MANUFACTURING AGREEMENT

A.

IWT is engaged in the business of inventing, engineering, and marketing innovative products and technologies, including the products described herein. Manufacturer has experience and expertise in manufacture of such products or its parts.

B.

Upon and subject to the terms and conditions of this Agreement, IWT has retained Manufacturer’s services to provide production of various products or its parts (the “Product”) described in appendix I.

C. 

IWT grants the right to exercise intellectual property in its possession for manufacturing purposes to the Manufacturer. No Product or its parts shall be produced by the Manufacturer for resale or distribution purposes outside of the Russian Federation other than by IWT. In exchange, Manufacturer shall manufacture the Product or its parts exclusively for IWT to be sold and distributed by IWT throughout the world, shall not disclose any information on inventions, improvements, discoveries, designs, data, concepts, ideas, processes, methods, techniques, know-how, and information, including schematics, and engineering drawings respecting the Products conceived, made or produced by Manufacturer during the course of performing design, engineering, fabrication or manufacturing services under this Agreement, or made or produced as the result of the joint efforts of Manufacturer and IWT pursuant to this Agreement to third parties.

DESIGN AND DEVELOPMENT — REVIEW AND CHANGES. IWT and Manufacturer will hold ongoing design reviews in accordance with its standard development operating procedures, via email. Changes in Project Specifications will be by mutual consent. Manufacturer agrees to use its best efforts to accommodate IWT on such changes in scope and/or specifications as may be reasonably requested by IWT with appropriate changes (as pre-approved by IWT) in the purchase orders.

1.2 

VERIFICATION TESTING.  For all Products or its parts specification, Manufacturer shall draft appropriate verification protocol and perform the testing in accordance with that protocol. IWT shall author the system verification protocol and IWT shall accomplish verification and validation of the Product (“Verification Testing”). Third party (independent qualified testing facility) testing, in addition to related test materials, as shall be approved in advance by IWT, shall be paid by IWT, and shall be an agent of IWT. Test materials shall be the exclusive property of IWT. IWT will collect and/or prepare for Manufacturer data including vibration, shock, temperature, etc. of the actual environment where the product will be used. IWT will also perform operation verification during and at the end of development, operation verification on the actual test drive (field test), life and durability test, and the final acceptance tests.

1.3 

REJECTION OF WORK.  Should IWT determine that any verification or testing of Manufacturer’s work does not conform to applicable specifications, then IWT shall (i) notify Manufacturer of such problems; and (ii) permit Manufacturer a reasonable opportunity to make any necessary corrections. Manufacturer shall resubmit to IWT revised testing or other work corrected to meet the relevant specifications within thirty (30) days of notice to Manufacturer. IWT shall have thirty (30) days after such resubmittal within which to notify Manufacturer in writing of IWT’s approval of the corrected work or of IWT’s discovery of any additional discrepancies between that work and the relevant specifications. If discrepancies still exist, IWT and Manufacturer shall decide the appropriate action to be taken by mutual Agreement, in advance.

1.4 

CONFIDENTIAL INFORMATION.  “Confidential Information” means, without limitation, all information pertaining to the business of IWT and Manufacturer including, but not limited to, the Product invention, ideas, trade secrets, know-how, research and development, training, software, programs, hardware configuration information, price lists, data, manuals, handbooks, sponsors, investors, business strategies and plans, marketing, sales records, drawings, specifications, designs, materials, parts lists, customer lists, consumer information, suppliers, contract terms, test criteria, vendor lists, financial information, intellectual property, and all other information or data of any kind or character relating to the business of IWT or Manufacturer, including but not limited to, any invention, writing, idea, discovery, or improvement made or conceived by IWT or Manufacturer directly or indirectly as a result of performing work for IWT pursuant to this Agreement, whether or not reduced to writing, and which is not generally available to the public. However, Confidential Information shall not include any of the foregoing which has become publicly known and made generally available through no wrongful act of Manufacturer or any third party. Prior to execution of this Agreement; the parties have executed the Mutual Nondisclosure Agreement attached hereto as Appendix I. In the event there is a conflict between the terms of the Mutual Nondisclosure Agreement and this Agreement, this Agreement shall govern.

1.5 

TECHNOLOGY OWNERSHIP.  The parties agree as follows:

 

IWT shall own all “Project Technology” which shall be defined as: all inventions, improvements, discoveries, designs, data, concepts, ideas, processes, methods, techniques, know-how, and information, including schematics, and engineering drawings respecting the Products conceived, made or produced by Manufacturer during the course of performing design, engineering, fabrication or manufacturing services under this Agreement, or made or produced as the result of the joint efforts of Manufacturer and IWT pursuant to this Agreement.  The term “Project Technology” shall exclude any of Manufacturer’s or IWT’s proprietary processes used in the manufacture of the Product.

 

Manufacturer shall own all of its “Technology and Manufacturing Processes” which shall be defined as follows:  its proprietary electronic technology and processes and know-how and assembly and manufacturing processes and technology and know-how developed or acquired by Manufacturer prior to the exercise of this Agreement.

 

Nothing in this Agreement shall be deemed to prevent Manufacturer from engaging in the design, engineering, fabrication or manufacture of products embodying or using Manufacturer’s Technology and Manufacturing Processes; provided that such products do not embody or use any of IWT’s confidential information or Project Technology. Manufacturer shall not produce, or allow to be produced Product with the scope of IWT’s Core Technology, without IWT’s prior approval, and if approved, the payment of a patent fee (royalty fee) shall be payable to IWT, as defined by IWT. Manufacturer shall put the production of the Product out to subcontractors as needed, as pre-approved by IWT.

1.6 

PRIORITY AMONG CONTRACT DOCUMENTS.  The whole of this Agreement and Appendixes attached hereto are to be taken together so as to give effect to very part thereof to the maximum extent practicable, with each document helping to interpret the other.  In the event of any conflict or inconsistency between the terms of this Agreement and the terms of any other document, the terms of this Agreement shall prevail.

2.1 

MANUFACTURING.  During the term of this Agreement, Manufacturer shall timely manufacture the Product or its parts in compliance with the Product Specifications described in Appendix I (the “Product”).  Both during the term and following termination of this Agreement, in perpetuity, Manufacturer shall not supply the Product (or any prototype thereof), or Product Specifications, to any third party whatsoever.

2.2 

PURCHASE ORDERS. Purchase orders shall be described separately in appendix III (Purchase Order)

2.3 

SHIPMENT.  The delivery of each Purchase Order shall be within the time specified in the Purchase Order.  All deliveries to IWT are F.O.B. in Moscow, Russian Federation, at point of manufacture using carriers and billing account numbers as specified in writing by IWT. All risk of loss after shipment by Manufacturer is borne by IWT. Manufacturer agrees to properly label all shipping documents with the U.S. Classification Codes as supplied by IWT to expedite processing through U.S. Customs. If Manufacturer fails to properly note said U.S. Classification Codes, resulting in import taxes due by IWT, Manufacturer shall be responsible to reimburse IWT for all such taxes, due and payable upon evidence shown to Manufacturer by IWT.

2.4 

PURCHASE ORDER CANCELLATION.  IWT shall not cancel a purchase order once any down payment has been made to the Manufacturer.

2.5 

PRICING.  IWT shall pay for production of the Product as defined in the Payment for Products and Services as described in Appendix III (Product Order).

2.6

  PAYMENT.  IWT shall pay Manufacturer in accordance with attached Payment for Products and Services as described in Appendix III (Product Order).

WARRANTY.  Manufacturer warrants and represents that it shall strictly adhere to the Product Specifications set forth in Appendix I attached hereto and by reference made a part hereof. Manufacturer warrants and represents that it has the requisite and necessary experience, all necessary licenses and permits, equipment, facilities and personnel to properly perform the manufacturing services in accordance with the Product Specifications, and further warrants and represents that it is not a party to any other Agreement that would in any way conflict with, or restrict, its ability to perform the manufacturing services. During the term of the warranty. Manufacturer assumes full responsibility for the repair or replacement of units in the field whereby greater than 10% of units exhibit one specific failure mechanism (“Catastrophic Failure”).

2.8 

DEFECTIVE PRODUCTS.  Manufacturer warrants for a period of 18 (eighteen) months from shipment that all Products sold to IWT shall be free from any defects in Manufacturer materials, and workmanship, and shall conform to Product Specifications. Warranty repair services shall be provided at Manufacturer’s manufacturing facilities in Moscow, free of charge, F.O.B. Manufacturer shall within two weeks of receipt of returned products provide a report to IWT detailing those products accepted under warranty and any that are not accepted under warranty due to physical damage or improper use. Manufacturer will use its best efforts to repair defective products as quickly as possible with “turnaround time” (time for repair after receipt of units) to be four (4) weeks from receipt at the Manufacturer facility. Shipment of the repaired or replaced warranted products to IWT’s location shall be at the expense of Manufacturer. Shipment of the repaired or replaced non-warranted products to IWT’s location shall be at the expense of IWT. IWT shall establish Customer Service Center, to respond to customer complaints and provide repairs where practical. Manufacturer shall provide IWT with technical information necessary for such repairs. In the event a product modification shall become necessary, Manufacturer shall make such modifications, as approved by IWT, at a separate cost borne by IWT. For non-warranted repairs, Manufacturer shall report to IWT an estimated time to repair failed units, and shall not proceed with repairs until such time that IWT has provided approval for said repairs. For problems due to incorrect use of the Product, or factors external to the Product, or repairs for unwarranted units, Manufacturer shall repair at a separate cost borne be IWT. Manufacturer shall repair or exchange, and ship to IWT, the returned Product within four (4) weeks of receipt of Product by Manufacturer.

3.1

REGULATORY APPROVALS.  IWT shall undertake and be responsible for the procurement of any and all regulatory approvals and/or registrations and customs approval necessary for sale of the Product.  Manufacturer shall aid and cooperate with, where appropriate, IWT in fulfilling the responsibilities set forth in this Section.

3.2 

MANUFACTURER’S QUALIFICATIONS.  Manufacturer is ISO 9001 certified and shall notify IWT of any change in that status during the term of this Agreement.  Should Manufacturer lose its status as ISO 9001 certified, it shall have a period of 30 days to have the certification reinstated and if not reinstated within this cure period, IWT shall have the right to terminate this Agreement in accordance with Section 5.3.

3.3 

TRADEMARKS.  IWT shall have the sole right to prepare, file, prosecute and maintain trademark applications or registrations with respect to the Product throughout the world excluding Russian Federation.  All such applications and registrations shall be at IWT’s expense.  IWT shall retain ownership of these applications and registrations throughout the term of this Agreement and thereafter.

3.4

PUBLIC RELEASE OF INFORMATION.  Any public statement, verbal or written, regarding the other party shall be approved by the other party in advance.  The foregoing shall not prevent either party from issuing a press release or making a public filing where required by law.

4.1 

NOTICE OF PRODUCT LIABILITY CLAIMS.  Each Party shall notify the other promptly in writing of any product liability claim brought with respect to the Product based on alleged defects in the design, manufacture, packaging, or labeling of the Product or other adverse claim regarding the Product.  Upon receiving such written notice, IWT shall assume and have sole control of the defense of any such claim, including the power to conduct and conclude any and all negotiations, compromises or settlements.  Manufacturer shall promptly comply with all reasonable requests from IWT for information, materials or assistance with respect to the conduct of such defense.

4.2 

NOTICE OF INVESTIGATION.  Manufacturer and IWT shall promptly notify each other of any potential or actual investigation or governmental activity relating to the Product.

4.3 

Manufacturer agrees to reimburse IWT for any and all monies paid to Manufacturer by IWT for inventory which is lost or damaged due to a natural disaster which destroys inventory owned by IWT at Manufacturer’s facility.

5.1 

INITIAL TERM.  Unless terminated sooner pursuant to the further provisions of this Article, this Agreement shall expire in 5 (five) years from the date hereof.

5.2 

EXTENSIONS.  IWT has three successive options to extend the term of Agreement for a period of one (1) additional year (an “Extension Period”).  IWT’s right to exercise each option to extend the Agreement for another year is expressly conditioned upon IWT not being in default under this Agreement at the time the option is exercised and not being in default between the time the option is exercised and the start of the Extension Period.

5.3 

TERMINATION BY IWT.  IWT shall have the right to terminate this Agreement if Manufacturer fails to perform in accordance with this Agreement and its appendices and fails to cure such default within sixty (60) days of written notice.

5.4 

TERMINATION BY Manufacturer.  Manufacturer shall have the optional right to terminate this Agreement on written notice to IWT if IWT (a) has failed to make any payments required by this Agreement in the time provided therefore and (b) following sixty (60) days’ notice of such failure from Manufacturer, IWT does not pay all delinquent sums in full.

5.5 

TERMINATION BY EITHER PARTY.  In addition to their respective rights set forth in Sections 5.3 and 5.4, either party shall have the right to terminate this Agreement on written notice to the other party under the following circumstances:

 

by mutual Agreement;

 

if the other party materially defaults in the performance of any material obligation hereunder, and such default continues for more than thirty (30) business days after receiving written notice from the other party of such default; provided, however, there shall be no default under this provision if the defaulting party has cured the default within sixty (60) business days after the giving of notice;

 

in the event that the other party is declared insolvent, or bankrupt by a court of competent jurisdiction, or a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by such other party, or such other party shall make or execute an assignment for the benefit of creditors, or a receiver is appointed by a court of competent jurisdiction over all or a substantial portion of the other party’s assets and such receivership is not dismissed within 30 days of appointment, or

 

in the event of the issuance of a final order, decree or other action by any competent judicial authority or governmental agency which restrains, enjoins or prohibits the sale or introduction into interstate commerce of the System and such restraint, injunction or prohibition is not vacated within 30 days thereafter.

5.6 

SURVIVAL.  The termination or expiration of this Agreement shall be without prejudice (a) to the rights of any party to receive upon its request all payments accrued and unpaid, or all documents, data and deliverables not delivered, as of the date of such expiration or termination; (b) the rights and remedies of either party with respect to any previous breach or default under any representation, warranty or covenant herein contained; (c) rights under any other provision of this Agreement which expressly and necessarily calls for performance after expiration or termination, and (d) Manufacturer shall not produce, nor allow to be produced, the Product.

5.7 

FORCE MAJEURE.  If the performance of this Agreement or of any obligation hereunder is prevented, or restricted or interfered with by reason of any event of Force Majeure, the Party so affected, upon prompt notice to the other Party, shall be excused from performance, but only for the duration of such inability, provided that the Party so affected shall use its best effort to avoid or remove such causes of nonperformance, and shall continue performance hereunder with the utmost dispatch whenever such causes are removed.

6.1 

MANUFACTURER INDEMNITY.  Manufacturer agrees to indemnify, defend and hold harmless IWT or any of their respective customers, against any claim arising out of or relating to any loss or damage, including bodily injury or death, incurred by reason of or resulting from a defect in the product caused by Manufacturer’s design, engineering, fabrication, manufacture, packaging or labeling thereof; provided that the Product is used for its intended purpose. Manufacturer shall not be required to pay any compensation for damages, loss or cost, which are due to loss of sales opportunity. Manufacturer shall not be responsible for the loss of recorded data unless due to Product defect which was made intentionally or due to gross negligence by Manufacturer.

7.1 

NOTICES.  Any notices required or permitted to be given to a Party hereunder shall be in writing and shall be delivered or sent to such Party at its address given below:

 

(a)

if to Manufacturer:

 

CJSC “Innovation Weapons Technologies”

 

General Director: Evgeniy Spiridonov

 

Tel: +7(495) 921-21-50

 

fax: +7(495) 921-32-19

 

Address: 115088, Moscow, 2nd-Yuzhnoportoviy pr. - 20а/4

 

(b)

if to IWT: Innovative Wireless Technologies, Inc.

 

Address: 3655 Nobel Drive, San Diego, CA 92122 US Nobel Executive Center, Suite 520 Tel. +1 858 735 88 65 begin_of_the_skype_highlighting   

7.2 

ATTORNEYS’ FEES.  In the event of any litigation, arbitration, judicial reference or other legal proceeding involving the Parties to this Agreement to enforce any provision of this Agreement, to enforce any remedy available upon default under this Agreement, or seeking a declaration of the rights of either Party under this Agreement, the prevailing Party shall be entitled to recover from the other such attorneys’ fees and costs as may be reasonably incurred, including the costs of reasonable investigation, preparation and professional or expert consultation incurred by reason of such litigation, arbitration, judicial reference, or other legal proceeding.

7.3 

ARBITRATION. All disputes, controversies, or claims arising out of or relating to this contract shall be submitted binding arbitration in accordance with the applicable rules of the American Arbitration Association then in effect.

7.4

GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of California without regard to that state’s choice of law provisions.

IWT STLED ULTRA (1LED) receiver + remote, body

1500

133,877.21

89.25

IWT STLED ULTRA II (4LED) receiver + remote, body

1000

119,084.12

119.08

IWT LED RF (1LED) receiver + remote

500

43,804.31

87.61

KOMAK (AK mounting bracket, grip remote, IWT STLED RF receiver), body

1000

226,020.05

226.02

interchangeable heads:

1 LED green body

100

3,631.55

36.32

1 LED red body

100

3,497.97

34.98

1 LED IR 850 body

25

978.05

39.12

1 LED IR 940 body

25

978.05

39.12

1 LED UV body

50

1,902.17

38.04

3 LED white body

100

5,892.66

58.93

3 LED IR 850 body

10

743.03

74.30

3 LED IR 940 body

10

743.03

74.30

4 LED white body

100

6,321.34

63.21