1
EXHIBIT 10.2
PROCESSING AGREEMENT
No.91 Dongguan (97)
In Dongguan
on 18th August 1997
For the purposes of developing friendly trade of both parties, Dongguan Foreign
Processing and Assembly Service Company in conjunction with Dongguan Hengli
Foreign Industry Development Company ("Party A") and Zindart Industrial Company
(HK) Limited ("Party B") upon the basis of equality and mutual benefits, for the
business of work of die cast plastic toys processing, both parties after full
negotiations agree unanimously in Dongguan on 18th August 1997 as follows :-
1. RESPONSIBILITIES OF BOTH PARTIES
Party B shall be responsible for the provision without charge of the
facilities necessary for the processing work (see the list for details),
which shall be delivered to the factory of Party A in different
scheduled shipments from August 1997. The total value of the facilities
is HK$26,141,900. The rights of the facilities provided without charge
belong to Party B.
Party B shall provide all the raw materials, supplementary and packaging
materials without charge. Party A shall provide the corresponding
factories, electricity and labour for the processing work for Party B
within the period of agreement. Party A shall receive a processing fee
or rent for the factory, fees for land use right and a management fee.
All the products are exported and handled by Party B.
After the facilities are delivered to the factory of Party A, Party B
shall send technicians to the factory of Party A as soon as possible so
as to assist in the instalment and provide technical guidance. The
wages, travelling expenses, telephone expenses, electricity used and
expenses for food and living are the responsibilities of Party B. Party
A shall provide support.
2. TOTAL VALUE OF PROCESSING FEE
Total value of the processing fee is HK$1,500,000.00 for the first year.
Total value of the processing fees from the second year onwards shall be
increased over the first year fee. The rate of increase for each year
shall not be less than 10%.
-1-
2
3. CALCULATION OF PROCESSING FEE
(1) The processing fee shall uphold the principles of mutual
benefits, and after friendly negotiations between both parties,
the price shall be fixed specifically at the time of signing of
the production contract according to the samples and after trial
production. During the period of trial production, Party B shall
be responsible to pay to Party A HK$600.00 per month for each
person (50 people for the first batch, thereafter 50 people).
After the expiration of trial production period, according to
the number of the workers in the factory, the processing fee for
each person shall not be less than HK$800.00 per month (26
working days, 8 hours per day).
(2) Party A is responsible for the provision of the factory and the
premises. Area of the factory is [/ ]sq m, the rental of the
factory is [/ ]sq m per month; area of the premises is [/ ]sq m,
the usage fee for the premises is [/]sq m per month. The rental
of the factory and the usage fee for the premises shall be paid
by Party B and included in the processing fee. Taxation for the
rental of the factory is borne by Party A. Management fee for
the workers: HK$[ / ] per person per month, to be included in
the processing fee and paid by the Party B.
(3) The rental of the factory, fees for the land use right,
management fee for the workers stated as above shall be
increased by not less than [ / ]% per year from the second year.
4. SOCIAL BASIC FACILITIES FEE
Enterprises which employ foreign workers shall pay a social basic
facilities fee to the local labour department.
5. RESPONSIBILITY FOR QUALITY, PERIOD OF TRIAL PRODUCTION
AND RATE OF DEFECTIVE PRODUCTS
Party B shall be responsible for sending people to the factory of Party
A to check the quality of the products. Party B shall be responsible for
failed and defective products resulting from poor quality of the raw or
supplementary materials or mistakes in the technical guidance. Party B
shall be responsible for the expenses of the products which need to be
done over again.
From the effective date of the Agreement, the trial production period is
3 months. The rates of wastage and of defective products within the
period of trial production shall be reimbursed according to the actual
amounts affected. The actual rates of wastage and of defective products
after this period shall be negotiated by both parties.
-2-
3
6. SUPPLY OF MATERIALS AND DATE OF DELIVERY
Party B guarantees to provide sufficient quantities of raw materials and
supplementary and packaging materials each month in accordance with the
quantities of processing work stipulated in this Agreement so that the
factory of Party A can have normal production. Party B shall deliver the
raw materials and supplementary materials to the factory of Party A 10
days before the production of each batch of products. In order that the
business of Party B can be developed normally, the factory of Party A
shall deliver the goods on time, according to the samples and quantities
and according to the specific date of delivery negotiated by both
parties. Specific matters shall be set out in the specific contracts.
7. METHOD OF PAYMENTS
The method of payment of the processing fee: both parties agree to
adopt advance payments and settlement later, settlement on a monthly
basis. Party B shall remit payment to Party A via the Bank of China in
Hong Kong. If not remitted on time, Party B shall compensate Party A
according to the prevailing interest rate of the banks in Hong Kong.
Where necessary, Party A shall have the right to stop delivery of goods.
8. TRANSPORTATION
Import and export of the raw materials and supplementary materials and
the products shall all be via Shenzhen Huang Gang Kouan (or Wenjindu,
Shatoujiao, Taiping Kouan). Party B shall be responsible for all
necessary delivery expenses for the round trip from Hong Kong to the
factory of Party A. According to the quantity of goods transported by
Party B and the conditions and facilities thereof, Party A will assist
Party B to apply for a 1.3 ton truck.
9. INSURANCE
(1) Party B shall be responsible for the purchase of comprehensive
insurance for the import of raw materials, supplementary materials and
the packaging materials and the export of finished products; Party B
shall be responsible for the purchase of fire insurance for the
production facilities and the raw materials, supplementary materials,
packaging materials at the factory, goods in production and finished
products. All of the above insurance fees shall be borne by Party B and
Party B shall enter into a specific insurance contract with the Dongguan
Insurance Company.
(2) Both parties agree that all the workers and staff shall join the
social labour insurance and pay the insurance premium in proportion to
the wages.
10. PAYMENT OF TAXES
Both parties agree and guarantee to pay taxes according to the law.
-3-
4
11. FORCE MAJEURE
Upon the occurrence of an event of war or serious natural disaster or
other events of force majeure as agreed by both parties which result in
one party being unable to perform this Agreement, the affected party
shall notify the other party of the incident, and negotiate with the
other party to extend the period of performance of this Agreement. The
party suffering any losses from such event shall not claim compensation.
12. ARBITRATION
Should any dispute arise during the performance of this Agreement, both
parties shall enter into friendly negotiations in order to resolve the
dispute. If the dispute is not resolved, it shall be submitted to the
China International Economic and Trade Arbitration Commission for
arbitration. The arbitration decision shall be final and binding on both
parties. Arbitration expenses shall be borne by the losing party.
13. EFFECTIVE PERIOD OF THE AGREEMENT AND MISCELLANEOUS
This Agreement will become effective after approval by the relevant
departments. The term of the Agreement is three years from the effective
date. Terms for extension or termination shall be discussed in friendly
negotiations and determined by both parties 6 months prior to the expiry
date of this Agreement.
Matters not stipulated in this Agreement may be amended or supplemented
at any time after negotiation between the parties and shall be approved
by the original approval authority. Matters where either one party does
not agree or for which approval is not obtained shall be invalid.
This Agreement has four counterparts. Party A has two sets, the business
agent has one set, Party B has one set, and all have the same legal
effect. There also several copies of the sets.
(1) Party B shall be responsible for the payment of the harbour fees
calculated according to 0.5% of the processing fee. Party A
shall list the fee on the invoices.
(2) When the enterprise is recruiting workers, arranging work and
the facilities of the factory etc., it shall act according to
the INDUSTRIAL SAFETY AND SANITATION MANAGEMENT RULES and the
FIRE PREVENTION RULES OF THE PEOPLE'S REPUBLIC OF CHINA in order
to protect the legal rights of the workers. It shall provide a
working place and living facilities in accordance with the
requirements of industrial safety and sanitation and shall
protect the health of the workers.
-4-
5
(3) Any one of the following situations shall be deemed termination
of this Agreement by one party :
(1) Party B does not deliver the facilities for production
within half a year from the effective date of this
Agreement;
(2) No extension procedures have been initiated after half a
year from the expiry of this Agreement;
Imported equipment under this Agreement shall be reported to and dealt
with accordingly when the Agreement is unilaterally terminated.
Party A Party B
Name of Company: Name of Company:
Dongguan Hengli Foreign Industry Zindart Industrial Company (HK) Limited
Development Company
Address: (Unclear) Address: 57, Ting Kok Road,
Tai Po, New Territories
Tel. No.: 3371829 Tel. No.: 2665699
Representative : Chen Ren Hui Representative: Wu Hoi Lam
Factory of Party A : Dongguan Hengli Xinda Toys and Gifts Factory
Address : Xincheng Industrial Area, Hengli Town
Tel. No. : 3375752
Representative : Wu Zhen Qiu (Dongguan Foreign Processing and Assembly
Service Company)
Business Agent : Dongguan Foreign Processing and Assembly Service Company
Address : No. 6, Guan Cheng Xi Zheng Lu, Dongguan
-5-
6
Tel. No. : 2224149, 2216644
Representative : (Chop and signature illegible)
-6-