Manufacturing And Product Development Agreement

EXHIBIT 10.1


MANUFACTURING AND PRODUCT


DEVELOPMENT AGREEMENT


THIS MANUFACTURING AND PRODUCT DEVELOPMENT AGREEMENT


is made and entered into this 22 day of September, 1998, between Pactuco, Inc., a California corporation, having a place of business at 1641 West Central Avenue, Lompoc, California 93438 (hereinafter referred to as "Manufacturer") and Bell Sports, Inc. a California corporation, having a place of business at 6350 San Ignacio Avenue, San Jose, California 95119 (hereinafter referred to as "Customer").


BACKGROUND


WHEREAS, Manufacturer has purchased certain assets for manufacturing helmet liners and helmet components from Customer and Customer desires to purchase helmet liners and helmet components from Manufacturer, and Manufacturer desires to sell to Customer, on the terms and subject to the conditions of this Agreement, helmet liners and helmet components (the "Helmet Components"); and


WHEREAS, Manufacturer and Customer desire to set forth the terms and conditions under which Manufacturer is to manufacture and sell Helmet Components to Customer and under which Customer is to purchase Helmet Components from Manufacturer and the terms and conditions under which the Manufacturer and Customer are to jointly develop new products for helmets(the "New Helmet


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Components"), all as set forth in this MANUFACTURING AND PRODUCT DEVELOPMENT AGREEMENT (the "Agreement").


AGREEMENT


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, agreements, representations and warranties set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto covenant and agree as follows:


ARTICLE I


HELMET COMPONENTS/INTENT OF THE PARTIES


1.1 Helmet Components Subject to the terms and conditions set forth
----------------- herein, Manufacturer is to continue to manufacture, deliver and sell to Customer the Helmet Components as set forth on a schedule entitled HELMET COMPONENTS which is labeled Exhibit A and attached hereto.


1.2 Intent of the Parties It is the intent of the parties that, for the
--------------------- term of this Agreement including any renewals thereof as provided herein, Manufacturer and Customer are to have a relationship wherein Manufacturer will assure Customer of having a first priority on manufacturing capacity in the foam molding facility located at Route 136E, Rantoul, Illinois 61866 and wherein Customer will assure Manufacturer the following:


(A) the continuing opportunity to quote on all of customer's products to be incorporated into helmets for final


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assembly in the United States which specifically relate to Manufacturer's expertise in thermoforming, foam molding, injection molding and foam fabrication;


(B) the opportunity to match any lower quotes received by Customer from qualified and capable suppliers on products integral to the manufacture of helmet liners; and


(C) the right to manufacture all of Customer's product needs for products integral to the manufacture of helmet liners as long as Manufacturer is willing to meet or beat the lowest pricing for such products and to manufacture such products in accordance with the terms hereof.


ARTICLE II


HELMET COMPONENT SPECIFICATIONS


2.1 Proposed Specifications Customer is to provide to Manufacturer in
----------------------- writing the proposed Specifications for the Helmet Components and Manufacturer shall, as promptly as possible, but in no event more than three (3) business days after receipt, accept or reject the Specifications.


2.2 Acceptance of Specifications If the Manufacturer accepts a
---------------------------- Specification provided by Customer, then in such event the Specification shall be deemed final for purpose of this Agreement and such Specification shall apply to the applicable Helmet Components manufactured by Manufacturer for Customer until


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the Specification is amended, deleted or otherwise modified in a writing duly signed by the parties.


2.3 Specification Resolution If the Manufacturer does not accept a
------------------------ --- Specification provided by Customer, then in such event the Manufacturer shall advise the Customer thereof in writing as promptly as possible, but in no event more than three (3) business days after receipt of the Specification, specifying the objections to the Specification. The parties shall then promptly meet and, in good faith, attempt to resolve the Manufacturer's objections to the Specification. Upon the parties mutually agreeing in writing to overcoming the Manufacturer's objections, the Specification shall be deemed final for purposes of this Agreement and such Specification shall apply to the applicable Helmet Components manufactured by Manufacturer for Customer until the Specification is amended, deleted or otherwise modified in a writing duly signed by the parties. Manufacturer agrees not to unreasonably withhold its acceptance to any Specifications.


2.4 Patent Infringement To the extent Customer shall have provided the
------------------- Specifications for the Helmet Components and New Helmet Components to Manufacturer for purposes of this Agreement, and Customer shall indemnify, defend and agree to hold Manufacturer harmless in respect of any and all claims, losses, damages, liabilities, penalties, interest, costs and expenses (including, without limitation, reasonable attorneys' fees and


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other expenses) reasonably incurred by Manufacturer as a result of any third party claim of infringement arising out of compliance with the Specifications. Manufacturer agrees that Customer shall, at Customer's expense, have the right to control the defense and settlement of any such infringement action and Manufacturer shall provide reasonable assistance and cooperation to Customer in connection with any such defense. Manufacturer further agrees to promptly notify Customer of any change in any Helmet Component it is manufacturing for Customer that has not been authorized by Customer.


ARTICLE III


FORECAST/QUOTE/BLANKET PURCHASE ORDERS


3.1 Forecast Customer shall provide Manufacturer concurrently with the
-------- execution of this Agreement a written ten (10) month forecast of Helmet Components showing estimated volume of Helmet Components by month and a forecast of delivery schedules for each month and on July 1, 1999 and each July 1/st/ thereafter during the term of this Agreement, Customer shall provide Manufacturer a written twelve (12) month forecast of Helmet Components showing estimated volume of Helmet Components by month and a forecast of delivery schedules for each month (collectively referred to as "the Forecast").


3.2 Review of Forecast/Quotation Manufacturer shall review the Forecast
---------------------------- and shall provide to Customer, within twenty (20)


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days from receipt of same, a written quotation setting forth the pricing to be charged by Manufacturer based on the estimated volume level of Helmet Components and forecasted monthly delivery dates.


3.3 Review of Quotation Customer shall within ten (10) business days from
------------------- receipt of the written quotation from Manufacturer advise Manufacturer in writing if the quotation is acceptable or unacceptable.


3.4 Quotation Acceptance If the quotation is acceptable, then Customer
-------------------- shall promptly issue to Manufacturer a Blanket Purchase Order as set forth in Section 3.6 below.


3.5 Quotation Non-Acceptance If the quotation is unacceptable, then
------------------------ Customer shall, during, but not later than the expiration of the ten (10) business day period set forth above, advise Manufacturer in writing, in good faith and in accordance with the intentions of the parties as set forth in Section 1.2 above, as to what would be required to make the quotation acceptable to Customer. Manufacturer and Customer shall promptly meet and, in good faith, attempt to reach mutual agreement on the quotation and then proceed in accordance with the provisions of Section 3.4 above. If the parties fail to agree on a quotation during the ten (10) day period immediately following the date on which the Customer advised the Manufacturer in writing that the quotation was unacceptable, then in such event the quotation


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shall be deemed as rejected by the Customer for purposes of this Agreement.


3.6 Issuance of Blanket Purchase Order When a quotation is accepted by
---------------------------------- the Customer as provided hereinabove, the Customer shall issue to Manufacturer a Blanket Purchase Order, which shall be a firm five (5) week order. Upon the expiration of one (1) week, then Customer shall issue Manufacturer a new firm Blanket Purchase Order wherein the five (5) weeks volume level and delivery schedule is firm.


ARTICLE IV


PRICING


4.1 Pricing Except as provided herein below and subject to the provisions
------- of Sections 4.2 and 8.2 below, the pricing set forth in the quotation shall remain firm for at least twelve (12) months from the date of such quotation and Manufacturer shall have the right thereafter to provide Customer with at least thirty (30) days prior written notice of any permitted price increases. Such price increases shall apply to all Blanket Purchase Orders issued by Customer after the effective date of such price increases. The exceptions to the above firm pricing requirements which will permit the Manufacturer to increase pricing effective upon (30) days prior written notice to Customer shall be:


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(A) An increase of seven per cent (7%) or greater becomes effective with respect to the raw material pricing to Manufacturer from a vendor; or


(B) Manufacturer is required to incur or expend funds to meet anticipated expenditures for equipment, apparatus or systems which Manufacturer is required to make to meet its obligations under environmental statutes and regulations as provided in Section 8.2 hereof.


4.2 Pricing Review At the end of each Forecast Period, if the total unit
-------------- volume of products comprising the Helmet Components actually delivered by Manufacturer and accepted by Customer is less than 85% of the forecasted volume of Helmet Components pursuant to the provisions of Section 3.1 of this Agreement, then the Manufacturer shall notify Customer, in writing, within thirty (30) days of such shortfall and the parties shall then negotiate in good faith for a reasonable pricing increase to reflect the lesser volume. Such pricing shall be billed and paid within the agreed terms of Section 6.1 of this Agreement. Similarly, if the total unit volume of products comprising Helmet Components actually delivered by Manufacturer and accepted by Customer is 15% greater than that of the forecasted volume of Helmet Components pursuant to Section 3.1 of this Agreement, the parties shall negotiate in good faith for a reasonable pricing decrease to reflect the higher volume.


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ARTICLE V


DELIVERY/INSPECTION OF DELIVERED GOODS


5.1 Delivery Period
---------------


(A) All Helmet Components shall have at least a thirty (30) day delivery period from the date of each Blanket Purchase Order. All deliveries shall be FOB place of shipment at Manufacturer's Facility at Rantoul, Illinois and title to the Helmet Components shall pass to Customer at the FOB place of shipment. For product shipped from Manufacturer's facility at Rantoul, Illinois to be delivered to Customer's facility at Rantoul, Illinois Manufacturer agrees that freight will be prepaid.


(B) Manufacturer shall have the right to deliver Helmet Components up to six (6) days earlier than the applicable scheduled delivery date and shall use its best commercial efforts to ship zero (0) days late. Manufacturer hereby acknowledges the importance of timely delivery by Customer to its retail customers and that late delivery by Manufacturer may cause Customer to be late in making such deliveries to its customers. If, during the course of production, Manufacturer becomes aware that it will not be able to deliver Helmet Components pursuant to the terms and conditions of accepted Purchase Orders described in Section 3.6 of this Agreement, Manufacturer will promptly notify Customer of the extent of such circumstances and ...