Manufacturing And Supply Agreement

MANUFACTURING AND SUPPLY AGREEMENT


THIS MANUFACTURING AND SUPPLY AGREEMENT dated as of October 24, 1997, by and between JAKKS Pacific, Inc., a Delaware corporation ("JAKKS"), and Azrak-Hamway International, Inc., a New York corporation ("AHI"),


W I T N E S S E T H:


WHEREAS, JAKKS is engaged in the Business (as hereinafter defined); and


WHEREAS, AHI owns or has the rights to use the Tools (as hereinafter defined) and has the resources and experience in the manufacture of products similar to the Products (as hereinafter defined); and


WHEREAS, to secure a reliable source of manufacture and supply of Products, JAKKS desires to obtain from AHI, and AHI desires to give to JAKKS, a commitment for AHI to make the Tools and other manufacturing resources of AHI available for the manufacture of Products, and, upon request by JAKKS and agreement as to price and delivery date, to manufacture or arrange for the manufacture of Products for JAKKS:


NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:


1. Certain Definitions.


Capitalized terms, not defined elsewhere herein, are used herein as defined as follows:


1.1. "Base Amount" means the fixed quarterly fee in the amount of $110,000 on the first four Payment Dates and $160,000 thereafter.


1.2. "Business" means the design, manufacture, distribution and sale of Products.


1.3. "Consent" means any approval, authorization, consent or ratification by or on behalf of any Person that is not a party to this Agreement , or any waiver of, or exemption or variance from, any License or Order.


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1.4. "Governmental Authority" means any federal, state or local government or governmental authority, agency or instrumentality, or any court or arbitration panel of competent jurisdiction, or any recognized professional or industry association or organization that establishes policies or standards or otherwise regulates or supervises services and activities related to the Business, the Trademarks or the Products.


1.5. "Law" means any statute, rule, regulation or ordinance of any Governmental Authority.


1.6. "License" means any license, permit, certification, qualification, franchise or privilege issued or granted by any Governmental Authority.


1.7. "Notice" means giving any notice to, or making any declaration or filing, or registration or recordation with any Person.


1.8. "Order" means any judgement, order, writ, decree, award, directive, ruling or decision of any Governmental Authority.


1.9. "Ordered Products" has the meaning ascribed thereto in Section 2.1 hereof.


1.10. "Payment Date" means the last day of each December, March, June and September after the date hereof until March 31, 2000.


1.11. "Payment Period" means the three month period ending on a Payment Date.


1.12. "Person" includes without limitation a natural person, corporation, joint stock company, limited liability company, partnership, joint venture, association, trust, Governmental Authority, or any group of the foregoing acting in concert.


1.13. "Product" means any toy or assortment thereof listed on Schedule 1.13.


1.14. "Purchase Price" has the meaning ascribed to it in Section 2.1 hereof.


1.15. "Quote" has the meaning ascribed thereto in Section 2.1 hereof.


1.16. "Request Form" has the meaning ascribed thereto in Section 2.1 hereof.


1.17. "Substitute Manufacturer" means a manufacturer or supplier of Ordered Products to JAKKS, other than AHI or a manufacturer or supplier engaged by or acting on behalf of AHI.


1.18. "Term" means the period commencing on the date hereof and ending on March 31, 2000.


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1.19. "Tools" means the tools, molds, forms, dies and other equipment and apparatus of AHI used in the manufacture of Products.


1.20. "Trademark" means one of the trademarks, including all registrations and applications for registration thereof, set forth on Schedule 1.20.


2. MANUFACTURE AND SUPPLY OF PRODUCTS.


2.1. JAKKS may, but shall not be required to, request in writing from time to time that AHI provide JAKKS with a quote of the price (the "Purchase Price") at which AHI would be willing to manufacture and deliver, or arrange for the manufacture and delivery, of Products (the "Ordered Products") to JAKKS. Any such request shall be made on AHI's customary purchase order form on the terms and conditions set forth therein or on such other form, having such terms and conditions, as AHI shall, in its sole discretion, provide to JAKKS (any such form being referred to herein as the "Request Form"). AHI shall provide JAKKS with such quote in writing (the "Quote") within 30 days after AHI's receipt of the Request Form from JAKKS. JAKKS shall, within 15 days after its receipt of the Quote from AHI, inform AHI in writing whether it will accept AHI's offer to manufacture and deliver, or arrange for the manufacture and delivery of, the Ordered Products at the price and delivery date set forth in the Quote.


2.2 If JAKKS shall accept AHI's offer, AHI shall manufacture and deliver, or arrange for the manufacture and delivery of, the Ordered Products on the terms and conditions set forth in the Request Form. Unless otherwise specified in writing by AHI to JAKKS, delivery of any Ordered Products AHI shall manufacture or arrange for the manufacture of, shall be FOB Hong Kong. JAKKS shall pay freight and insurance for shipment of such Ordered Products.


2.3 If JAKKS shall reject AHI's offer, JAKKS may arrange for the manufacture and delivery of the Ordered Products from a Substitute Manufacturer of its own choosing, which Substitute Manufacturer shall be of a quality and reputation reasonably acceptable to AHI. AHI shall make the Tools available to such Substitute Manufacturer to the extent necessary for such Substitute Manufacturer to manufacture and deliver the Ordered Products. AHI shall not be required to incur any expense in connection with the provision of the Tools to a Substitute Manufacturer or a manufacturer engaged by AHI pursuant to Section 2.2, all of which expense shall be borne by JAKKS, including the expense of replacement, restoration or repair of any lost, destroyed or damaged Tools that JAKKS requests be made available hereunder. Title to the Tools shall be and at all times remain with AHI.


2.4 AHI shall keep and maintain the Tools and make the Tools available for the manufacture of Ordered Products as described herein.


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2.5 JAKKS shall maintain commercial insurance, including without limitation for products liability, with AHI named as an additional insured thereon, reasonably satisfactory to AHI to protect the interests of AHI and JAKKS under this agreement.


3. PAYMENT.


3.1. In consideration of AHI agreeing to make its Tools and manufacturing resources available to JAKKS and for agreeing to manufacture or arrange for the manufacture of Ordered Products as described herein, JAKKS shall pay to AHI:


(a) quarterly, on each Payment Date, the Base Amount payable in respect of the Payment Period then ending; and


(b) the Purchase Price for any Ordered Products supplied to JAKKS by AHI, in accordance with the applicable invoices therefor.


4. COVENANTS OF JAKKS AND AHI.


4.1. Each of JAKKS and AHI shall:


(a) comply with all Laws and Orders applicable to it and the Business, the Trademarks or the Products; and


(b) use commercially reasonable efforts to cooperate with the other party in order to effect the timely manufacture and supply of Ordered Products, including consulting with the other party with respect to the choice of subcontractors and off-shore manufacturers.


4.2. AHI shall:


(a) manufacture or arrange for manufacture of any Ordered Products that JAKKS has agreed to pay the Purchase Price for pursuant to Section 2.2 hereof in accordance with the specifications set forth in JAKKS' Request Form therefor; and


(b) give Notice to JAKKS of any change in the Tools or the location thereof.


5. SECURITY INTEREST.


To secure the performance of its obligations hereunder, AHI hereby grants to JAKKS a security interest in and lien upon the Tools. Upon request by JAKKS, AHI shall execute, deliver and file or record any financing statements or other documents reasonably requested by JAKKS to perfect such security interest. In addition to any other remedy or relief available to JAKKS hereunder or under applicable Law in the event of a material


4 5 breach by AHI of its obligations hereunder, JAKKS may exercise all rights and remedies of a secured creditor under the New York Uniform Commercial code, including without limitation taking possession of the Tools. AHI represents and warrants to JAKKS that on the date hereof there is no, and AHI shall not during the Term grant, create or suffer to exist, any other security interest or other lien, encumbrance or adverse claim in or upon the Tools, which would interfere in a material way with JAKKS' security interest granted hereby.


6. TERMINATION.


6.1 This Agreement shall terminate on the last day of the Term, or if earlier,


(a) at any time upon the mutual agreement of the parties;


(b) immediately, at the option of either party, upon (i) the issuance of an order for relief of the other party in any bankruptcy proceeding under Title 11 of the United States Code; or (ii) an assignment for the benefit of creditors by the other party; or (iii) the written admission by the other party of its inability to pay its debts as they mature or that it is otherwise insolvent; or (iv) the appointment of a trustee, receiver, custodian or other fiduciary or fiscal agent for the other party or substantially all of its assets, if the other party consents to or acquiesces in such appointment, or, notwithstanding that the other party opposes such appointment, such appointment is not removed, avoided or withdrawn within 30 days after such appointment; or (v) the liquidation, winding up, dissolution or termination of the other party; or


(c) by either party, immediately upon Notice to such effect given to the other party, if there is a material breach of any material provision of, or material default under, this Agreement by the other party, and the other party fails to cure such breach or default within 30 days after a Notice, setting forth therein in reasonable detail the factual basis for the asserted breach or default and demanding that such breach or default be cured in the manner set forth therein or in a manner to be agreed (the "Default Notice"), is given to such other party (unless such breach or default is by its nature incapable of being cured, in which case no such Notice is required to be given and the party may terminate this Agreement upon Not ...