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EXHIBIT 10.40
MANUFACTURING AGREEMENT
This contract manufacturing sales agreement ("Agreement") is entered into
as of the 25th day of November, 1997 between the following parties:
CUSTOMER: NTN Communications, Inc.
Attn: Geoffrey D. Labat
Chief Operating Officer
5966 La Place Court, Suite 100
Carlsbad, CA 92008
Telephone No: (760) 929-5220
Facsimile No: (760) 929-5221
MANUFACTURER: Climax Technology Co. Ltd.
Attn: Michael Chang
President
HF, No. 3, Alley 2, Lane 176
Fu-Ten 1st Rd.
Hsi-Chih-Chen
Taipei Hsiean
Taiwan, Republic of China
Telephone No: 011-886-2-694-0667
Facsimile No: 011-886-2-694-0633
PREMISES
- - Manufacturer has agreed to act as exclusive manufacturer and supplier to
Customer during the term of this Agreement, including components
procurement, assembly, and testing, of the hand-held, portable, wireless
keypad transmitter and related base station and associated cables and
peripherals used in the interactive sports and trivia games broadcast over
the NTN Network(TM)(each collection of ten (10) keypad transmitters and one
(1) base station and associated peripheral equipment being hereinafter
referred to as a "Playmaker(R) Unit").
- - Manufacturer will manufacture the Playmaker Units, as directed by Customer,
at its manufacturing facility in Taipei, Taiwan and through any
sub-manufacturers that may be selected by Manufacturer and approved in
writing by Customer. Manufacturer will be solely responsible for material
acquisition and the manufacturing process.
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Manufacturer and Customer mutually agree on the following:
1. PURPOSES OF THE AGREEMENT
Customer agrees to purchase from Manufacturer and Manufacturer agrees to
manufacture and sell to Customer Playmaker Units conforming to the design
specifications and diagrams and modifications thereto contained in Schedule A
attached hereto and incorporated herein by this reference (the "Playmaker
Specifications"), as the same may be modified by the parties from time-to-time,
and in accordance with the terms and conditions of this Agreement.
Customer will place orders for Manufacturer to manufacture and deliver the
Playmaker Units in accordance with the procedures set forth in Section 3
hereof. Orders will make reference to this Agreement and may be transmitted via
facsimile at the facsimile number specified in preamble of this Agreement.
2. TERM OF AGREEMENT
This Agreement shall become effective as of the date specified above and
will remain in effect until the first anniversary of the delivery date
specified in the first purchase order issued by Customer pursuant to Section 3
hereof unless otherwise terminated as provided in Section 8 of this Agreement.
Upon the expiration of the initial term, this Agreement shall be automatically
renewed for successive terms of one (1) year each unless either party shall
deliver notice to the other at least sixty (60) days prior to the expiration of
the initial term or to the expiration of the one (1) year renewal term then in
effect.
3. PURCHASE ORDERS AND RESCHEDULING
3.1 Initial Orders
3.1.1 Customer may place the following Playmaker Unit orders (the
"Initial Orders") during the first twelve months of the initial term of this
Agreement for delivery F.O.B. Manufacturer's plant in Taipei, Taiwan on the
Shipping Date indicated below; provided, that a binding commitment for the
Initial Orders shall be established only by issuance of one or more purchase
orders by Customer:
SHIPPING
P.O. DATE QUANTITY DATE SHIPMENT
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1st Order 12/ /97 100 4/9/98 Air
2nd Order 01/05/98 100 5/24/98 Air
3rd Order 02/02/98 100 6/8/98 Sea
4th Order 03/02/98 100 7/10/98 Sea
5th Order 04/01/98 100 8/9/98 Sea
6th Order 05/01/98 100 9/3/98 Sea
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3.1.2 By its execution of this Agreement, Manufacturer hereby
covenants and agrees that it shall fulfill the Initial Orders upon the foregoing
terms subject only to receipt of a purchase order for each Initial Order on its
respective date as specified in Section 3.1.1 and without the need for the
procedures specified in Section 3.2.
3.2 Orders Other Than Initial Orders
3.2.1 At least forty-five (45) days (all reference to "days" or
"business days" in this Agreement shall refer to Pacific Standard Time or
Pacific Daylight Saving Time as applicable) prior to the commencement of each
calendar quarter ("Quarter"), Customer will advise Manufacturer in writing of
the minimum quantities of Playmaker Units Customer intends to order from
Manufacturer during the next succeeding Quarter. Promptly following its receipt
of that notice, Manufacturer shall determine the availability of components to
meet Customer's minimum quantity requirements as specified in Customer's
notice. As promptly as practicable, but not later than seven (7) days following
its receipt of Customer's notice, Manufacturer shall advise Customer in writing
of the availability for procurement by Manufacturer on a monthly basis during
the Quarter of components necessary to enable Manufacturer to supply the
Playmaker Units specified by Customer.
3.2.2 Based on the information provided by Manufacturer pursuant to
the procedures set forth in Section 3.2.1, Customer will have the option to
place, not later than seven (7) days after receipt of Manufacturer's notice
pursuant to Section 3.2.1, one (1) or more irrevocable purchase orders
("Orders"). Any Order shall specify a delivery date which is not sooner than
four (4) months following the date of such Order.
3.2.3 Thereafter, on the first business day of each month, on a
continuing basis, Manufacturer shall provide Customer with updated information
concerning the availability for procurement by Manufacturer of additional
components necessary to manufacture Playmaker Units for Customer. Customer may
place additional Orders based on that information.
3.2.4 Customer shall also follow the procedures specified in this
Section 3 in placing Orders for component parts for Playmaker Units at the
prices specified in Section 5.1 of this Agreement.
3.2.5 Provided Customer's Order is based on the information provided
by Manufacturer pursuant to Section 3.2.1 or 3.2.3, Manufacturer shall:
3.2.5.1 acknowledge Customer's Order and make components
procurement commitments to Manufacturer's suppliers based on Orders received
from Customer. With Customer's written approval, Manufacturer will also make
components procurement commitments based on Orders received from Customer with
procurement lead times longer than the Quarter covered by Customer's Order; and
3.2.5.2 manufacture and supply Playmaker Units ordered by
Customer pursuant to the procedures set forth in this Section 3.2.
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3.2.6 Unless Customer shall terminate this Agreement on account of
Manufacturer's default, as provided in Section 8 hereof, Customer shall be
liable to Manufacturer for Manufacturer's costs as a result of commitments made
by Manufacturer in accordance with Section 3.2.4 for:
3.2.6.1 the price of the Playmaker Units completed by
Manufacturer; and
3.2.6.2 all work-in-process material related to the Playmaker
Units and any procurement commitment made by Manufacturer; provided, however,
Manufacturer will make reasonable efforts to mitigate Customer's liability as
provided in Section 9 hereof.
3.3 Changes in Playmaker Specifications
3.3.1 Customer will communicate to Manufacturer any change or
modification of the Playmaker Specifications (a "Modification") requested by
Customer.
3.3.2 Manufacturer will communicate to Customer, within a reasonable
time period, but not to exceed forty-five (45) days after receipt from Customer
of notice of a Modification, its evaluation of the requested Modification,
which shall include, if applicable:
3.3.2.1 manufacturing process changes;
3.3.2.2 Playmaker Unit price changes; and
3.3.2.3 product rework cost and Modification line break-in
data
3.3.3 Following its receipt of Manufacturer's evaluation of a
requested Modification, Customer may authorize the incorporation of such
Modification into the Playmaker Specifications by written notice to
Manufacturer.
3.3.4 No Modification will be introduced by Manufacturer without
prior written approval from Customer.
4. REGULATORY LICENSING
4.1 It is the sole responsibility and obligation of Manufacturer to
obtain on behalf of Customer any and all licenses, certifications or approvals
on any Playmaker Unit delivered pursuant to this Agreement as required by any
statute or regulation enforced or administered by the United States Federal
Communications Commission ("FCC") and such FCC licenses, certifications or
approvals, as the case may be, shall have been obtained prior to delivery of
any Playmaker Units pursuant to this Agreement. Customer shall have no
obligation to accept any
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Playmaker Units delivered hereunder unless it is provided with written
documentation to its reasonable satisfaction evidencing any and all requisite
FCC licenses, certifications and approvals. The cost and expense of obtaining
all FCC licenses, certifications or approvals shall be borne by Manufacturer.
4.2 It shall also be the sole responsibility and obligation of
Manufacturer to obtain on behalf of Customer any and all licenses,
certifications or approvals on Playmaker Units required in any country other
than the United States in which Customer notifies Manufacturer it intends to
distribute the NTN Network during the term of this Agreement. The reasonable
costs and expenses of obtaining any license, certificate or approval pursuant to
this Section 4.2 shall be reimbursed to Manufacturer by Customer upon
presentation of appropriate documentation of same in the reasonable opinion of
Customer.
4.3 Customer shall cooperate with Manufacturer in ways deemed appropriate
and proper by Customer in the obtaining of any governmental license, certificate
or approval required pursuant to this Section 4.
5. PRICES AND PAYMENTS
5.1 The price for each 900 megahertz (Mhz) Playmaker Unit manufactured
hereunder is U.S. $1,923.00 and the price for each 49 Mhz Playmaker Unit
manufactured hereunder is U.S. $1,177.00. Prices are F.O.B. Taipei, Taiwan and
constitute the sum of the prices for the component parts of the respective
Playmaker Unit as follows:
900 Mhz 49 Mhz
COMPONENT PRICE COMPONENT PRICE
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Playmaker $170.00 Playmaker $100.00
Base Station 165.00 Base Station 100.00
Charger Tray 37.00 Charger Tray 37.00
Charger Adapter 15.00 Charger Adapter 13.50
HDT Antenna + 10 ft. Cable 4.00 Antenna Box 6.80
DC Cable .70 HDT Antenna 11.00
Internal DS-232 Cable 1.30 90 M Connector 1.15
DC Cable .65
Internal RS-232 Cable 1.40
50 ft. Coax Cable 5.50
5.2 Payment for each order shall be made as follows:
5.2.1 35% of Order price on date of issuance of purchase order;
5.2.2 35% of Order price forty-five (45) days after issuance of
purchase order; and
5.2.3 30% of Order price fourteen (14) days after delivery of
Playmakers in accordance with Customer's shipping instructions.
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5.3 Notwithstanding any other provision of this Agreement, and in
addition to Customer's right to reject delivery of any Playmaker Units as
provided in Section 6.3 hereof, Manufacturer and Customer agree that time is of
the essence with respect to the timely fulfillment of Orders. Customer and
Manufacturer also agree that the damages resulting from late delivery of
Playmaker Units would be impracticable to calculate with any certainty.
Accordingly the parties agree that, as liquidated damages and not as a penalty,
the price of any Playmaker Unit delivered later than as specified in any Order
issued in accordance with Section 3 of this Agreement shall be reduced by an
amount equal to the product of (i) nineteen dollars and twenty three cents
($19.23) multiplied by (ii) the number of days having lapsed between the
scheduled delivery date and the actual delivery date. Such amount shall be
deducted from the final installment payment for any such late Playmaker Unit.
6. SHIPMENT AND TITLE
6.1 Manufacturer will deliver the Playmaker Units to one or more
carriers designated by Customer in writing at the Manufacturer's plant or at
any other place or places as Manufacturer and Customer shall mutually agree in
writing.
6.2 Title and all risk of loss, including loss due to damage, shall pass
to Customer at the moment of delivery by Manufacturer of the Playmaker Units to
a carrier designated by Customer in writing. Until that time, risk of loss
shall be that of Manufacturer.
6.3 Customer shall have the right in its sole discretion to reject or
return all or any portion of any Order that is not delivered to a designated
carrier on the date specified in the Order, time being of the essence of this
Agreement. Upon written demand from Customer, Manufacturer shall promptly
refund any payment made by Customer in respect of such rejected Order or
portion thereof.
7. ACCEPTANCE AND INSPECTION
7.1 Customer shall have the right to designate one or more persons (the
"Customer Representatives") to coordinate with Manufacturer the activities of
Customer under this Agreement, and to communicate to Manufacturer any problems
relating thereto. The Customer Representatives shall have the right to inspect
the Playmakers and the manufacturing and testing methodologies employed at
Manufacturer's plant at reasonable times in order to verify that the Playmaker
Units meet the specifications and quality requirements specified in the
Playmaker Specifications.
7.2 Customer will advise Manufacturer of any shortfall in quantities
within thirty (30) days after receipt of the Playmaker Units by Customer.
Customer will notify Manufacturer promptly upon the discovery of any quality
defect or other noncompliance with the Playmaker Specifications of any
Playmaker Unit delivered pursuant to this Agreement. Playmaker Units not
conforming to the Playmaker Specifications will be returned to Manufacturer for
repair and/or replacement in accordance with Section 14 of this Agreement.
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7.3 Upon reasonable notice, Manufacturer shall have the right to send
its technicians to Customer's premises at reasonable times to review the
methodologies and the criteria used to verify that Playmaker Units shipped meet
the specifications and quality requirements stated in the Playmaker
Specifications.
8. TERMINATION FOR DEFAULT
Either party may terminate this Agreement at any time due to material
default of the other party. Prior to a termination for material default, a
written notice of default(s) shall be issued to the defaulting party, specifying
the default(s) and the time period for the default(s) to be remedied, which
shall be a period reasonably necessary to enable the defaulting party to correct
the particular default, but in no event less than forty-five (45) days or
greater than ninety (90) days (the "Cure Period"). If the default(s) are
remedied within Cure Period, the termination notice will be voided. If the
default(s) are not remedied during the Cure Period, the non-defaulting party may
terminate this Agreement by notice to the defaulting party. Upon termination
pursuant to this Section 8, the non-defaulting party shall have no further
liability to the defaulting party hereunder.
9. MITIGATION OF LIABILITY
Upon any breach of this Agreement, the non-breaching party will take
reasonable steps to mitigate the damages caused by the breaching party. Without
limiting the foregoing, Manufacturer will take the following actions as
appropriate to mitigate Customer's liabilities, if any, incurred under this
Agreement, and to the extent possible:
9.1 Use excess materials for other Customer or Manufacturer business
requirements whenever possible;
9.2 Resell to Customer the excess materials at a price equal to
Manufacturer's purchase price;
9.3 Cancel all procurement commitments without cancellation costs for
excess materials; and
9.4 Resell excess materials.
10. GENERAL LIABILITY
10.1 Manufacturer's liability for actual damages for any cause
whatsoever is limited to the cost to Customer to replace the Playmaker Units to
be manufactured hereunder or the amount paid by Customer to Manufacturer,
whichever is the greater amount.
10.2 Customer's liability for actual damages for any cause whatsoever
is limited to the purchase price for the Playmaker Units manufactured and
delivered to Customer which conform to the Playmaker Specifications as
modified from time to time, or as to Playmaker Units not
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completed or delivered, and Manufacturer's actual out-of-pocket loss for
materials and components purchased by Manufacturer pursuant to the provisions of
Section 4 hereof.
10.3 Except as otherwise provided in Section 14.5 of this Agreement, under
no circumstances will either party be liable to the other for exemplary,
special, indirect, incidental or consequential damages, including without
limitation any actual or prospective lost revenue or profits.
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11. CONFIDENTIAL INFORMATION
11.1 All trade secrets and other non-public information including,
without limitation, information encompassed in software, related source and
object codes, firmware, technology, circuit diagrams and technical
specifications incorporated into the Playmaker Specifications as modified from
time to time pursuant to this Agreement (the "Playmaker Intellectual Property")
is jointly owned by Customer and Manufacturer. As soon as possible after the
date of this Agreement, Manufacturer shall provide to Customer a copy of each
program, diagram, document, drawing or other writing which constitutes,
describes or defines each item of the Playmaker Intellectual Property.
11.2 In the performance of or otherwise in connection with this
Agreement, one party (the "Disclosing Party") may disclose to the other party
(the "Receiving Party") certain information that (i) is marked or identified,
orally or in writing, as confidential or proprietary information of the
Disclosing Party prior to, upon or promptly after receipt by the Receiving
Party; or (ii) which the Receiving Party should recognize from the
circumstances surrounding the disclosure to be confidential (the "Confidential
Information"). The Receiving Party shall hold the Confidential Information of
the Disclosing Party in confidence and will use such Confidential Information
only for the purposes of fulfilling its obligations under this Agreement.
Nothing in this Agreement will be interpreted to confer upon the Receiving
Party any implied or express license to use the Confidential Information of the
Disclosing Party for any other purpose. The Receiving Party shall not use the
Confidential Information of the Disclosing Party for any other purpose without
the express written permission of the Disclosing Party. The Receiving Party
will not disclose, provide, disseminate or otherwise make available any
Confidential Information of the Disclosing Party or any part thereof in any
form whatsoever to any third party without the express written permission of
the Disclosing Party.
11.3 The obligations in Section 11.2 above shall not apply to any (a) use
or disclosure of any information pursuant to the exercise of the Receiving
Party's rights under this Agreement; (b) information that is now or later
becomes publicly available through no fault of the Receiving Party; (c)
information that is obtained by the Receiving Party from a third party without
any obligation of secrecy or confidentiality; (d) information that is
independently developed by the Receiving Party (e.g., without reference to any
Confidential Information); (e) any disclosure required by applicable law,
provided that the Receiving Party shall use reasonable efforts to give advance
notice to and cooperate with the Disclosing Party in connection with any such
disclosure; and (f) any disclosure with the consent of the Disclosing Party.
12. TRADEMARKS
12.1 Neither party shall have the right to use the trademarks or the
trade names of the other party, either directly or indirectly, in connection
with any product promotion or publication without the prior written approval of
the other party; provided, however, that Customer may, in its discretion,
indicate in product promotion or publications that the Playmaker Units have
been manufactured for Customer by Manufacturer.
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13. QUALITY CONTROLS; TESTING
13.1 Manufacturer agrees to maintain a quality control process system in
order to inspect, evaluate and test all Playmaker Units and their components and
materials. This process must be reasonably acceptable to Customer.
13.2 Manufacturer shall, before shipping any Playmaker Unit, test it
against the Playmaker Specifications. In the event any Playmaker Units fails
this test, Manufacturer shall not deliver that Playmaker Unit to Customer.
14. WARRANTY
14.1 Notwithstanding the expiration or termination of this Agreement,
Manufacturer warrants to Customer that for a period of one year following
receipt in accordance with Customer's shipping instructions of any Playmaker
Unit delivered pursuant to this Agreement:
14.1.1 Such Playmaker Unit and all components thereof will be free
from defects in materials and workmanship under normal and proper use; and
14.1.2 Such Playmaker Unit shall (i) conform in all respects to the
Playmaker Specifications and (ii) be approved, licensed, or certified, as the
case may be, in the name of Customer in accordance with Section 4 of this
Agreement.
14.2 The warranties granted by this Agreement do not cover the results of
accident, abuse, neglect, vandalism, act of god, use contrary to specifications
or instructions, or repair or modification by anyone other than Manufacturer or
Customer.
14.3 If any component of a Playmaker Unit delivered pursuant to this
Agreement does not conform to the foregoing warranties, Customer shall request
instructions from Manufacturer regarding the return or other disposition of the
non-conforming component. At its expense, Manufacturer will repair or replace
the non-conforming component within thirty (30) days of its receipt from
Customer and ship the repaired or replaced component to the destination
specified in writing by Customer. Manufacturer shall reimburse Customer for any
other cost incurred by Customer to return non-conforming components.
14.4 Any waiver of the terms and conditions of these warranties shall be
in writing and signed by Customer. The failure of Customer to insist upon strict
compliance with any of the terms and conditions contained herein shall not act
as a waiver of strict compliance with all remaining terms and conditions of this
warranty and shall not operate as a waiver of strict compliance with the terms
and conditions of this warranty as to future claims.
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14.5 Manufacturer shall indemnify Customer and hold it harmless from and
against any liability, expense, damage, cost or claim (including property
damage, injury or death) ("Loss") asserted by any person or entity not a party
to this Agreement arising from or in connection with a breach of the warranties
made by Manufacturer herein, unless the Loss was due to the willful or wanton
misconduct of Customer.
15. COMPETITIVE PRODUCTS
15.1 Manufacturer will not, without prior written consent by Customer,
which will not be unreasonably withheld, enter into an agreement with any party
other than Customer for manufacture and sale of Playmaker Units or other
devices employing the Playmaker Intellectual Property.
16. GENERAL PROVISIONS
16.1 Section headings are for convenience of reference only and shall not
be considered in the interpretation of this Agreement.
16.2 All notices and other communications required or permitted hereunder
shall be in writing and shall be personally delivered or dispatched by
prepaid, first-class mail, or by fax, sent to the address indicated in the
preamble to this Agreement.
16.3 Any consents or approvals given or required to be given under this
Agreement shall be effective only if given in writing and executed by the duly
authorized representative of the party granting that consent or approval.
16.4 The parties may not directly or indirectly sell, transfer, assign, or
delegate in whole or in part this Agreement, or any rights, duties, obligations
or liabilities under the Agreement or its supplements, without prior written
consent of the other. Notwithstanding the foregoing, Customer shall have the
right, for its convenience to assign and delegate this Agreement to a
subsidiary or the controlling shareholder of Customer or a company owned or
controlled by the controlling shareholder of Customer; provided that any
assignment and delegation shall not relieve Customer of liability hereunder.
16.5 This Agreement constitutes the entire agreement between the parties
relating to the subject-matter hereof, and supersedes all prior written or oral
negotiations, representations or agreements. No modification of this Agreement
shall be binding on either party unless it is in writing and signed by both
parties.
16.6 Neither party shall be liable hereunder to the other for delays in
the performance of its obligations caused by circumstances beyond its
reasonable control, including but not limited to, acts of god, wars, riots,
strikes, floods, labor disputes, accidents, and governmental restrictions;
provided that, if any such delay shall continue for a period of sixty days or
more, either party shall have the right to terminate this Agreement by written
notice to the other.
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16.7 This Agreement shall be subject to the laws of the State of California
without regard to principles of conflicts of laws. Any proceeding to resolve
disputes of any nature arising under or relating to this Agreement in any way
shall be conducted in the County of San Diego, California in accordance with the
commercial arbitration rules and procedures of the American Arbitration
Association then in effect.
16.8 This Agreement may be executed in separate counter parts all of which
taken together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
"Manufacturer" "Customer"
CLIMAX TECHNOLOGY CO. LTD. NTN COMMUNICATIONS, INC.
By /s/ Michael Chang By /s/ Geoffrey D. Labat
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MICHAEL CHANG GEOFFREY D. LABAT
Its President Its Chief Operating Officer
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