PREFERRED MANUFACTURING AGREEMENT
This Agreement is entered into on April 13, 2004 ("Effective Date") by
and between BROADATA COMMUNICATIONS, INC. ("Customer"), a California corporation
with its principal place of business at 0000 Xxxx 000xx Xxxxxx, Xxxxxxxx,
Xxxxxxxxxx 00000 and CIRTRAN CORPORATION ("Cirtran"), a Nevada corporation with
its principal place of business at 0000 Xxxxx 0000 Xxxx, Xxxx Xxxx Xxxx, Xxxx,
00000 (together "the Parties").
RECITALS
A. Customer designs and manufactures digital fiber optic
transmission products for distribution throughout the world.
B. Cirtran is a contract manufacturer with capabilities to
manufacture and assemble printed circuit boards and complete
electro-optical products.
C. Cirtran has been assembling printed circuit boards and other
electronic subassemblies of certain of Customer's products
using component kits supplied by Customer.
D. Customer desires that Cirtran be its Preferred manufacturing
partner for all or portions of Customer's products,
responsible for procuring components as well as electronic and
mechanical assembly, and Cirtran is willing so act, subject to
the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties agree as follows:
1. DEFINITIONS
1.1 "Approved Vendor List" means Customer's Approved Vendor List,
updated from time to time, which specifies vendors approved by Customer
to supply materials specified in a Xxxx of Materials, and from which
Cirtran may purchase or procure materials, a copy of which is to be
attached as Exhibit A which may be revised in accordance with Section
2.1.
1.2 "Xxxx of Materials" shall mean the document specifying those
components and materials required to manufacture the Products and to be
provided by Customer as part of the Specifications.
1.3 "Confidential Information" shall mean any information disclosed by
Customer to Cirtran which is in written, graphic, machine readable or
other tangible form and is marked "Confidential", "Proprietary" or in
1
some other manner to indicate its confidential nature. Confidential
information may also include oral information disclosed by Customer to
Cirtran pursuant to this Agreement, provided that such information is
designated as confidential at the time of disclosure and is reduced to
writing by Customer within a reasonable time (not to exceed thirty (30)
days) after its oral disclosure, and such writing is marked in a manner
to indicate its confidential nature and delivered to the receiving
Party. Customer's Specifications, Customer Technology and Developments
shall be deemed to be Confidential Information of Customer whether or
not marked.
1.4 "Engineering Change Order (ECO)" shall mean the document that
details a change in the Specifications and/or design of a Product.
1.5 "Excess Inventory" shall mean the quantity of components that are
in Cirtran's possession on the referenced date, that exceed Customer's
order requirements. Excess Inventory shall not include components
purchased due to Cirtran's ordering errors, purchased to account for
attrition in the manufacturing process or Products that fail to meet
Customer's quality assurance guidelines.
1.6 "Intellectual Property" shall mean all rights held by Customer in
its Products and/or Confidential Information, including, but not
limited to such Customer's patents, copyrights, authors' rights,
trademarks, trade names, mask works, "know-how" and trade secrets,
irrespective of whether such rights arise under U.S. or international
intellectual property, unfair competition or trade secret laws.
1.7 "Inventory" shall mean raw materials, supplies, and components that
comprise Products pursuant to this Agreement.
1.8 "Long Lead Time Components and Materials" shall mean components or
raw materials used in the manufacture of the Products that require a
longer lead time to procure than the lead times provided for in Section
5.1 for the Products. The Long Lead-Time Components are listed on
Exhibit B and may be updated from time to time by mutual agreement.
1.9 "Minimum Order Components and Materials" shall mean the components
and materials that are procurable only in minimum purchase quantities
that exceed the quantities required for Customer's Purchase Orders.
1.10 "Non-Cancelable, Non-Returnable (NCNR) Components and Materials"
shall mean (i) Inventory listed on the Xxxx of Materials that is to be
procured from suppliers that will not accept returns or cancellations
once such inventory is ordered or (ii) Inventory that may not be
returned because the right of return has expired.
1.11 "Premium Charge" shall mean an additional charge mutually agreed
upon in advance in writing by the Parties for a special service
requested by Customer, including, but not limited to time worked
2
outside of normal business hours to fill expedited delivery dates or
increases in orders, special material handling, storage, and
re-inventorying.
1.12 "Product" or "Products" shall mean the PCB assemblies and/or
system level assemblies of Customer to be manufactured by Cirtran under
this Agreement as set forth in Exhibit C to this Agreement, as such
Exhibit may be modified from time to time by mutual agreement.
1.13 "Purchase Order" shall mean a Customer Purchase Order
substantially in the form attached as Exhibit D.
1.14 "Specifications" shall mean the written specifications provided by
Customer to Cirtran for the manufacture and test of Products,
including, but not limited to, the Approved Vendor List, Xxxx of
Materials, current revision level number, drawings, documentation,
manufacturing and test procedures, and schematics and performance.
1.15 "Work" shall mean to procure materials and to engage in the
manufacture, assembly and/or test of Products according to Customer's
Specifications and to deliver such Products in accordance with
Customer's purchase orders.
1.16 "Exhibits" Exhibit A Approved Vendor List
Exhibit B Long Lead Time Components and Materials
Exhibit C Products
Exhibit D Form of Purchase Order
Exhibit E Product Pricing
Exhibit F Other Special Inventory
Exhibit G NCNR Components and Materials
Exhibit H Tooling and Equipment
2. MANUFACTURE, PREFERRED MANUFACTURER, PAYMENT, PRICE, TAXES, AND
SUBCONTRACTORS
2.1 Manufacture.
(a) Manufacturing Preference: Customer manufactures a variety of
fiber optic transmission products to customers throughout the
world. Customer offers for sale more than 200 distinct
products through more than 50 distributors. Customer provides
its distributors with Price lists covering all of the products
and offers the distributor typical discounts from the list
price of 25% to 35%. Approximately 20% of these products
account for 80% of such product sales. In addition, Customer
has developed and sold certain advanced fiber optic products
including (i) SceenLink(TM), for sale to Movie theaters and
shopping centers, (ii) Concierge(TM) for sale to hotels and
convention centers, and (iii) Broadcast Platform, for sale to
domestic and foreign Broadcast Stations. Customer's Products,
as defined in Section 1.12 above, consist of (a) PCB
3
assemblies and (b) system level assemblies. Customer desires
that Cirtran manufacture PCB assemblies and/or system level
assemblies and that Cirtran be its exclusive manufacturer for
the Products listed on Exhibit C, responsible for procuring
components as well as electronic and/or mechanical assembly,
and Cirtran is willing so act, subject to the terms and
conditions set forth herein. Accordingly, Customer will not
manufacture or cause third parties to manufacture any of the
Products (as listed from time to time on Exhibit C). In its
capacity as Customer's manufacturer for the Products, Cirtran
will be issued Purchase Orders for the Products listed in
Exhibit C herein. Notwithstanding the foregoing, in the event
Cirtran cannot manufacture all of Customer's needs for the
Products, Customer shall have the right to manufacture the
Products itself or contract with any other third party for the
manufacture of the Products which Cirtran cannot produce.
(b) Purchase Orders: Customer will, from time to time issue
written purchase orders which specify all Work to be completed
and delivery time required by Customer's customer. Each
purchase order shall reference this Agreement and the
applicable written Specifications. Purchase orders will
normally be deemed accepted by Cirtran if Customer is not
informed of Cirtran's rejection within three (3) working days
of Cirtran's receipt thereof. Accordingly, Cirtran shall
notify Customer of rejection of any purchase order within
three (3) working days of receipt of such order and the
parties shall meet to discuss the reason for rejection. If the
problem cannot be resolved by the Parties, Customer has the
right to manufacture the Product itself or by a third party.
Within the scope of this Agreement, Customer may use its
standard purchase order form to release items, quantities,
prices, schedules, change notices, specifications, or other
notice provided for hereunder. The parties agree that the
terms and conditions contained in this Agreement shall prevail
over any terms and conditions of any purchase order,
acknowledgment form or other instrument. (See paragraph 12.7
"Order of Precedence"). Each Product will be tested in
accordance with the Specifications prior to shipment. Customer
and Cirtran will discuss the approval of vendors not on the
Approved Vendor List and any changes will be agreed upon in
writing.
(c) Products to be manufactured: Within ten (10) days following
the execution of this agreement, the Parties will meet so that
Cirtran and Customer may mutually agree upon the initial
Products or subassemblies to be manufactured by Cirtran. In
selecting such Products or subassemblies, consideration will
be given to Cirtran's proposed price, Customer's typical
delivery requirements, availability of necessary tools and
test equipment at Cirtran and other factors. The initial
Customer products to be manufactured hereunder (each a
"Product" and collectively the "Products") will be listed on
Exhibit C. Whenever Customer desires a add a new product to
4
its line, the Parties will meet so that Cirtran and Customer
may mutually agree whether the new products will be added to
Exhibit C as Products or subassemblies to be manufactured by
Cirtran under this Agreement. If Customer and Cirtran agree to
add such new products as Products hereunder, the additional
Product will be added to Exhibit C. For each Product or
revision thereof, written specifications shall include, but
are not limited to, bills of materials, schematics, assembly
drawings, process documentation, test specifications, test
procedures, current revision number, and/or approved vendor
list (hereinafter "Specifications") as attached hereto.
2.2 Payment: Terms of payment shall be net 45 days from the date of
invoice, payable in U.S. dollars. Invoices more than ten (10) days past
due shall incur late charges at the rate of one percent (1%) per month.
Cirtran will invoice Customer for a Product when the Product has been
completed and Cirtran has provided Customer with the serial number of
such Product and such additional information regarding the Product as
the parties mutually agree upon ("Product Information").
2.3 Price.
(a) Initial Pricing: The price to Customer for the Products shall
be calculated as follows ("Pricing Formula"): (i) Cirtran's
estimated cost of components and materials (with component cost
based on estimated annual usage) plus 10%, plus (ii) an
electronics assembly fee of $.07 per component, plus (iii) an
hourly charge for mechanical assembly and testing and manual
assembly at the rate of $18.00 per hour. No other costs may be
included in the Pricing Formula by Cirtran. To the extent Cirtran
uses any components in the Products as components for its other
customers, Cirtran will factor its savings from volume into the
price of the components used in the Products. As soon as
practicable after execution of this Agreement, Customer will
disclose to Cirtran, its current source and standard price based
on volume and quantity (in a mixed surface mount and through-hole
basis) of components and materials. Upon verification that the
components and materials are available to it at that cost,
Cirtran will issue a price quote utilizing such costs and the
Pricing Formula described above. When the parties have mutually
agreed on the amounts included in the Pricing Formula it will be
set forth in a Pricing Exhibit to be attached hereto as Exhibit
E. The actual price ("Price") for the Products determined using
the Pricing Formula shall be determined by Cirtran upon receipt
of a Purchase Order and Cirtran shall notify Customer of the
Price within five (5) working days after receipt of a Purchase
Order. If the Price of a Product has increased, Customer will
have two (2) working days after the date of such notice in which
to cancel the Purchase Order without any penalty.
(b) Pricing Reviews: The cost and source of components used in
5
determining the Price is to be formally reviewed by the
Parties at the start of each calendar quarter and, after a
good faith negotiation, such costs and sources will be
adjusted by mutual agreement in writing including an effective
date of the adjusted price and the Pricing Exhibit shall be
updated to reflect the adjustment. Such adjustment shall take
into account market fluctuations in component prices, Product
purchase volume increases or decreases, manufacturing cost
saving measures taken by Cirtran, cost saving engineering
changes implemented by Customer, and such other factors
reasonably impacting the costs of performing the Work. In the
event that following a quarterly review Cirtran and Customer
are unable to reach agreement upon an adjusted Price for any
Product, the Price will continue to be established in
accordance with the Pricing Formula.
(c) Cost Reductions: With respect to any manufacturing changes
implemented by Cirtran that result in a reduction in cost,
Cirtran will receive one hundred percent (100%) of the
demonstrated price reduction for ninety (90) days after the
first shipment following implementation of the change as
compensation for its implementation and then transfer the
price reduction 100% to Customer. On implementation of
Customer initiated engineering changes that result in changes
to the cost of the Products, the Customer will receive one
hundred percent (100%) of the demonstrated price reduction
minus the costs of implementation pre-approved by Customer.
2.4 Taxes: Customer shall, in addition to prices specified herein, pay
any sales, use, excise or similar tax attributable to the sale of the
Products, or in lieu thereof, provide Cirtran with a tax exemption
certificate acceptable to the taxing authorities.
2.5 Testing Failures: With respect to Products manufactured according
to the Specifications but which nevertheless experience testing
failures, Customer and Cirtran shall meet and use reasonable efforts to
determine the cause of such failures and resolve such failures.
Customer shall only be required to pay for any Products which
experience testing failures if the failure is determined to be the
result of the Specifications provided by Customer, but shall not be
required to pay for any Products which experience testing failures
determined to be caused by manufacturing or assembly by Cirtran.
2.6 Subcontractors: The Work may be performed in part, by third parties
selected by Cirtran ("Subcontractors") but only subject to prior
written approval by Customer, which shall not unreasonably be withheld.
Such Subcontractors shall be subject to a written agreement containing
the material provisions of this Agreement, including without
limitation, the confidentiality provisions hereof and naming Customer
as a third party beneficiary under such agreement. Cirtran guarantees
the performance of Subcontractors under this Agreement as if they were
party to this Agreement.
2.7 Credit: Cirtran shall extend to Customer a credit limit of up to
$750,000 during the term of this Agreement. In the event that
6
Customer's outstanding accounts exceed such credit limit, Cirtran may
suspend production and shipments until Customer makes payments to
eliminate any past due amounts and either (i) makes payments to bring
the outstanding balance below the applicable credit limit; or (ii)
provides a letter of credit or other security for payment acceptable to
Cirtran in Cirtran's reasonable judgment.
3. COMPONENTS, WARRANTY AND RETURNS
3.1 Consigned Materials: Upon reasonable notice to Cirtran and upon the
execution of an appropriate agreement, Customer may supply consigned
materials to Cirtran ("Consigned Materials"). Customer shall take
reasonable measures to ensure that all Consigned Materials shall be
delivered to Cirtran in sufficient time and in sufficient quantities,
taking into account customary attrition levels, to allow Cirtran to
meet scheduled delivery dates for the applicable Products. Customer
shall take reasonable measures to ensure that all Consigned Materials
shall be in good condition, meet Product Specifications, be packaged in
a readily usable format, and be free of any defects or deficiencies.
Customer shall retain title to Consigned Materials and Cirtran shall
not be obligated to purchase any Consigned Materials. Premium Charges
may apply in the event of late delivery of Consigned Materials, or the
delivery of defective or incorrectly formatted Consigned Materials,
subject to Customer's prior written approval. Except with respect to
Consigned Materials, all components, other materials and equipment
required in connection with the Work will be acquired or supplied by
Cirtran pursuant to the Specifications. Cirtran shall bear the risk of
loss for Consigned Materials that are in Cirtran's care or custody.
3.2 Cirtran Warranty: Cirtran warrants to the Customer that the
Products when delivered by Cirtran shall conform to the then current
Specifications and be free from defects in workmanship for a period of
two (2) years from the date of shipment to Customer's designated
location. Any Products that do not meet the foregoing warranty shall be
repaired or replaced at Cirtran's sole option and expense, within ten
(10) business days of receipt by Cirtran of the returned Product;
provided that (i) Customer obtains a Return Material Authorization
("RMA") from Cirtran prior to returning the Products, (ii) the Products
are returned within two (2) years of the date the Product was delivered
to Customer's designated location, and (iii) a failure analysis shall
accompany the Product. Such warranty shall not apply if Customer or its
customer alters, misuses, neglects, or abnormally stresses the
Products. With respect to any components acquired or supplied by
Cirtran that are incorporated into the Products other than with respect
to workmanship or handling of the components by Cirtran, Cirtran makes
7
no representation or warranty, except that Cirtran agrees to pass
through to Customer the warranty, if any, originally provided to
Cirtran by the manufacturer of such components. Cirtran agrees to use
its best commercial efforts to ensure that such warranties may be
passed through to Customer.
3.3 Representations and Warranties.
(a) By Customer: Customer represents and warrants to Cirtran that
(i) it has the right to provide Cirtran with Consigned
Materials, (ii) to the best of Customer's current knowledge,
the Customer's Intellectual Property provided to Cirtran
hereunder, including without limitation, the Specifications,
does not infringe the proprietary rights of any third party,
and (iii) Customer has the right and power to enter into this
Agreement.
CUSTOMER MAKES NO OTHER REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THIS AGREEMENT AND DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR
ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
(b) By Cirtran: Cirtran represents and that (i) the methods and
processes employed by Cirtran in manufacturing the Products
(other than those specifically required by the Specifications)
shall not violate the trade secrets or other proprietary
rights of a third party, (ii) the Product shall be delivered
free of any liens or encumbrances, and (iii) it has the right
and power to enter into this Agreement.
EXCEPT FOR THE WARRANTIES IN SECTIONS 3.2 AND THIS SECTION
3.3(b), CIRTRAN MAKES NO OTHER WARRANTIES, EXPRESSED OR
IMPLIED, WITH RESPECT TO THE COMPONENTS, PRODUCTS OR ANY
SERVICES PROVIDED UNDER THIS AGREEMENT, AND DISCLAIMS ALL
OTHER WARRANTIES INCLUDING THE WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT, OR
ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
(c) Indemnity: Each party agrees to indemnify the other party and
hold the other party harmless from and against any and all
losses, liabilities, damages, expenses and costs (including
attorneys' fees and court costs) arising from a third party
claim directly resulting from breach or alleged breach of the
indemnifying party's representations, warranties or covenants
contained in this Agreement or incurred in the settlement or
avoidance of any such claim. This indemnity shall not apply
(i) if the indemnified party fails to give the indemnifying
party prompt notice of any such claim or threatened claim and
8
such failure materially prejudices the indemnifying party, and
(ii) unless the indemnifying party is given the opportunity to
assume full control of the defense or settlement and the
indemnified party provides reasonable assistance. Furthermore,
if the indemnified party assumes such control, it shall only
be responsible for the legal fees and litigation expenses of
the attorneys it designates to assume control of the action.
Customer agrees that, if notified promptly in writing and
given the opportunity to assume full control of the defense or
settlement, it will defend Cirtran from any claim or action
and will hold Cirtran harmless from any third party loss,
damage or injury, including death, which arises from any
alleged defect of Customer's design or manufacturing
Specifications of any Products or from Customer's negligence
or willful misconduct. Similarly, Cirtran agrees that, if
notified promptly in writing and given the opportunity to
assume full control of the defense or settlement, it will
defend Customer from any claim or action and will hold
Customer harmless from any third party loss, damage, or
injury, including death, which arises from any alleged
workmanship defect of any Products or otherwise from Cirtran's
performance of the Work hereunder, or from Cirtran's
negligence or willful misconduct.
3.4 Odd Units: The Parties acknowledge and agree that Customer may from
time to time, request in writing the manufacture and testing of first
articles, prototypes, pre-production units, test units or other similar
products ("Odd Units"). Cirtran makes no representations or warranty as
to Odd Units identified as such by Customer and assumes no liability
for or obligation for such Odd Units related to yield, performance,
accuracy, specifications, defects of or due to (i) fixtures, designs or
instructions produced or supplied by Customer, (ii) Consigned
Materials, (iii) components or other equipment from any vendor on the
Approved Vendor List or (iv) printed circuit boards or any other
Customer designated components that are manufactured pursuant to
Customer's Specifications.
3.5 Repair: At Customer's request, Cirtran will perform repair work on
out-of-warranty Products pursuant to terms and conditions to be set
forth in a separate written agreement.
3.6 Source Inspection: Upon request from Customer, and with at least
three (3) business days notice and during normal business hours,
Cirtran will grant access to its manufacturing facilities to Customer's
inspectors. Customer's inspectors shall have the right to do time
studies to verify that the Pricing Formula's are accurate and to
examine Cirtran's purchasing records to insure that the component costs
are accurate. Such inspection and any related testing might take place
prior to the shipment of Customer's Products.
3.7 Customer Support: Cirtran shall provide to Customer at no cost
office space, telephone services and access to office equipment and
9
supplies reasonably necessary to support Customer personnel at
Cirtran's factory for the purpose of understanding the manufacturing
processes of the Product.
4. PROPRIETARY MATERIALS
4.1 Delivery of Technology. Customer shall provide to Cirtran,
Customer's proprietary information necessary for the assembly and
testing of the Products ("Customer Technology") solely for the purpose
of performing the Work pursuant to Purchase Orders issued by the
Customer. All Customer Technology is and shall remain the property of
the Customer and Cirtran is not granted any license under such Customer
Technology. Cirtran shall not be provided with or have the right to use
the source code form of any software provided to Cirtran by Customer.
4.2 Rights in the Product. The Intellectual Property rights in and to
the Products are owned by the Customer and are protected by United
States and international copyright and patent laws and treaty
provisions. This Agreement does not constitute a sale and does not
transfer to Cirtran any title or ownership interest in or to the
Products or any patent, copyright, trade secret, trade name, trademark,
or other proprietary or Intellectual Property rights related to the
Products. Except for the rights expressly granted herein, Customer
retains all of its right, title and interest to and to the Products and
to any modifications, improvements, reports, designs, inventions,
specifications or other materials developed in connection with
Cirtran's manufacture of the Products and all Intellectual Property
rights therein (collectively, "Developments") prepared by Customer.
4.3 Confidential Information. Cirtran agrees that neither it nor any of
its employees will use for their own account (except as expressly
permitted under this Agreement) or for the account of any third party
or disclose to any third party any Confidential Information of the
other party. The parties understand, however, that Confidential
Information shall not include any information which the other party can
demonstrate was (a) generally known and available in the public domain
at the time of disclosure, (b) known to the receiving party prior to
disclosure, or (c) hereafter rightfully furnished to the receiving
party by a third party without restrictions or disclosure and without
breach of confidentially restriction. Cirtran agrees that it will use
all reasonable efforts to protect the secrecy of and avoid disclosure
or unauthorized use of Confidential Information of the other Party,
which measures shall include the highest degree of care that such party
utilizes to protect its own confidential information of a similar
nature.
5. PURCHASE ORDER COMMITMENTS, SCHEDULE CHANGE CANCELLATION, AND INVENTORY
5.1 Non Binding Forecasts: Every month Customer will send to Cirtran a
non-binding rolling forecast of their next 3 months demand for each
10
Product. Cirtran and Customer shall arrange for their representatives
to meet, in person or by conference call, at least once per month to
discuss the forecast, Customer's rolling purchase order and other
scheduling matters.
5.2 Purchase of Materials.
(a) Long Lead-Time Components. The parties may mutually agree
upon a list of Long Lead-Time Components and Materials to be
attached as Exhibit B. Thereafter, Cirtran will provide Customer
with any updates to the list of Long Lead-Time Components and
Materials. Customer shall review such list on a quarterly basis
and, following such review, the parties shall agree in writing on
which Long Lead Time Components and Materials Cirtran may
purchase on behalf of Customer in accordance with this Section
5.2 Cirtran may purchase Long Lead Time Components based on
Customer's Forecast but in quantities no greater than necessary
to fill orders projected in Customer's Forecast and not in
advance of the lead time actually necessary to enable Cirtran to
fill the projected orders identified in the Forecast.
(b) Other Special Inventory. Only upon written approval from
Customer, Cirtran will be authorized to purchase inventory
beyond the amount necessary to fill accepted Purchase Orders
as follows: (i) inventory purchased in quantities above the
required amount in order to achieve price targets ("Economic
Order Inventory"); and (ii) Minimum Order Components and
Materials which shall be mutually agreed upon and set forth on
Exhibit F. Economic Order Inventory, Minimum Order Components
and Materials and Long Lead Time Components together are
called "Special Inventory." The parties shall review the
mutually agreed upon Special Inventory on a quarterly basis
and update the applicable Exhibits. Cirtran will utilize any
excess Special Inventory on a "first in-first out" basis prior
to ordering additional Special Inventory. Cirtran will
purchase material on behalf of Customer only upon receipt of a
hardcopy or electronic Purchase Order, except for Special
Inventory, which Cirtran may purchase as discussed above. If,
based on a change in Customer's forecasts or needs, previously
purchased Special Inventory may no longer be utilized in the
Products, Cirtran will use best efforts to utilize any such
Special Inventory for its other customers.
(c) NCNR Components and Materials. The parties will mutually agree
upon a list of NCNR Components and Materials and set forth
such list as Exhibit G; provided that inclusion of NCNR
Components and Materials on Exhibit G will not be unreasonably
withheld. Thereafter Cirtran will provide Customer with
quarterly updates to the list and after review, the parties
shall mutually agree upon revisions to Exhibit G.
11
(d) Engineering Changes. Customer will notify Cirtran in writing
of material and engineering changes to be implemented
indicating the proposed date of such changes, including
appropriate specifications and updated drawing revisions and
specifying the change as mandatory or production convenient.
Cirtran will acknowledge receipt of such ECO in writing
("Engineering Change Notice"). Cirtran shall review the ECO,
determine the cost, schedule effects, Inventory effects and
related issues resulting from implementing the change within
three (3) business days ("Cirtran Response"). Customer shall
provide a written acceptance or rejection of the Cirtran
Response within three (3) business days from receipt. Cirtran
shall not implement the change until it receives from Customer
a written authorization to implement the Engineering Change
Notice indicating the date of implementation ("Authorization
to Implement"). Upon receipt of an Authorization to Implement,
Cirtran shall take all action necessary to reduce any
liability of the parties for NCNR Components and Materials.
Customer shall pay Cirtran for its actual costs plus a xxxx-up
of 10%, or such lesser amount as the parties may mutually
agree upon (the "Xxxx-up") of Inventory which would become
obsolete as a result of such change existing as of the date of
implementation specified in the Authorization to Implement,
whereupon Customer shall take title to such obsolete Inventory
and Cirtran shall deliver such obsolete Inventory to Customer
or otherwise dispose of such obsolete Inventory in accordance
with Customer's instructions. Upon receipt of the
Authorization to Implement, Cirtran shall implement
immediately or on the next unreleased order the change
specified in the Authorization to Implement subject to
material availability and to mutual agreement of any resulting
cost.
5.3 Inventory of Finished Products. Upon completion of manufacture of
the Products, if Customer has not provided shipping instructions to
Cirtran, at Customer's written request, Cirtran shall hold such
finished Products ("Finished Product Inventory") in an appropriate
storage facility. Cirtran shall properly insure such Products and shall
bear the risk of loss for any Product located in such storage facility.
Such storage may be subject to a Premium Charge to be determined on a
case by case basis and subject to Customer's prior written approval.
5.4 Schedule Change. Customer may change the quantity of Products or
their delivery date as contained in any accepted Purchase Order only
with Cirtran prior written consent, which shall not be unreasonably
withheld. Customer acknowledges that a Premium Charge may be incurred,
subject to Customer's prior approval. In the event of quantity
increases Cirtran will use best efforts and worldwide procurement
resources to fill such orders. If meeting a schedule increase would
result in costs in excess of the costs agreed upon pursuant to Section
2.3, Cirtran will provide the Premium Charge to the Customer in writing
for approval in advance.
12
5.5 Cancellation. In the event the Customer wishes to cancel any
order, the cancellation shall be in writing.
(a) Within 30 calendar days from the scheduled delivery date
orders shall be non-cancelable.
(b) More than 30 calendar days prior to of the scheduled delivery
date, Customer may cancel orders and Cirtran shall make
reasonable commercial efforts to (i) return components which
were to be used to fill cancelled orders to the supplier of
the components or otherwise utilize any such components; or
(ii) cancel Cirtran's order for such components; or (iii) at
Customer's option, carry such components in Inventory for
utilization in future orders subject to the charges described
in Section 5.5(c).
(c) Components carried in inventory pursuant to Section 5.5 (b)
above along with any Special Inventory and NCNR Components and
Materials which is reasonably allocable to Products that are
the subject of canceled orders (based on previous allocations
of Special Inventory and NCNR Components and Materials to
Product orders) ("Cancellation Excess Inventory") will be
reviewed on a monthly basis and identified by using Cirtran's
MRP system INFIMACS II Excess Inventory Dollar Report. Cirtran
may charge a fee of Five percent (5%) per month for on-hand
Cancellation Excess.
(d) Cirtran shall provide Customer with a list of restocking
charges, "xxxx-backs", cancellation charges or any other
charges that would be incurred by Cirtran in returning
components and materials to suppliers that had been purchased
in support of Customer Purchase Orders of Products. Customer
may elect to have Cirtran return the components and materials
and shall pay all such charges plus the applicable Xxxx-up
charge as set forth in Exhibit E, or to purchase the
components and materials from Cirtran at cost plus ten percent
(10%).
(e) Cirtran shall use its best efforts to minimize cancellation
charges by returning inventory and material for credit,
canceling material on order, applying material to other
Cirtran business, and minimizing all work-in-process and
finished goods to support the final production schedule. Upon
payment of the purchase price for the components and materials
described in the last sentence of Section 5.5(d) above
relating thereto, all NCNR Components and Materials at Cirtran
or on order shall be delivered to Customer if so requested and
upon payment of such purchase price plus the electronics and
mechanical assembly fees, all finished goods inventory of
Products and work-in-process shall be delivered to Customer if
so requested.
5.6 Special Tooling and Non Standard Test Equipment. Customer will
provide to Cirtran any special tooling and non-standard test equipment
13
as set forth by Customer in Exhibit H to be prepared by Customer and
attached to this Agreement and which shall be update from time to time
("Tooling"). Any such Tooling and non standard test equipment supplied
by Customer shall remain the property of Customer and will be only used
to supply Product to Customer. All standard tools and test equipment
which can be purchased commercially will be provided by Cirtran.
6. SHIPPING
Cirtran shall ship Products FOB West Valley City, Utah. Cirtran
shall deliver Products in accordance with the requested delivery dates as
specified on Customer's Purchase Orders. Cirtran shall deliver Products to
Customer or drop ship Products to other locations identified by Customer
in accordance with detailed shipping instructions to be provided by
Customer. Cirtran shall ship Products within two business days from
receipt of Customer's shipping instructions if finished Products are
available in Cirtran's inventory or within two business days from
completion of the manufacture of the required quantity of the Product if
insufficient quantities of finished Products are in inventory. Each
shipment shall contain certified copies of test data with the signature of
the test technician. Upon learning of any potential delays Cirtran shall
immediately notify the Customer in writing as to the cause and extent of
any such delay and Cirtran's plan to remedy or reduce such delay. All
Products delivered pursuant to the terms of this Agreement shall be
suitably packed for shipment in the Customer's specified and approved
shipping containers, marked for shipment to the destination specified in
the applicable Purchase Order or shipping instructions and delivered to a
carrier or forwarding agent. At Customer's request and expense, Cirtran
will arrange for shipment of Products by preferred carrier(s) specified
from time by time by Customer. Such shipment will be F.O.B. Cirtran's
facility in West Valley City, Utah, at which time risk of loss and title
will then pass to Customer. The Customer will pay for all freight,
insurance, and other shipping expenses, as well as any special packaging
expenses not included in the Price for the Products. Cirtran will provide
shipping confirmation to Customer within twenty-four (24) hours of
shipment, listing all pertinent information to enable Customer to invoice
Customer's own customers for such shipments, including without limitation,
for each shipment quantity shipped, description and serial numbers of the
Product, date of shipment and ship to destination.
7. TERM AND TERMINATION
7.1 Term. This Agreement shall be for an initial term of thirty (36)
months, and shall continue thereafter on a month to month basis unless
terminated by either party on written notice. Any month to month
termination pursuant to the preceding sentence shall be effective on
the later of (i) thirty days after the date of the notice, or (ii) the
date that CUSTOMER completes its purchases pursuant to all orders
outstanding at the date of the notice.
14
7.2 Termination. This Agreement may be terminated by either party:
(a) For Cause. This Agreement may be terminated by a Party for
cause immediately by written notice upon the occurrence of any
of the following events:
(i) If the other ceases to do business, or otherwise
terminates its business operations; or
(ii)If the other breaches any material provision of this
Agreement and fails to cure such breach within thirty (30)
days of written notice describing the breach; or
(iii) If the other seeks liquidation under any bankruptcy or
receivership proceedings, or if any such proceeding is
instituted against such party and not dismissed within
ninety (90) days.
(iv)If the other party defaults in any payment to the
terminating party and such default continues without a cure
for a period of ten (10) days after the delivery of written
notice thereof by the terminating party to the other party.
7.3 Effect of Termination and Survival. Sections 3.2, 3.3, 4.2, 4.3, 7,
8, 9, 10, 11, 12, and all payment obligations incurred prior to
termination shall survive. Upon termination of the Agreement, Customer
shall pay Cirtran's actual cost plus the applicable Xxxx-up and take
title to all Excess Inventory. Upon termination Cirtran will return all
Special Tooling and non-standard test equipment supplied by Customer
and shall return or destroy, at Customer's option, all Customer
Confidential Information in the possession of Cirtran's or its
subcontractors.
8. LIABILITY LIMITATION
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF PROFITS OR
FOR ANY CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES ARISING OUT OF THIS
AGREEMENT ON ANY THEORY OF LIABILITY INCLUDING UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
9. RELATIONSHIP OF PARTIES
The relationship between the parties to this Agreement is that of
independent contractors and this Agreement does not create a general
agency, joint venture, partnership, employment relationship, or franchise
between Cirtran and Customer. Each Party assumes full responsibility for
employees, agents or other personnel assigned by it to perform work
pursuant to this Agreement, regardless of their place of work, and shall be
solely responsible for payment of salary, including withholding of federal
and state income taxes, social security, worker's compensation etc.
15
10. DISPUTE RESOLUTION
10.1 Binding Arbitration. Any controversy or claim between the parties
hereto arising out of this Agreement shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. The arbitration shall
be conducted in Los Angeles County, California, before the American
Arbitration Association In the event of a disagreement as to the
selection of an arbitrator; the presiding Judge of the Superior Court
having jurisdiction to enforce the arbitration award shall select the
arbitrator. Judgment on the award that arbitrator renders may be
entered in any court having jurisdiction over the parties. Each party
shall pay one half of the cost of the Arbitration.
10.2 Attorney's Fees. The prevailing party in any legal action or
proceeding to enforce this Agreement shall be entitled to recover from
the unsuccessful party its reasonable attorney's fees and all other
costs incurred in connection with such proceeding or the enforcement of
the Agreement.
11. FORCE MAJEURE
Neither party to this Agreement shall be liable for its failure
to perform any obligations under this Agreement if such performance is
prevented or delayed or due to causes beyond its reasonable control,
including without limitation, fires, floods, earthquakes, accidents, Acts
of God, governmental laws or regulations.
12. MISCELLANEOUS
12.1 Governing Law. This Agreement shall in all respects be governed
by and constructed in accordance with the laws of the State of
California, excluding that body of laws known as conflict of laws.
12.2 Assignability. Neither party may assign this Agreement without
prior written consent of the other party, which consent shall not be
unreasonably withheld, provided that either party may assign this
Agreement to a party that succeeds to all or substantially all such
party's business or assets relating to this Agreement, whether by sale,
merger, operation of law or otherwise.
12.3 Amendment and Waiver. Except as otherwise expressly provided
herein any provision of this Agreement may be amended and the
observance of any provision of this Agreement may be waived (either
generally or in any particular instance and either retroactively) only
with the written consent of the parties. This Agreement shall be
controlling over additional or different terms of any purchase order,
confirmation, invoice or similar document. A waiver by any party of any
term or condition of this Agreement in any one instance shall not be
16
deemed or construed to be a waiver of such term or condition for any
similar instance in the future or of any subsequent breach hereof.
12.4 Notice. All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally, sent by
document, overnight delivery service or, to the extent receipt is
confirmed, sent by facsimile transmission to the number below.
Notice to Cirtran addressed to:
Cirtran Corporation
0000 Xxxxx 0000 Xxxx
Xxxx Xxxxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Fax: 000-000-0000
Notices to Customer shall be addressed to:
Broadata Communications, Inc.
0000 Xxxx 000xx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx
Fax: 000-000-0000
or at such other address and to the attention of such other person
as either party may designate by written notice to the other.
12.5 Entire Agreement. This Agreement supersedes all proposals, oral or
written, all negotiations, conversations, or discussions between or
among parties relating to the subject matter of this Agreement and all
past dealing or industry custom.
12.6 Severability. If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated
to the minimum necessary so that this Agreement shall otherwise remain
in full force and effect and enforceable.
12.7 Other Terms, Order of Precedence. In the event of any
inconsistency between this Agreement, or other documentation relating
to the purchase of the Products, the order of precedence shall be:
(a) This Agreement,
(b) Customer Purchase Order
(c) Cirtran Order Acceptance
12.8 Public Release of information: Cirtran shall not, without the
prior written consent of Customer, make any news release or public
announcement concerning this Agreement or any future Agreements.
17
Cirtran shall extend this restriction to lower-tier subcontractors
involved in the performance of this Agreement or future Agreements.
12.9 Cirtran Contacts with Buyer's Customers: Customer shall be
responsible for all liaison and communications with Customer's
customer. Cirtran shall not communicate with Customer's customer
regarding this Agreement unless authorized to do so in writing by
Customer.
12.10 Release of Liens: All materials or articles delivered and labor
performed under this Agreement shall be free of all liens and, if
Customer requests, a proper release of all liens or satisfactory
evidence of freedom from liens shall be delivered to Customer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year, first above written.
"CUSTOMER" "CIRTRAN"
/s/ Xxxx Xxxxxx /s/ Xxxxx Xxxxxxxx
-------------- ---------------
Xxxx Xxxxxx Xxxxx Xxxxxxxx
CEO and President CEO and President
18
EXHIBIT A - APPROVED VENDOR LIST
19
EXHIBIT B - LONG LEAD TIME COMPONENTS AND MATERIALS
20
EXHIBIT C - PRODUCTS
21
EXHIBIT D - FORM OF PURCHASE ORDER
22
EXHIBIT E - PRODUCT PRICING
23
EXHIBIT F - OTHER SPECIAL INVENTORY
24
EXHIBIT G - NCNR COMPONENTS AND MATERIALS
25
EXHIBIT H - TOOLING AND EQUIPMENT
26
