Manufacturing And Supply Agreement

Indicates that confidential
portion has been omitted and
filed separately with the
Securities and Exchange Commission


MANUFACTURING AND SUPPLY AGREEMENT


THIS MANUFACTURING AND SUPPLY AGREEMENT (the "Agreement") is made as of the 21st day of December, 1996 (the "Effective Date") by and between ROYAL GRIP, INC., a Nevada corporation ("Purchaser"), having its principal executive offices at 444 West Geneva, Tempe, Arizona 85282, and ACUSHNET RUBBER COMPANY, INC., a Massachusetts corporation, ("Vendor"), having its principal executive offices at 744 Belleville Avenue, New Bedford, Massachusetts 02742-6916.


RECITALS


A. Under this Agreement Vendor will become the exclusive supplier of non-cord golf grips ("Grips") to Purchaser and it is intended will become the exclusive supplier of cord grips to Purchaser.


B. Vendor is willing to supply Grips to Purchaser and Purchaser is willing to purchase Grips from Vendor upon the terms and conditions hereinafter set forth.


C. As of the date hereof, Purchaser and Vendor are also entering into a capital lease agreement (the "Lease Agreement") pursuant to which Vendor will lease from Purchaser manufacturing equipment useful in producing Grips.


D. This Agreement and the Lease Agreement have been negotiated by Purchaser and Vendor at arm's length and in good faith for the purpose of achieving the parties' commercial expectations.


NOW, THEREFORE, in consideration of the covenants and mutual agreements set forth herein and in the Lease Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in reliance upon the representations and warranties contained herein, the parties agree as follows:


ARTICLE I
SUPPLY AND PURCHASE OF GRIPS


1.1 Supply and Purchase of Grips.


(a) During the term hereof, Purchaser shall purchase Grips from Vendor and Vendor shall sell Grips to Purchaser in accordance with the terms and conditions contained herein. The Grips will be resold as products of Purchaser and will not, without Purchaser's and Vendor's written consent, bear the name of or any logo or trademark of Vendor.


(b) Subject to the terms hereof, Purchaser hereby agrees to purchase from Vendor 100% of its requirements of Grips during the term of this Agreement.
* Confidential portion has been
omitted and filed separately
with the Commission


(c) Subject to the terms hereof, and except as set forth in Section 6.5 hereof, Vendor hereby agrees to sell 100% of the Grips it produces during the term of this Agreement to Purchaser.


(d) The parties hereby acknowledge and agree that there will be a transition period during which production of Grips will be transferred from Purchaser to Vendor. During this period, Purchaser will continue to produce Grips.


ARTICLE II
FORECASTS; ORDERS; AND SHIPMENT


2.1 1997 Purchase Obligations. Subject to Section 7.3(d) hereof, Purchaser hereby agrees to purchase Grips from Vendor in each calendar year of this Agreement at the annualized rate of [ * ] per year from the beginning of the first full month in which Vendor achieves full production. Vendor estimates that it will achieve full production by February 1, 1997 and commits to achieve full production levels no later than February 15, 1997. By way of example, if Vendor achieves full production by February 1, 1997, Purchaser will be obligated to purchase 11/12 x [ * ] Grips, or [ * ] Grips in 1997 (plus any Grips produced by and purchased from Vendor in January 1997). Thereafter, during each year of the Agreement, Purchaser shall purchase a minimum of [ * ] Grips.


2.2 Rolling Forecasts; Firm Orders.


(a) Purchaser agrees that during the term of this Agreement it shall provide Vendor with a rolling forecast of its purchase requirements of Grips for each of the following three months. This forecast shall be provided on or before the first day of the month immediately preceding the first month included in such forecast. Within five (5) days from the date when Vendor has received a forecast from Purchaser, Vendor shall confirm such forecast by facsimile to Purchaser.


(b) Forecasts shall be deemed to be firm orders with respect to the first month included in such rolling three month forecasts (unless notified in writing to the contrary at least a month prior to the first month of the forecast). With respect to the second and third months included in such forecasts, such forecasts shall not be considered binding commitments on the part of Purchaser to order the quantity of Grips specified therein, but are to be given solely for the purpose of enabling Vendor to make preliminary plans for its manufacturing operations during the applicable period. By way of example, a forecast for the three months April to June of a given year shall be supplied on or before March 1 of such year; the forecast for April shall be deemed to be a firm order (unless modified prior to March 1). A copy of Purchaser's initial forecast/firm order has been provided to Vendor.


(c) Reasonable notice will be given by Purchaser to Vendor if it anticipates significant differences in its forecast and by Vendor to Purchaser if it anticipates significant differences in production capabilities to forecast.
2
* Confidential portion has been
omitted and filed separately
with the Commission


(d) By written notice to Vendor, Purchaser may increase the quantities or vary scheduled delivery dates for Grips subject to firm orders, and Vendor agrees to use its reasonable best efforts to accommodate such changes. Vendor may charge Purchaser for incremental costs incurred in connection with any material changes to firm orders.


2.3 Shipping and Delivery. Vendor hereby agrees as follows:


(a) Vendor shall preserve, package, handle, pack and insure all Grips so as to protect the Grips from loss or damage, in conformance with good commercial practice, government regulations, and other applicable standards.


(b) All Grips shall be shipped F.O.B. Vendor's production facility in New Bedford, Massachusetts. Title and risk of loss or damage to any shipment of Grips sold by Vendor to Purchaser hereunder shall pass to Purchaser upon delivery by Vendor to the common carrier for delivery to customers of Purchaser.


(c) Vendor hereby guarantees that a minimum of ninety percent (90%) of all shipments of Grips to customers of Purchaser in a given month will be made by Vendor in the specified quantity and within the time for such delivery specified by Purchaser on at least two business days notice with respect to Grips that are subject to firm orders. Vendor will use its reasonable best efforts to provide Grips in the quantities and within the time period requested by Purchaser to the extent such quantities vary from those provided for in a firm order. In the event Vendor fails to make any delivery of Grips within the required time period for firm orders, Vendor shall ship all Grips applicable to such order via a premium shipping method and shall pay all shipping costs associated therewith.


ARTICLE III
PRICING


3.1 Initial Purchase Price for Grips. Purchaser and Vendor hereby agree that the purchase price per Grip ordered by Purchaser hereunder shall be a base price of [ * ] per Grip for 1997 and 1998, and [ * ] thereafter, which shall include all applicable shipping and packaging charges. The parties hereby acknowledge that the minimum volume requirements set forth in Section 2.1 and the initial price provisions set forth in this Section 3.1, together with the terms of the Lease Agreement, have been negotiated between the parties hereto at arm's length and are integral elements of the transactions between Purchaser and Vendor.


3.2 Price Changes.


(a) Notwithstanding Section 3.1 hereof, the parties agree that: (i) Vendor will use its reasonable best efforts to continually improve its Grip manufacturing operations, will share with Purchaser equally in all cost savings that result in a cost of goods sold (i.e., the cost of raw materials, cost of direct labor, and incremental overhead added due to this supply contract) below
3 the base price per Grip set forth in Section 3.1, in the form of reductions in the base price of Grips, and will make available to Purchaser such data and other information as Purchaser may periodically request to assess Vendor's cost of goods sold, and (ii) the purchase price for Grips will, pursuant to mutual agreement not to be unreasonably withheld, be adjusted for material increases or decreases in the prices of raw materials which, in the case of raw materials increases, are not offset by production efficiencies. A material change in the prices of raw materials shall mean an increase or decrease of 5% over a 12 month period in overall raw material costs.


(b) Purchaser hereby grants to Vendor options to purchase its common stock upon the terms set forth in Schedule 3.2(b)(A). In this connection, Vendor acknowledges that as the supplier of Purchaser's Grips it will have access to Purchaser's production forecasts and other confidential or proprietary information. Accordingly, Vendor agrees that for so long as it is a supplier of products to Purchaser, it will comply with Purchaser's insider trading policy attached as Schedule 3.2(b)(B), as the same may be amended from time to time by Purchaser, together with all applicable securities and other laws, in connection with any purchase or sale of Purchaser's options or common stock underlying such options (collectively, "Securities"). In addition, Vendor represents, warrants, and agrees as follows: (i) Vendor is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"); (ii) Vendor has such knowledge and experience in financial and business matters that it is capable of understanding and evaluating the merits and risks of an acquisition of Securities, and is financially capable of bearing the risk of its investment in such Securities; (iii) Vendor understands and acknowledges that an investment in the Securities of Purchaser involves a high degree of risk; (iv) Vendor has received from Purchaser and has carefully reviewed and understands all reports filed by the Purchaser with the Securities and Exchange Commission (the "Commission") under the Securities and Exchange Act of 1934 (the "Exchange Act") since December 31, 1995, and such other documents as Vendor has requested (collectively referred to as the "Purchaser Disclosure Materials"); (v) Vendor has had an opportunity to ask questions of and to receive answers from Purchaser concerning the Purchaser Disclosure Materials and the affairs and prospects of Purchaser in general, and desires no further information pertaining to Purchaser; and (vi) Vendor is purchasing the shares of common stock for its own account, for investment purposes only and not with a view to immediate resale or distribution either in whole or in part. Furthermore, Vendor understands and agrees that (x) the Securities cannot be resold in whole or in part unless they are registered or sold pursuant to an exemption from registration; and (y) a legend will be placed on the certificates representing the Securities indicating that such Securities have not been registered under federal or state securities laws and are subject to restrictions on sale until they are so registered. Any requests for transfer prior to registration by Vendor must be accompanied by an opinion of counsel in form and substance and from counsel acceptable to Purchaser.


(c) Purchaser shall cause the shares underlying the options to be registered for resale under the Securities Act of 1933, as amended, as promptly as reasonably practicable.
4 3.3 Payment of Invoices.


(a) Purchaser shall pay all shipping and rigging costs associated with the shipment of the equipment to Vendor's plant pursuant to the Lease Agreement; provided, that Vendor acknowledges that Purchaser shall receive a credit against initial invoices under this Agreement for 50% of such costs and that the remaining 50% of such costs shall be added to the initial lease balance under the Lease Agreement.


(b) The invoiced value of each shipment of Grips shall be determined upon delivery of such shipment of Grips to Vendor's shipment department. All invoices shall be due and payable by Purchaser net ten (10) days from the date of invoice through June 30, 1997, and net forty-five (45) days thereafter.


(c) The amount due Vendor for each order of Grips supplied by Vendor hereunder shall be determined by multiplying the total number of Grips covered in Vendor's invoice(s) therefor by the applicable base prices. Purchaser shall be responsible for all freight, insurance, taxes, and other charges.


ARTICLE IV
QUALITY AND WARRANTY


4.1 Conformance to Specifications.


(a) All Grips will be produced at Vendor's plant at New Bedford, Massachusetts, or at any other location acceptable to Purchaser, which acceptance will not be unreasonably withheld.


(b) Vendor warrants to Purchaser that it will maintain an objective quality program with respect to the production of all Grips supplied pursuant to this Agreement, which program will be in accordance with the technical and aesthetic specifications (the "Specifications") established by Purchaser and delivered to Vendor within two business days following the date hereof, as the same may be amended from time to time by written agreement of the parties hereto.


(c) Purchaser shall have the right to inspect, at Vendor's plant, Grips and manufacturing processes for Grips. Any inspection of Grips shall be prior to shipment; manufacturing processes may be inspected at any time during the term of this Agreement. Purchaser's inspection may be for any reason reasonably related to this Agreement, including to assure Vendor's compliance with the Specifications. Vendor shall provide adequate space and other facilities to Purchaser at its plant to oversee the production and shipment of Grips and to facilitate research and development as provided in Section 6.1.


(d) Grips that are deemed by Purchaser to be defective shall be returned immediately by Purchaser to Vendor. Vendor shall, as soon as reasonably practical, but not more than ten (10) days from receipt of the defective Grips, replace such Grip shipment with a substitute
5 shipment that meets the Specifications. Purchaser shall be credited for any returned Grips which are defective.


4.2 Warranties. Seller warrants that all Grips shall: (i) be manufactured, processed, and assembled by Seller at its New Bedford, Massachusetts facilities; (ii) conform to the Specifications; (iii) be free from defects in design, material, workmanship, and performance; and (iv) be free and clear of all liens, encumbrances, and other claims against title. All warranties specified in the preceding sentence shall survive any inspection, delivery, acceptance, or payment by Purchaser and be in effect for the longer of Vendor's normal warranty period or one year from the date of acceptance of the Grips by Purchaser.


ARTICLE V
OWNERSHIP AND CONFIDENTIALITY


5.1 Ownership of Grip-related Assets.


(a) Vendor acknowledges and agrees that all equipment transferred pursuant to the Lease Agreement (unless and until purchased by Vendor thereunder), all Grips produced in connection with this Agreement, all compounds and related formulae pertaining to golf grips, grip designs and tooling designs, cavities and anything of a similar nature which relates to the production of golf grips (but excluding Vendor's own manufacturing processes and techniques), in each case whether in existence or developed or conceived by Purchaser or Vendor during the term of this Agreement, and all intellectual property rights in such material, including, without limitation, any copyrights, patents, trade secrets, trademarks, inventions, ideas and know-how, and the derivative use of and rights in and to such material, as well as the confidential information embodied in any such material, are and shall be the sole and exclusive property of Purchaser.


(b) Without Purchaser's prior written consent, Vendor hereby agrees that, except as may be provided under Section 6.5, all compounds, formulae or designs relating to golf grips or tooling for golf grips created or developed by Vendor in connection with and during the term of this Agreement and all equipment leased under the Lease Agreement or used by Vendor to fulfill its obligations hereunder shall be used by Vendor only in connection with the production of Grips for Purchaser pursuant to this Agreement.


(c) Purchaser grants to Vendor the right to use Purchaser's design or other patents and trademarks, and the trademarks of Purchaser's customers, solely to the extent necessary to fulfill its obligations to Purchaser under this Agreement.


(d) With respect to the items set forth in (a) above, Purchaser shall have the sole and exclusive right to register and hold in Purchaser's name copyrights, trademark registrations, patents, or whatever protection Purchaser may deem appropriate. Vendor shall execute any documents, including assignments of any existing patent or trademark rights or other forms of
6 protection, and provide any assistance as is necessary, at Purchaser's expense, to protect the rights set forth herein.


(e) The parties agree that items described in (a) above developed during the term of this Agreement shall be deemed works made for hire as defined by the laws of the United States regarding copyrights and therefor owned by Purchaser. In the event and to the extent that they are deemed not to constitute works made for hire, Vendor hereby sells, assigns, and transfers to Purchaser all right, title and interest in and to all such items without the need for consideration additional to the consideration paid to Vendor by Purchaser hereunder. Vendor shall obtain from its personnel any assignment to the Vendor required to make the foregoing assignment to Purchaser of all right, title, and interest in all such items and Vendor shall retain no rights therein and agrees not to contest or challenge Purchaser's rights therein. This assignment and transfer includes all causes of action for all infringements of the rights assigned and transferred and the rights to use and retain the proceeds therefrom.


5.2 Confidential and Proprietary Information. Vendor and Purchaser hereby acknowledge and agree that in connection with the performance of their obligations herein, a party may be provided with or shall otherwise be exposed to or receive certain confidential and proprietary information of the other (or of third parties, such as Purchaser's customers). In Purchaser's case, such confidential and proprietary information may include, but shall not be limited to, information concerning customers, customer orders, specifications and designs relating to golf grips and tooling and other information concerning Purchaser's grips and products, and, in Vendor's case, information concerning its manufacturing and production techniques (all of the foregoing shall be deemed "Proprietary Information" for purposes of this Agreement). Each party agrees that any and all Proprietary Information which is disclosed to the other party or to which the other party has access to based upon this Agreement shall be and shall remain the sole and exclusive property of such party, and that the other party shall not in any way reveal, disclose or use such information other than in accordance with this Agreement or except as specifically directed by the disclosing party. The term "Proprietary Information" does not include information which: (i) becomes generally available to the public other than as a result of a disclosure by a party contrary to the terms of this Agreement; (ii) was available on a nonconfidential basis prior to its disclosure; or (iii) becomes available on a non-confidential basis from a source other than the other party, provided such source is not contractually obligated to keep such information confidential.


ARTICLE VI
ADDITIONAL AGREEMENTS


6.1 Cord Grips. The parties acknowledge and agree that this Agreement covers the purchase and sale of rubber injected golf grips, and that Purchaser also markets and sells cord grips. Vendor desires to have the opportunity to produce such grips for Purchaser. Purchaser hereby agrees to consider enabling Vendor to produce the cord grips on behalf of Purchaser once full production of Grips has been achieved and subject to other appropriate factors, such as preexisting supplier relationships.
7 6.2 Research and Development; Tooling.


(a) The parties acknowledge and agree that one of Purchaser's principal purposes for entering into this Agreement is to have access to Vendor's research and development capabilities, and that Vendor will essentially perform research and development activities on Purchaser's behalf during the term of this Agreemen ...