repair
centers.
|
|
8.02
|
While
AeroGrow may have sampled and approved each production lot in MKD's
factory prior to shipment, it is possible that workmanship defects
may
subsequently be discovered. In the event that such defects result
from
poor workmanship and not product design, than AeroGrow may return
the
defective Products to MKD and MKD shall be liable for any and all
direct
costs and liabilities incurred by
AeroGrow.
|
|
8.03
|
MKD
warrants that the Product will conform to Attachment A (Xxxx of
Materials)
and Attachment B (QA/QC Spec), and will be free from defects in
workmanship. MKD and AeroGrow will agree on a "model product" to
be used
as a standard to which the Product manufactured by MKD must aesthetically
and functionally conform.
|
For
purposes of this agreement, all Product that does not conform to the "model
product" or warranties described above will be referred to as "Non-conforming
Product".
| "Non-conforming" Product includes: | ||
|
•
|
Assembly
errors,
|
|
|
•
|
Improper
fit due to parts out of tolerance as defined by the QA
standards,
|
|
|
•
|
Missing
parts,
|
|
-
11
-
|
•
|
Improper
substitution of parts,
|
|
|
•
|
Improper
packing resulting in visibly damaged or marred parts
|
|
|
•
|
Contaminated
parts during assembly,
|
|
|
•
|
Improper
soldering of components or wiring,
|
|
|
•
|
Improper
application of decorative labels or parts, and
|
|
|
•
|
Excess
flux remaining on the PCBA causing corrosion
|
|
|
•
|
Leads
not trimmed short enough on the PCBA
|
|
|
•
|
Failure
to fully test microprocessors after packaging into DIP
packages
|
|
|
•
|
DIP
packaging or wire bonding errors
|
|
|
•
|
Static
damage to parts
|
|
|
•
|
Variations
in translucence of ABS
|
|
|
•
|
Variation
in ABS color from color ordered and from part to part as defined
by a
visual test performed against the model product by an AeroGrow
approved
inspector
|
|
|
•
|
Excess
flash on plastic parts
|
|
|
•
|
Texture
mismatch due to uneven texture wear in molds
|
|
|
•
|
Residues
or contaminants from improper handling, cleaning, mold release
etc.
|
|
|
•
|
Soiled,
marked or otherwise contaminated components from poor handling
conditions
or storage
|
|
|
•
|
Items
added to box or components that should not be there such as
internal
documents, labels or stickers
|
|
|
•
|
parts
damaged by manufacturing or handling process
|
|
|
•
|
Using
parts from non-approved vendor
|
|
|
•
|
Assembly
shortcuts like not using enough screws, especially where not
visible
|
|
|
•
|
Building
or using down-level parts or assemblies
|
|
|
•
|
PCB
testing to wrong specs
|
|
|
•
|
Defects
in chrome plating, products that match the model product are
considered
conforming
|
|
|
•
|
Wrong
bulbs
|
|
|
•
|
Failure
to execute proper final system test
|
|
|
•
|
Failure
to install new battery with pull tab
|
|
|
•
|
Excess
solder
|
|
|
•
|
MCU
not fully seated in socket
|
|
|
•
|
Improper
wire routing or lack of service loop
|
|
|
AeroGrow
may add additional non-conforming items overtime, but any new
additions
will only apply to subsequent orders.
|
||
|
MKD's
warranty does not apply to:
|
||
|
•
|
Product
which precisely conforms to Attachment A (Xxxx of
Materials)
|
|
|
•
|
Product
which precisely conforms to AeroGrow's 2-dimensional or 3-dimensional
drawings
|
|
|
•
|
Product
which precisely conforms to Attachment B (QA/QC Spec)
|
|
|
•
|
Product
which precisely conforms to the agreed-upon "model
product"
|
|
|
•
|
Abuse
from incorrect use of the product,
|
|
-
12
-
|
•
|
Damage
resulting from shipping abuse,
|
|
|
•
|
Abuse
from incorrect cleaning solutions or solvents,
|
|
|
•
|
Discoloration
and degradation of AeroGrow-specified materials caused by
exposure to
sunlight or artificial light
|
|
|
•
|
Surface
marking or discoloration from abrasives or sharp
instruments,
|
|
|
•
|
Damage
resulting from impacts that exceed the impact strength of
AeroGrow-specified materials
|
|
|
•
|
Damage
resulting from shipping abuse
|
|
|
•
|
Damage,
marking, or discoloration from any cleaning materials other
than water and
mild soap
|
|
|
•
|
Plants
not growing for any biological reason
|
|
|
•
|
Damage
caused by electrical spikes and surges
|
|
|
•
|
Defects
or malfunction resulting from the design of the Product
|
|
|
•
|
Errors
or omissions in Attachment A or Attachment B
|
|
|
•
|
Misuse
and/or abuse of the
Product.
|
|
8.04
|
MKD
will ship to AeroGrow's customer service center Replacement Part
Assemblies (a) base with circuit board, (b) lampshade/rim, (c)
deck/door/pump tower, (d) pump/pump door, (e) light bulbs, (f)
telescopic
pole) in UPS shippable xxxxx craft boxes with assembly instructions
for
using in repair/replacing Non-conforming Products at no cost to
AeroGrow.
MKD will limit light bulb replacements to 1 % of AeroGrow orders.
MKD will
initially ship to AeroGrow's customer service center Replacement
Assemblies for all other items outside of light bulbs, representing
.5% -
2% of total products ordered. AeroGrow will monitor product defects
and
determine if the .5 - 2% should continue for each order (Purchase
Order)
issued and direct MKD accordingly. AeroGrow will allow MKD to use
any
excess capacity in each container to ship these Replacement Part
Assemblies at no cost, but MKD must still deliver the required
Replacement
Part Assemblies with each order as required even if it requires
dedicated
shipping. AeroGrow will notify MKD of Non-confirming Products in
writing
within seven (7) days of discovery. The discovery period is limited
to the
duration period of maximum
warranty.
|
AeroGrow
may also purchase Replacement Part Assemblies at an agreed upon cost for
use in
assisting customers with products outside of MKD's warranty.
Diagnosis
of returned units or "Non-conforming" Product is the sole responsibility
of
AeroGrow at no cost to MKD.
MKD's
guarantee of material and workmanship product quality and required remedy
will
be limited to the lesser of 1) thirteen (13) months from the On Board date
for
each respective shipment, or 2) six (6) months from the date of warranty
registration by the end user, 3) six (6) months from the purchase date shown
on
a purchase receipt by the end user, if a purchase receipt is available. MKD
shall warrant materials and purchased components but only to the extent that
the
original manufacturer (OEM) warrants the materials and purchased components.
MKD
must fully disclose the length and terms of each manufacturer's warranties
on
materials or parts purchased by MKD.
MKD
or an
MKD authorized agent may inspect Non-conforming product at an AeroGrow customer
service or repair center. AeroGrow will keep records of all repairs and returns
which will be made available to MKD for their review. Defective Product will
be
kept for no more than 30 days for inspection.
-
13
-
|
8.05
|
Repeated
failures by MKD to meet the established Quality Assurance standards
will
constitute a breach of this Agreement, and will be grounds for
its
termination.
|
|
8.06
|
In
the event of a product liability claim, AeroGrow agrees that, if
promptly
notified in writing, and given sole control of the defense and
all related
settlement negotiations, it will hold MKD and SP harmless from
any third
party loss, damage or injury which arises from any alleged defect
of
AeroGrow's design of any Products. MKD agrees that it will similarly
defend and hold AeroGrow and SP harmless from any third party loss,
damage
or injury arising from any workmanship defect of any
products.
|
|
8.07
|
AeroGrow
will provide MKD with the right to review the customer warranty
records
and warranty repair/replacement
log.
|
|
9
|
Term
of the Agreement/ Termination
|
|
9.01
|
The
term of this Agreement shall commence on the date hereof above
and shall
continue for one (1) year thereafter or until terminated as described
in
Sub-clause 9.02. After the expiration of the original term hereunder
(unless this Agreement has been terminated), this Agreement shall
be
automatically renewed for separate but successive one (1) year
terms,
subject to Sub-clause 9.02 below.
|
|
9.02
|
The
Agreement may be terminated by AeroGrow or MKD on 180 days written
notice
to the other.
|
|
9.03
|
The
Agreement may be terminated by SP on 60 days written notice only
if
AeroGrow defaults on payments that are due to SP and such default
is not
cured within 30 days of such written notice being
delivered.
|
|
9.04
|
If
any Party is adjudicated bankrupt, or if a receiver is appointed
for the
any Party or for a substantial portion of its assets, or if an
assignment
for the benefit of creditors of any Party is made, or if any Party
is
dissolved or liquidated or has a petition for dissolution or liquidation
filed which is not dismissed within 45 days, the other Parties
are still
bound by this Agreement.
|
|
9.05
|
Termination
of this Agreement for any reason shall not affect the obligations
of any
Party as described in this Agreement which exist as of the date
of
termination. Clauses 10, 11 and 12 shall survive the termination
of this
Agreement. Should SP or MKD fail to perform under this Agreement,
AeroGrow
will be relieved of all existing obligations to the non-performing
Party
other than those specifically included in this Agreement as described,
but
not limited to, in paragraph 9.06.
|
|
9.06
|
Immediately
upon termination, all MKD work in process will be completed and
following
inspection and approval by an AeroGrow agent, shipped immediately
to
AeroGrow or its designated agents. Any and all raw materials and
components previously authorized and paid for by AeroGrow will,
following
AeroGrow's inspection and approval, be shipped to AeroGrow or its
designated agents upon full payment of all approved parts from
inspection.
|
-
14
-
|
9.07
|
In
the event of termination prior to the time AeroGrow's Shares are
publicly
listed on an exchange in the United States of America, SP shall
have an
option to require AeroGrow to pay for the Tooling in full in a
monetary
sum. Such option shall be exercisable by notice in writing from
SP. On the
receipt of such notice, AeroGrow shall forthwith pay to SP the
full SP
Tooling Outlay and SP shall immediately return to AeroGrow any
SP Tooling
Stock.
|
|
9.08
|
In
the event of termination of this Agreement for any reason after
AeroGrow's
Shares are publicly listed on an exchange in the United States
of America,
but less than 12 months following the date of the IPO, if the SP
Tooling
Stock Valuation is below the SP Tooling Outlay as of the date of
termination, AeroGrow shall on written notification from SP immediately
pay in cash to SP the difference between the SP Tooling Outlay
and the SP
Tooling Stock Valuation as of the termination
date.
|
|
10
|
Patents,
Copyrights, Trade Secrets, and Other Proprietary
Rights
|
|
10.01
|
AeroGrow
owns all the patents (both issued and pending), copyrights, and
trade
secrets related to the Products. AeroGrow's patents are detailed
in
Attachment D. AeroGrow is in the process of preparing other applications
on other inventions not yet described in Attachment D. AeroGrow
will
advise SP and MKD of the additional Serial Numbers as additional
applications are filed.
|
|
10.02
|
AeroGrow
shall defend, indemnify, and hold MKD and SP harmless from any
claim
alleging that MKD's manufacture of the Products under this Agreement
directly infringes any third party's patents, copyrights, or trade
secrets. MKD and SP shall promptly notify AeroGrow in writing of
any such
claims, and give AeroGrow any and all assistance in resolving such
claims.
This indemnity clause does not encompass negligence or other willful
misconduct of the part of the non-prevailing
parties.
|
|
10.03
|
SP,
MKD and AeroGrow acknowledge that during the course of the business
relationship certain product improvements are likely to be developed.
Regardless of the source of these product improvements, SP and
MKD
acknowledge that all product improvements will remain the sole
property of
AeroGrow.
|
|
10.04
|
MKD
will assist AeroGrow in the filing of Chinese patent applications.
Any
expenses in the filing of patents must be pre-approved in writing
by
AeroGrow. All agencies and third parties involved in the filing
process
will invoice AeroGrow directly.
|
|
11
|
Confidentiality
|
|
11.01
|
All
written or otherwise communicated information provided by AeroGrow
to MKD
and SP intended to enable MKD to manufacture and deliver the Product
under
this Agreement, shall be considered Confidential Information. MKD
and SP
agree not to utilize or disclose this Confidential Information
to any
third party, or to use it for any purpose other than that described
in
this Agreement without the prior written consent of
AeroGrow.
|
-
15
-
|
11.02
|
Confidential
Information disclosed by AeroGrow to MKD and SP pursuant to this
Agreement
shall be maintained as confidential for a period of three (3) years
following the termination of this Agreement. Upon termination of
the
Agreement, MKD and SP agrees to return all documents to
AeroGrow.
|
|
12
|
Miscellaneous
|
|
12.01
|
This
Agreement constitutes the entire agreement between MKD, SP and
AeroGrow
with respect to the transactions contemplated hereby, and supersedes
all
prior agreements and understandings between the
parties.
|
|
12.02
|
MKD,
SP and AeroGrow shall all hold the terms of this Agreement in confidence,
except for disclosure to each Party's respective financial and
legal
advisors, unless the Party desiring to release the information
obtains the
written consent of the other
Parties.
|
|
12.03
|
This
Agreement maybe amended only by the written consent of all parties
hereto.
|
|
12.04
|
Neither
MKD, SP nor AeroGrow shall be deemed to be an agent of the other
Party,
and all parties acknowledge that the relationship between them
is that of
independent contractors. As such, neither MKD, SP nor AeroGrow
has any
right to assume or create any obligations on the part of the other
or make
any representations or warranties to any third party on behalf
of any of
the others.
|
|
12.05
|
In
the event a dispute between the parties hereunder with respect
to this
Agreement must be resolved by litigation or other proceeding, the
prevailing Party shall be entitled to receive reimbursement for
all
reasonable attorneys' fees from the non-prevailing
Party.
|
|
12.06
|
|
12.07
|
This
Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective successors, and assignees. Neither
MKD, SP nor
AeroGrow shall have the right to assign or otherwise transfer its
rights
or obligations under this Agreement except with the prior written
consent
of all other parties, which is not to be unreasonably
withheld.
|
|
12.08
|
MKD
agrees to comply with environmental laws, laws concerning export
control,
and laws relating to the registration of this
Agreement.
|
|
12.09
|
In
the event that MKD, SP, or AeroGrow is prevented from performing,
or is
unable to perform, any obligations under this Agreement due to
any act of
God, fire, any natural disaster, or any man-created event such
as war,
strike, etc., which is beyond the reasonable control of the affected
Party, and if the affected Party has taken all reasonable steps
to
mitigate the effects of this occurrence, and has given prompt written
notice to the other Parties, then its performance shall be excused
and the
time for performance shall be extended for the delay so created.
Regardless of the source of the delay, however, if the affected
Party is
not able to perform within 180 days after such event, either of
the
unaffected Parties may, at their sole discretion, terminate this
Agreement. Such termination shall not affect the obligations of
any Party
that exist as of the date of
termination.
|
-
16
-
|
12.10
|
If
any of the provisions of this Agreement are found by any court
or tribunal
of competent jurisdiction to be unenforceable, then such provisions
will
be enforced to the maximum extent permissible, and the remaining
provisions of this Agreement will be unaffected thereby and will
remain in
full force and effect.
|
|
12.11
|
No
waiver of any provision of this Agreement affecting AeroGrow and
MKD shall
be effective except by written agreement signed by both parties.
The
failure by either 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 either Party of any breach of any provision hereof be
taken or
held to be a waiver of any other or subsequent breach, or as a
waiver of
the provision itself.
|
|
12.12
|
No
waiver of any provision of this Agreement affecting AeroGrow and
SP shall
be effective except by written agreement signed by both parties.
The
failure by either 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 either Party of any breach of any provision hereof be
taken or
held to be a waiver of any other or subsequent breach, or as a
waiver of
the provision itself.
|
|
12.13
|
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 facsimile, or e-mail transmission,
(iii) one (1) day after having been sent by commercial overnight
courier
with written verification of receipt, or (iv) five (5) days after
having
been sent by registered or certified airmail, return receipt requested,
or
upon actual receipt thereof, whichever occurs first. All communications
will be sent to the receiving Party's address on the first page
of this
Agreement or to such other address that the receiving Party may
have
provided for the purpose of notice.
|
|
12.14
|
While
AeroGrow may use its standard Purchase Order form to release items,
quantities, prices, schedules, change notices, specifications or
other
notice provided for hereunder, in the event of any conflict, discrepancy,
or inconsistency between this Agreement and any Purchase Order
or any
other document delivered pursuant hereto, such Purchase Order or
document
shall be governed by the terms and conditions of this
Agreement.
|
|
12.15
|
This
Agreement may be executed in up to four (4) counterparts, each
of which
shall be deemed or organized, but all of which shall constitute
one and
the same instrument.
|
-
17
-
IN
WITNESS whereof the parties hereto have signed this Agreement respectively
on
the date and in the month and year first above written.
| For and on behalf of | For and on behalf of | ||
| Mingkeda Industries CO., LTD., | AeroGrow International, Inc. | ||
|
GuangDong,
PRC
|
|||
| /s/ Mo Hezhao |
/s/
Xxxxx Xxxxxxx
|
||
| For and on behalf of Source Plus, Inc. |
For
and on behalf of Mingkeda Industries
|
||
|
CO.,
LTD., Hong Kong
|
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| /s/ Xxxxxx Xxxxx | /s/ Xxxxx Xxxxxxx | ||
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18
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