UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________
COMMISSION FILE NUMBER 0-25524
HELLO DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3043208
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5893 RUE FERRARI 95138-1858
SAN JOSE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 972-1990
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class May 7, 1998
----- -------------
Common Stock, Par Value $.001 5,112,757
<PAGE>
HELLO DIRECT, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. -- Financial Statements
Condensed Balance Sheets as of March 31, 1998 and December 31, 1997
Condensed Statements of Operations for the Three Months Ended
March 31, 1998 and 1997
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997
Notes to Condensed Financial Statements
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Liquidity and Capital Resources
Additional Factors affecting Operating Results and Market Price of
Stock
Part II - Other Information
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. - Exhibits and Reports on Form 8-K
Signatures
Part 1. Financial Information
Item 1. Financial Statements
HELLO DIRECT, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,370 $5,135
Short-term investments 5,199 3,830
Trade accounts receivable, less allowance for
returns and doubtful accounts 6,804 5,752
Inventories 6,010 5,137
Deferred tax assets 898 821
Other current assets 1,341 1,771
------------- -------------
Total current assets 22,622 22,446
Notes receivable 4,469 4,542
Property and equipment, net 4,770 4,819
Long-term deferred tax assets 0 25
------------- -------------
Total assets $31,861 $31,832
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,965 $3,856
Accrued expenses 1,343 1,319
------------- -------------
Total current liabilities 4,308 5,175
Non-current liabilities 174 0
------------- -------------
Total liabilities 4,482 5,175
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 28,164 28,045
Accumulated deficit (345) (948)
Less treasury stock, at cost (445) (445)
------------- -------------
Total stockholders' equity 27,379 26,657
------------- -------------
Total liabilities and stockholders' equity $31,861 $31,832
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
HELLO DIRECT, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales $17,910 $15,936
Cost of goods sold 8,319 7,853
--------- ---------
Gross profit 9,591 8,083
Selling, general and administrative
expenses 8,210 7,341
Product development expenses 579 410
--------- ---------
Operating income 802 332
Other income - net 203 169
--------- ---------
Income before income taxes 1,005 501
Income taxes 402 201
--------- ---------
Net income $603 $300
========= =========
Basic per share amounts:
Net income $0.12 $0.06
========= =========
Weighted average shares outstanding 5,087 5,015
========= =========
Diluted per share amounts:
Net income $0.12 $0.06
========= =========
Weighted average shares outstanding 5,182 5,073
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
HELLO DIRECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $603 $300
Adjustments to reconcile net income to net cash
provided (used in) operating activities:
Depreciation and amortization 388 258
Deferred income taxes 77 201
Deferred rent 45 0
Allowance for returns and doubtful accounts (61) 151
Changes in items affecting operations: 0 0
Trade accounts receivable (986) (1,312)
Inventories (873) (661)
Other current assets 430 156
Accounts payable and accrued expenses (867) 569
----------- -----------
Net cash provided (used) in operating activities (1,244) (338)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (339) (1,314)
Decrease (increase) in investments (1,369) 1,900
Funding of note receivable 0 (1,287)
Payments received on note receivable 68 0
----------- -----------
Net cash used in investing activities (1,640) (701)
----------- -----------
Cash flows from financing activities:
Payments on capital lease obligations 0 (10)
Sale of common stock, net 119 95
----------- -----------
Net cash provided by financing activities 119 85
----------- -----------
Net decrease in cash and cash equivalents (2,765) (954)
Cash and cash equivalents at beginning of period 5,135 2,492
----------- -----------
Cash and cash equivalents at end of period $2,370 $1,538
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
HELLO DIRECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements
In the opinion of the management of Hello Direct, Inc. (the "Company"), the
accompanying unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments necessary to present fairly
the financial information set forth therein.
The condensed financial statements have been prepared by the Company without
audit and are subject to year-end adjustment. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
It is suggested that these interim statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's
annual report (Commission File Number 0-25524) filed on Form 10-K for the
fiscal year ended December 31, 1997.
Results of operations for the three-month period ended March 31, 1998 are not
necessarily indicative of future financial results.
2. Net Income Per Share
There were no adjustments to net income for purposes of the calculation of
diluted net income per share. The table below reconciles basic weighted
average shares outstanding to diluted weighted average shares outstanding:
March 31,
1998 1997
Basic weighted shares outstanding 5,087,000 5,015,000
Common stock options utilizing treasury
utilizing treasury stock method when dilutive 95,000 58,000
--------- ---------
Diluted weighted shares outstanding 5,182,000 5,073,000
========= =========
3. Recently Adopted Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Company adopted both
of these standards on January 1, 1998. The adoption of SFAS No. 130 and SFAS
No. 131 did not have a material effect on the financial statements of the
Company.
Item 2. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Management's Discussion and Analysis section contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below and in the Company's reports filed with the
Securities and Exchange Commission including the Company's annual report on
Form 10-K for the year ended December 31, 1997 (the "Form 10-K"). The forward-
looking statements contained herein are made as of the date hereof, and the
Company assumes no obligation to update such forward-looking statements or to
update reasons actual results could differ materially from those anticipated
in such forward-looking statements. Forward-looking statements are identified
with an asterisk (*).
RESULTS OF OPERATIONS
First Quarter 1998 Compared to First Quarter 1997
Net Sales. Net sales reflect total sales less a provision for returns.
Net sales increased $1,974,000 or 12.4% to $17,910,000 in the three-month
period ended March 31, 1998, from $15,936,000 for the comparable period in
1997. This increase was primarily attributable to a 14% increase in the
number of catalogs mailed, to 8.3 million from 7.3 million, and a 6.1%
increase in the total average order size, to $259 from $244. During the
quarter, the Company introduced a 64 page catalog replacing the full line
and prospecting versions of the catalog used in the prior year. In
connection with the strategic plan announced in 1997, the Company culled
various low margin, low sales price branded products from the catalog and,
accordingly, reduced the catalog size in response to this change in product
offering.
Gross Profit. Gross profit increased $1,508,000 or 18.7% to $9,591,000 in
the three-month period ended March 31, 1998, from $8,083,000 for the
comparable period in 1997. The gross margin percentage for the three-month
period was 53.6% for 1998 versus 50.7% for 1997. This increase in gross
margin was the result of a shift in product mix toward a larger percentage of
proprietary products which carry higher gross margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $869,000 or 11.8% to $8,210,000 in the
three-month period ended March 31, 1998, from $7,341,000 for the comparable
period in 1997. The dollar increase for the three month period in 1998
compared to the same period in 1997 was associated with planned headcount
additions to the Company's corporate (outbound) telemarketing group,
administrative management group, product management team, and customer care
activities. However, as a percentage of net sales, these expenses for the
three-month period declined to 45.8% in 1998 as compared to 46.1% for the same
three-month period in 1997. A significant portion of the Company's selling,
general and administrative expenses are related to the production, printing
and distribution of its catalog. Any significant increase in the cost of
paper or postage, or deterioration in the response rates to mailings, would
have a material adverse effect on the Company's operating results.
Product Development Expenses. Product development expenses increased $169,000
or 41.2% to $579,000 for the three month period ended March 31, 1998, from
$410,000 for the comparable period in 1997. As a percentage of net sales,
these expenses for the three-month period were 3.2% for 1998 versus 2.6% for
the same three-month period in 1997. The increase was due to the development
of new products scheduled for introduction later this year. It is anticipated
these expenses will fluctuate from time to time based upon the number and
character of the products under development, however, the Company believes
these expenses, as a percentage of net sales, will increase for the year
ending December 31, 1998, over the prior year.*
Other Income-net. Other income includes interest income of $205,000 for the
three-month period ended March 31, 1998 versus $168,000 for the comparable
period in 1997. The interest income relates to interest earned on cash
investments, short-term investments and on the outstanding note receivable.
Net Income. Net income increased $303,000 or 101% to $603,000 in the three-
month period ended March 31, 1998, from $300,000 for the comparable period in
1997. This increase was due to the reasons discussed above.
Quarterly and Seasonal Fluctuations. The Company has experienced in the past
and will experience in the future quarterly variations in net sales and net
income as a result of many factors, including the timing of catalog mailings;
catalog response rates; product mix; the level of selling, general and
administrative expenses; the timing and level of product development expenses;
and the timing and success of new product introductions by the Company or its
competitors.? The Company's planned operating expenditures are based on sales
forecasts. If net sales are below expectations in any given quarter,
operating results would be materially adversely affected. Due to the
foregoing factors, it is possible that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would
likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash flow from
operations, proceeds from its initial public offering, venture capital equity
and debt financing, and borrowings under its revolving bank line of credit.
Cash used by operating activities during the three-month period ended March
31, 1998, was $1,244,000. This was the result of $1,052,000 provided by
operations including net income, depreciation and amortization and other non-
cash charges offset by $2,296,000 of changes in operating assets and
liabilities. Cash used by investing activities for the three month period
ended March 31, 1998 was $1,640,000, due primarily to purchases of property
and equipment of $339,000 and an increase in short-term investments of
$1,369,000, offset by $68,000 of principal payments received on the note
receivable. Cash provided by financing activities during the three-month
period ended March 31, 1998, was $119,000, relating primarily to the issuance
of common stock pursuant to the Company's employee stock purchase plan.
Additions to equipment during the three-month period ended March 31, 1998 were
$339,000 compared to $1,314,000 for same period in the prior year. The
Company plans to expend between $2,000,000 and $2,500,000 for capital
equipment for the year ending December 31, 1998.*
The Company believes funds generated from operations, together with available
funds remaining from the net proceeds of its initial public offering, will be
sufficient to finance its working capital needs for the foreseeable future.*
Should the Company require additional funds, it has available though a major
financial institution a $5,000,000 unsecured revolving line of credit at that
institution's prime lending rate. During the three-month period ended March
31, 1998, the Company did not directly borrow against this credit facility.
ADDITIONAL FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
Hello Direct operates in a rapidly changing environment that involves a
number of uncertainties, some of which are beyond the Company's control. In
addition to the uncertainties described elsewhere in this report, these
uncertainties include:
Future Operating Results Uncertain. The Company has grown rapidly and
achieved profitability in the past five years as a result of a substantial
increase in catalog mailings, strong growth in the number of active customers
and the success of its product offering, particularly of its proprietary
headset products. There can be no assurance that the Company will maintain
profitability on a quarterly or annual basis or continue to increase its net
sales. At March 31, 1998, the Company had an accumulated deficit of $345,000.
Continued growth in the Company's net sales will depend on, among other
things, the Company's ability to increase sales to existing customers, grow
its customer base and expand its product offering. The Company's operating
results could be materially adversely affected if the Company were to
experience lower than anticipated catalog response rates from existing and
prospective customers, higher than anticipated product return rates or higher
than anticipated increases in paper and postal costs. There can be no
assurance that the Company will continue to achieve growth in net sales or
that such growth will offset increases in operating expenses. Operating
results could also be materially adversely affected by delays in new product
introductions, poor product selection and market acceptance of new products or
increased competition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Fluctuations in Quarterly Operating Results. The Company has
experienced in the past and will experience in the future quarterly
variations in net sales and net income as a result of many factors,
including the number and timing of catalog mailings; catalog response rates;
product mix; the level of selling, general and administrative expenses; the
timing and level of product development expenses; and the timing and success
of new product introductions by the Company or its competitors. The
Company's planned operating expenditures are based on sales forecasts. If
net sales are below expectations in any given quarter, operating results
would be materially adversely affected. Due to the foregoing factors, it is
possible that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected.
Rapidly Changing Technology; Need to Successfully Develop New Products.
The market for telecommunications products is generally characterized by
rapidly changing technology that can render existing products obsolete and
unmarketable. The Company believes its current and future success will depend
on its ability to use its direct customer contacts and product development
capabilities to identify, develop or source and successfully introduce and
market in a timely manner both enhancements to its existing products and new
products that respond effectively to technological change. The Company has
experienced delays in the past in introducing certain of its products and
could encounter similar technical difficulties in the future that will result
in delayed product introductions or expensive recalls. There can be no
assurance that the Company will be successful in anticipating technological
changes or in selecting and developing new and enhanced products on a timely
basis, or that, once developed or sourced, any such products will gain market
acceptance.
Dependence on Headset Products. More than 50% of the Company's net
sales in the first quarter of 1998 were derived from sales of the Company's
proprietary telephone headset products, which have higher gross margins than
its other products. The Company anticipates that these headset products will
continue to account for a significant portion of its net sales and profits in
the foreseeable future. * If sales of the Company's telephone headset
products were to decline significantly for any reason, or the gross margins
on such products were to decrease significantly for any reason, including
competitive pressures or technological obsolescence, the Company's operating
results would be materially adversely affected.
Dependence on Sole or Limited Source Suppliers and Foreign
Manufacturing. A substantial portion of the Company's private label and
proprietary products are manufactured by a relatively small number of
manufacturers, and most of such products, including all headset products,
are manufactured by only three sources. To date, the Company has been able
to obtain adequate supplies of these products, although on occasion the
Company has incurred additional delivery costs to air ship products to
obtain inventory in a timely manner. The Company's inability in the future
to obtain sufficient quantities of sole or limited source products, or to
develop alternative sources, would result in shortages of such products,
which would have a material adverse effect on the Company's net sales and
operating results.
A substantial portion of Hello Direct's proprietary products are
manufactured to its specifications by Seo Won K-Tec, Inc., located in South
Korea and the Philippines, Sinoca Enterprises Co. Ltd., located in Taiwan, and
Transtech Electronics Pte. Ltd., located in Singapore. Each of these
manufacturers is a substantial supplier to the Company, and products
manufactured by these manufacturers represented approximately 50% of the
Company's net sales in the first quarter of 1998. The Company has no long-
term contracts with such manufacturing sources and competes with other
companies for production facilities. Although the Company believes that it
has established close relationships with these foreign manufacturing sources,
the Company's future success will depend in large measure upon its ability to
maintain such relationships.
The Company's business is subject to the risks generally associated
with doing business abroad, such as foreign governmental regulations,
political unrest, disruptions or delays in shipments and changes in economic
conditions in countries in which the Company's manufacturing sources are
located. The Company cannot predict the effect that such factors will have
on its business arrangements with foreign manufacturing sources. If any
such factors were to render the conduct of business in a particular country
undesirable or impractical, or if the Company's current foreign
manufacturing sources were to cease doing business with the Company for any
reason, the Company's business and operating results could be adversely
affected. Further, the Company cannot predict whether additional United
States quotas, duties, taxes or other charges or restrictions will be
imposed upon the importation of its products in the future, or what effect
any such actions would have on its business, financial condition and results
of operations.
Competition. The market for customer premise telecommunications
products is highly competitive. The Company competes with a variety of
traditional dealers and retailers, including catalog companies, electronics
specialty stores and office products and computer superstores. A variety of
external and internal factors could adversely affect the Company's ability
to compete. These include the functions, performance, price and reliability
of the products offered by the Company and its competitors, the timing and
success of new product development efforts of the Company and its
competitors, and the effectiveness of the marketing efforts of the Company
and its competitors. Certain competitors of the Company have greater
financial, technical, sales and marketing and other resources than the
Company. There can be no assurance that the Company will compete
effectively against existing competitors or against new competitors that may
enter the market. In addition, while the Company currently does not know of
any competitor specializing in distributing a broad line of
telecommunications products directly to business end-users via catalog,
there can be no assurance that the Company will be able to compete
successfully in the future in either the direct marketing catalog channel,
which may attract new market entrants, or in other channels that the Company
may enter or that may be developed for telecommunications products for such
customers.
Increase in Costs of Catalog Mailing, Paper and Printing. Increases in
postal rates and paper and printing costs increase the cost of the Company's
catalog mailings. An increase in postal rates or higher than anticipated
paper and printing costs could have a material adverse impact on the Company's
financial position and results of operations to the extent that the Company is
unable to pass such increase directly on to customers by raising prices or to
offset such increase by implementing more efficient printing, mailing and
delivery systems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated with Managing a Growing Business. The Company has
experienced significant growth in its operations that has placed significant
demands on the Company's administrative, operational and financial resources.
The growth in the Company's customer base and changes in its product offering
have placed, and are expected to continue to place, a significant strain on
the Company's management and operations, including on its product development,
customer service and finance and administration staffs. The Company's future
performance will depend in part on its ability to successfully implement
enhancements to its management information systems and to adapt those systems,
as necessary, to respond to changes in its business. The inability of the
Company to successfully integrate and train new hires could have a material
adverse effect on the Company's business or results of operations. The
failure of the Company's management to respond to and manage changing business
conditions could materially adversely affect the Company's business or
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Dependence on Single Facility. The Company's telemarketing, customer
service and distribution functions are housed in a single facility in San
Jose, California. The Company has taken precautions to protect itself from
events that could interrupt order fulfillment and customer service, such as
offsite storage of computer backup data and a backup power source.
Notwithstanding these precautions, there can be no assurance that a fire,
flood, earthquake or other disaster affecting the Company's facility would not
disable these functions. Any significant damage to this facility would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Personnel. The Company's future success will
depend to a significant extent on the efforts of its key management
personnel. The loss of the services of any of these individuals could have
a material adverse effect on the Company's business, financial condition and
results of operations. Except for Messrs. Glover and Waldera, none of the
Company's executive officers has entered into an employment agreement with
the Company. The Company does not maintain key-man life insurance on any of
these individuals.
Competition for employees with technical, management, customer
service and other skills is intense in the telecommunications products
industry. The Company's failure to retain and attract additional qualified
employees could negatively affect the Company's business.
State Sales Tax Collection. The Company presently collects retail
occupation tax, commonly referred to as sales tax, or other similar tax, only
on sales of products to residents of the State of California. Several states
have sought to impose on direct marketers the burden of collecting state sales
taxes on the sale of products shipped to those states' residents. The United
States Supreme Court has held that it is unconstitutional for a state to
impose tax collection obligations on an out-of-state mail order company whose
only contacts with the taxing state are the distribution of catalogs and other
advertisement materials through the mail and whose subsequent delivery of
purchased goods is by United States mail or interstate common carriers. In
the event of a change in present law, the imposition of a tax collection
obligation on the Company by states into which it ships products may result in
additional administrative expenses to the Company and price increases to the
customer, which could adversely affect the Company's operating results.
Government Regulation of Mailing Lists. The Company seeks to expand
its in-house list of customers and potential customers ("House List") by
continually renting appropriate mailing lists and sending its catalogs to
prospects obtained from these lists. In the event that the federal or state
governments enact privacy legislation resulting in the increased regulation
of mailing lists, the Company's ability to enhance and expand its House List
could be adversely affected. In such event, the Company could also
experience increased costs in complying with potentially burdensome
regulations concerning the solicitation of consents to keep or add customer
names to Hello Direct's mailing lists.
Risks Associated With Intellectual Property Rights. The Company
relies on a combination of patent, copyright, trademark and trade secret
laws and contractual provisions to protect its proprietary rights in its
products. As part of its confidentiality procedures, the Company generally
enters into non- disclosure agreements with its employees, distributors and
corporate partners, and limits access to and distribution of its software,
documentation and other proprietary information. Despite these precautions,
it may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology independently. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain foreign countries.
There are no currently pending material claims that the Company's
products, trademarks or other proprietary rights significantly infringe the
proprietary rights of third parties. However, there can be no assurance
that the Company will not receive in the future communications from third
parties asserting that the Company's products infringe, or may infringe, the
proprietary rights of third parties. There can be no assurance that
licenses to disputed third- party technology would be available on reasonable
commercial terms, if at all. In the event of litigation to determine the
validity of any third-party claims, such litigation, whether or not
determined in favor of the Company, could result in significant expense to
the Company and divert the efforts of the Company's technical and management
personnel from productive tasks. In the event of an adverse ruling in such
litigation, the Company might be required to discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology. In the event of a
successful claim against the Company and the failure of the Company to
develop or license a substitute technology, the Company's business and
operating results would be adversely affected.
Product Liability and Insurance. Sale of the Company's proprietary and
other products through the catalog and alternate channels entails the risk of
product liability claims, although the Company has not experienced any claims
to date. While the Company believes that its product liability insurance
coverage is currently adequate, such coverage is limited, and there can be no
assurance that such insurance can be maintained in the future at a reasonable
cost or in amounts sufficient to protect the Company against losses due to
liability. A successful product liability claim brought against the Company
in excess of relevant insurance coverage could have a material adverse effect
on the Company's business, financial condition and results of operations.
Volatility of Stock Price. The market price of the shares of Common
Stock has been volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or
its competitors, developments with respect to intellectual property and
proprietary rights, conditions and trends in the telecommunications and
telephone headset industries, changes in earnings estimates or buy-sell
recommendations by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of emerging growth companies and that
have often been unrelated to the operating performance of particular
companies. These broad market fluctuations may also adversely affect the
market price of the Company's Common Stock.
Control by Officers and Directors. The Company's officers, directors
and their affiliates will beneficially own approximately 60% of the
outstanding shares of the Company's Common Stock. As a result, such
persons, acting together, have the ability to control all matters requiring
stockholder approval (including the election of all directors, and any
merger, consolidation or sale of all or substantially all of the Company's
assets) and also control the management and affairs of the Company.
Accordingly, such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company.
PART II -- OTHER INFORMATION
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. -- Exhibits and Reports on Form 8-K:
a. Exhibits
10.1 && Agreement between Hello Direct, Inc. and Seo-Won K-Tec, Inc.
27.1 Financial Data Schedule
b. Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended March 31, 1998.
&& Confidential treatment requested for portions of this document.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed by on its
behalf by the undersigned thereunto duly authorized.
HELLO DIRECT, INC.
(Registrant)
May 8, 1998
/s/ Raymond E. Nystrom
------------------------
Date Raymond E. Nystrom
Chief Financial Officer
[ARTICLE] 5
Note: Information in this document marked with "[*]" has been
omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
AGREEMENT BETWEEN HELLO DIRECT, INC. AND SEO-WON K-TEC., INC.
TABLE OF CONTENTS
Number Article
1 Definitions
2 Term
3 Manufacture of Products
4 Obligations of SWKT
5 License and Technology
6 Price
7 Payment Terms
8 Purchase Orders
9 Forecasts
10 Delivery
11 Product Transfers
12 Warranty
13 Raw Materials
14 Engineering Changes
15 Quality Assurance
16 Product Acceptance
17 Packing
18 Records and Reporting
19 Spare Parts Availability
20 Tools, Fixtures and Jigs
21 Confidentiality
22 Product Rights/Exclusivity
23 Trademarks
24 Infringement of Trademarks and Other Proprietary Rights
25 Relationship of Parties
26 Sales Territory and License Fee
27 Termination
28 Effect of Termination
29 Insurance
30 Addresses, Contacts and Meetings
31 Waiver
32 Non-Assignment
33 Arbitration
34 Patent and Copyright Indemnity
35 Indemnification
36 Force Majeure
37 Severability
38 Governing Law
39 Entirety of Agreement
40 Survival
41 Compliance with Law
42 Language
43 Headings
44 Counterparts
Signatures
Appendices
A Products and Prices
B Tools, Jigs and Fixtures
C Quality Inspection Definitions
D Sales Territory and License Fee
E Hello Direct Trademarks
MANUFACTURING AND SUPPLY AGREEMENT
This Manufacturing and Supply Agreement (the "Agreement") is
entered this
First day of January, 1998, by and between:
HELLO DIRECT, INC.
5893 Rue Ferrari
San Jose, California 95138-1858
United States Of America
a company organized and existing under the laws of the State of
Delaware (hereinafter called "HDI"); and
SEO-WON K-TEC., INC.
4th Floor, Ilsung Building
6-17 Yangjae-Dong, Seocho-ku
Seoul, Korea
a company organized and existing under the laws of the Republic
of Korea (hereinafter called "SWKT").
Recitals
A. HDI is in the business of developing, manufacturing and
selling certain telephone communications and related products and is
the owner of valuable intellectual property rights in relation
thereto.
B. SWKT represents that it has the desire and capability to
manufacture for HDI certain telephone communications and related
products according to desired specifications to be provided by HDI,
and HDI desires to purchase such products from SWKT under the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements and covenants hereinafter set forth, the parties
hereto agree as follows:
1.DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Confidential Information" shall mean all information,
data and know-how of a confidential nature relating to
the businesses, affairs, development projects,
manufacturing techniques, sales strategies, products or
services provided by either party which is disclosed to
one party prior to or during the term of this Agreement,
including (a) the Technical Information; (b) information
concerning the disclosing party's customers or markets;
(c) information concerning the composition, manufacture
or development of the Products or other products of
either party; and (d) any technical information, know-
how, trade secrets or Intellectual Property Rights of the
disclosing party. Confidential Information may be
communicated orally, visually, electronically, in writing
or any other recorded or tangible form. The above shall
not apply to information or data designated as non-
confidential by the disclosing party in writing and to
data and information which the receiving party can show:
(a) is already rightfully known to the receiving party at
the time of disclosure; (b) is or becomes public
knowledge through no fault of the recipient; (c) is
received without an obligation of confidentiality from a
third party having the lawful right to disclose same; or
(d) is required by law to be disclosed.
1.2 "Effective Date" shall mean the date set forth above
which shall be the last date on which this Agreement is
fully executed by the parties.
1.3 "Improvements" shall mean any and all inventions,
discoveries, ideas, developments, improvements and
enhancements related to the Products or the Technical
Information, whether or not such inventions, etc. are
patented or patentable, copyrighted or copyrightable, and
which are conceived or first reduced to practice by
either party during the term of this Agreement; provided,
however, that Improvements shall not include
manufacturing processes developed by SWKT unless such
processes are unique to the Products.
1.4 "Intellectual Property Rights" shall mean all proprietary
rights in and to all information, technology and
expertise, whether or not patented or patentable,
copyrighted or copyrightable, and all manufacturing
techniques, trade secrets, know-how, technical data,
processes or procedures that relate to the Products,
including the Technical Information, the Trademarks and
any Improvements.
1.5 "Stable Products" shall mean those Products that have
been manufactured for [*] consecutive monthly lots, where
(i) each production lot has been a minimum of [*] units,
(ii) each of three consecutive production lots have been
received by HDI and passed the AQL inspection level for
new Products, and (iii) during the [*] consecutive
production lots, there were no specification changes
requiring an "Alpha configuration code" increase (e.g.,
"A" to "B", "B" to "C", etc., configuration change).
1.6 "Products" shall mean those certain telephone
communication products originally designed by HDI and
described in Appendix "A" attached hereto. Other
products not described in Appendix "A" may be added as
Products hereunder if SWKT and HDI mutually agree in
writing.
1.7 "Quality Plan" shall mean that Quality Control Plan to be
submitted by SWKT for approval by HDI and implemented by
SWKT in accordance with the terms of Article 15.
1.8 "Specifications" shall mean the specifications for the
Products and the components thereof, and may be modified
from time to time in accordance with the provisions of
Article 14 hereof. Such Specifications shall, by
reference, be incorporated and form part of this
Agreement.
1.9 "Technical Information" shall mean the know-how and other
technical and other information developed by HDI required
for the manufacture and assembly of the Products,
including, without limitation, the Specifications and all
other ideas, concepts, inventions, data, formulae and
specifications.
1.10 "Trademarks" shall mean the HDI trademarks, trade names
and service marks listed in Appendix "E" attached hereto
and as hereinafter, from time to time, may be added by
mutual agreement of the parties.
2. TERM
This Agreement shall be effective for an initial term of [*]
from the date hereof, which shall be automatically extended for
successive periods of [*] each unless either party hereto gives
the other a written notice of his intention to the contrary.
Such notice shall be no less than [*] prior to the expiration
of the original term or any extended term.
3. MANUFACTURE OF PRODUCTS
3.1 SWKT shall manufacture, assemble and supply, and HDI
shall purchase, the Products subject to the terms and
conditions hereof. [*]
3.2 The Products shall be manufactured and supplied by SWKT
in accordance with the Specifications and with such
instructions as may be given by HDI from time to time.
SWKT shall manufacture all Products to a standard
consistent with good manufacturing practice and shall be
solely responsible for ensuring full compliance with all
relevant mandatory legal requirements.
3.3 HDI shall have ultimate control of and responsibility for
all design, design changes, design variations,
engineering changes and production engineering variations
to the Specifications and to the Products. SWKT shall
not change or modify the Products without HDI's prior
written consent, and SWKT shall promptly implement all
changes to the Specifications and the Products agreed
upon in accordance with the terms hereof.
3.4 In connection with performing its obligations hereunder,
it is acknowledged that SWKT may appoint sub-contractors
to manufacture all or part of the Products or to provide
sub-assemblies of the Products with the prior written
consent of HDI; provided that SWKT shall assume full
responsibility for the sub-assembly quality supplied by
its sub-contractor and, provided further, that any such
sub-contractor's facilities shall be considered the same
as SWKT's facilities for all purposes of this Agreement.
In connection with the foregoing, HDI hereby provides its
written consent to the appointment of the following sub-
contractors:
(a) In the Republic of Korea, the Products shall be
manufactured and final assembly by:
[*]
(b) In the Philippines, the Products shall be
manufactured and final assemlby by:
[*]
4. OBLIGATIONS OF SWKT
4.1 During the term of this Agreement, SWKT shall:
(a) provide, at its own cost, all production
facilities, plant and equipment necessary for the
manufacture and assembly of the Products;
(b) provide, at its own cost, all materials, parts and
components for the manufacture and assembly of the
Products;
(c) appoint the necessary dedicated staff to the
design, development, manufacture, assembly and
supply of the Products;
(d) hold HDI harmless and without liability for any
loss, damage, claim or expense arising from the
actions of employees under the direct control of
SWKT;
(e) handle all customs clearance formalities in the
Republics of Korea and Philippines for all
materials and equipment used in manufacturing and
assembling the Products and for the finished
Products;
(f) assist HDI to obtain such immigration passes or
equivalent consents, if any, which may be required
to enable HDI's employees, visitors, customers or
representatives to visit SWKT or its designated
manufacturer from time to time;
(g) ensure that all finished Products meet with the
Specifications and Quality Plan and strictly follow
such manufacturing and assembly practices and
systems and abide by the highest industry standards
as shall be mutually determined by the Parties from
time to time with respect to each Product;
(h) obtain any and all export/import licenses to
export/import the tools, fixtures and jigs or other
equipment (referred to in Article 20 of this
Agreement) and the Products into and from the
Republics of Korea and Philippines, during the term
of and upon the termination or expiration of this
Agreement;
(i) assist in obtaining duty and sales tax exemption
for the import/export of the tools, fixtures and
jigs or other equipment (referred to in Article 20
of this Agreement), and the Products into and from
the Republics of Korea and Philippines, during the
term and upon the termination or expiration of this
Agreement;
(j) take all appropriate measures to safeguard the
tools, fixtures and jigs or other equipment
(referred to in Article 20 of this Agreement),
semi-finished Products and finished Products at all
times during the period of control by SWKT from and
against any and all damage by any person and claims
of third parties;
(k) obtain and maintain in effect at all times all
necessary manufacturing and other licenses,
consents, authorizations and permits, governmental
or otherwise, which may be required to enable SWKT
to carry out properly the provisions of this
Agreement;
(l) disclose in writing to HDI details of any customer
or proposed customer of SWKT wishing to manufacture
products similar to the Products and to obtain
HDI's written consent before undertaking any
contract or other assignment from any such customer
or proposed customer of SWKT's during the term of
this Agreement;
(m) ensure that all Improvements and their subsequent
implementation for mass production meet with HDI's
quality standards and strictly follow such
practices and systems and abide by the highest
industry standards as shall be mutually determined
by the parties from time to time with respect to
each Improvement;
(n) promptly disclose to HDI all Improvements made by
SWKT; and
(o) ensure that all Products assembled or manufactured
by SWKT under this Agreement bear such Trademarks
and other identification marks in such positions
and of such size and appearance as may be specified
by HDI from time to time.
4.2 Without limiting the generality of the foregoing, during
the term hereof, SWKT shall comply with the United States
Foreign Corrupt Practices Act ("FCPA") in connection with
any and all acts taken pursuant to this Agreement.
Without limiting the generality of the foregoing
obligation, SWKT and its employees and agents shall not
offer, pay, promise to pay, give or promise to give any
money or anything of value, whether directly or through
third parties, to any government official, political
party, political official, candidate for political office
or to any person, while knowing or having reason to know
that all or a portion of such money or thing of value
will be offered, paid, given or promised, directly or
indirectly, for purposes of influencing any act or
decision of the foregoing or inducing the foregoing to
use his, her or its influence with a government or
instrumentality thereof to affect or influence any act or
decision of such government or instrumentality. SWKT
represents and warrants that none of its officers,
directors, or employees is an official or employee of a
government or of any governmental agency or
instrumentality and that SWKT shall not employ any such
individual during the term of this Agreement. SWKT
further represents and warrants that it, and each of its
agents, officers, directors or employees engaging in acts
pursuant to this Agreement, have read the FCPA and is
aware of the duties, liabilities and obligations set
forth in the FCPA.
5. LICENSE AND TECHNOLOGY
5.1 HDI grants to SWKT a non-exclusive, non-transferable
license to use the Technical Information to manufacture
the Products for sale to HDI under the terms and subject
to the conditions contained herein. HDI reserves the
right during the term of this Agreement to authorize
third parties to manufacture and assemble any or all of
the Products required.
5.2 In addition, HDI grants to SWKT Manufacturer a non-
exclusive, [non-transferable] license to use the HDI
Trademarks solely in connection with the manufacture of
the Products for sale to HDI pursuant to this Agreement.
SWKT shall do nothing inconsistent with HDI's ownership
rights in the HDI Trademarks and shall not use such HDI
Trademarks except in connection with the manufacture of
the Products. SWKT acknowledges and agrees that such use
shall be consistent with instructions received from HDI
and that SWKT's right to use the HDI Trademarks shall
cease upon the termination of this Agreement.
5.3 As soon as reasonably practicable following the date
hereof, HDI shall make available to SWKT such Technical
Information as HDI deems, in its sole discretion, to be
reasonably necessary or appropriate to enable the
manufacture and assembly of the Products.
5.4 During the term of this Agreement, HDI shall provide SWKT
with such technical assistance as HDI deems, in its sole
discretion, to be reasonably necessary or appropriate to
enable the Products to be manufactured according to the
Specifications on a commercial scale at the facility
designated by SWKT. [At SWKT's reasonable request, HDI
shall make available personnel to visit SWKT
manufacturing facility to advise and assist SWKT on the
manufacturing and assembly operations in connection with
the Products; provided that SWKT shall reimburse HDI for
reasonable travel, living and other out-of-pocket
expenses actually incurred by HDI in connection
therewith, together with charges for HDI's employees'
time at its prevailing hourly rates.]
6. PRICE
6.1 The purchase price for each Product is shown in Appendix
"A." All prices shown in Appendix "A" are in U.S.
Dollars and are [*] (as that term is defined [*]).
6.2 SWKT or HDI may request a review of the Product prices
every three (3) months if the total material price as
defined in the Bill of Materials, or USA-Korea, or USA-
Philippine currency exchange rates change more than [*].
6.3 SWKT shall make available promptly on request such
information as HDI shall reasonably require (provided
such information does not breach any agreement of secrecy
and confidentiality between SWKT and any third party)
concerning the elements of cost, if necessary by
component, constituting the price of each Product as well
as information relating to any incentives available to or
obtained by SWKT. HDI shall not disclose any part of the
bill of material costs to any third party unless mutually
agreed to in writing.
6.4 HDI shall not be obliged to make any payment for any
Product which does not conform to the Specifications or
the Quality Plan, or any Product with a defect that
exceeds the Acceptance Quality Level (AQL) as defined in
Article 16 for any Product in any shipment.
7. PAYMENT TERMS
7.1 Payment shall be made to SWKT by HDI in U.S. Dollars, at
HDI's option, either by:
(a) telegraphic transfer prior to shipment of the
Products to a bank and account specified by SWKT,
or
(b) irrevocable Letter of Credit, issued by HDI's bank
and received by SWKT's bank prior to shipment of
the Products.
7.2 Upon shipment of Products, SWKT shall send to HDI, via a
courier service, the following documents:
(a) invoices in triplicate;
(b) packing lists in triplicate; and
(c) original bill of lading in triplicate if shipment is
by seafreight, or air waybill in duplicate if
shipment is by airfreight.
7.3 SWKT shall also, as soon as practicable after each
shipment, transmit via facsimile to HDI at least one copy
of each of the foregoing documents.
8. PURCHASE ORDERS
8.1 HDI shall order Products by submitting to SWKT a signed
HDI Purchase Order at least [*] prior to HDI's requested
delivery date. SWKT, within [*] from receipt of HDI's
Purchase Order, shall accept or reject each Purchase
Order. Upon acceptance of a Purchase Order, SWKT shall
state the delivery date for the Products on the Purchase
Order, and return to HDI a counter-signed, accepted copy
of the Purchase Order, which shall not, save where there
are grounds, reasonably acceptable to HDI, vary from the
date indicated by HDI in this Purchase Order by more than
[*] before or after that date.
8.2 SWKT shall not perform any work or produce any Products
without a Purchase order as described in Section 8.1 or
other written authorization from HDI. HDI shall not be
liable for any expenses incurred by SWKT if any work is
performed by SWKT without first receiving a Purchase
Order or other written authorization from HDI, unless
covered by the terms of the Purchase Order.
8.3 SWKT shall maintain the ability to increase its
manufacturing capacity for any or all of the Products
described in Appendix A. Such ability to increase its
manufacturing capacity shall, at a minimum, [*] percent
more than the amount forecasted by HDI with [*] advance
notice.
9. FORECASTS
On a monthly basis, HDI shall submit to SWKT its written, good
faith forecasts of its estimated monthly requirements of
Products for each of the successive [*] commencing from the
month HDI's forecast is submitted. That is, the [*] from the
forecast month shall be confirmed orders, and the estimates for
the [*] through [*]shall be non-binding, adjustable order
projections.
10. DELIVERY
10.1 Products purchased under this Agreement shall be shipped
in accordance with HDI's instructions. Delivery terms
are [*].
10.2 If SWKT fails to ship any Products by the confirmed
shipment date and the delay is due to causes other than
those stipulated in Article 36, HDI shall have the right
at its absolute discretion to:
(a) require the delayed portion of the order to be
shipped by airfreight at SWKT's expense; or
(b) extend the shipment date to a mutually agreed later
date; or
(c) cancel such order.
10.3 Products are to be invoiced, and title to and risk of
loss, delay and damage in connection with the Products in
transit shall pass to HDI upon delivery of the Products
to the common carrier at the respective [*], and HDI
shall thereafter accept responsibility for any loss,
damage or destruction to the Products (without prejudice
to any claim which HDI may have for breach of Agreement
including but not limited to breach by SWKT of any terms
to appropriate packaging of the Products).
11. PRODUCT TRANSFERS
If HDI desires to transfer to SWKT, and SWKT accepts the
transfer of, existing products for manufacture by SWKT, the
transfer schedule, any Non-Recurring Engineering (NRE) costs,
and responsible parties for the successful transfer of
production shall be developed mutually by the Parties.
12. WARRANTY
12.1 SWKT expressly warrants that all Products supplied by
SWKT to HDI (including repairs and replacements) shall
comply with their Specifications and shall be free from
defects in workmanship and components for a period of [*]
from date of delivery to HDI.
12.2 In addition to the Products shipped against an order,
SWKT shall supply HDI a [*] overage in product value,
based on the current [*]. cost. Said overage shall be
free of charge and is in lieu of warranty provided the
Product passes the agreed AQL standard.
12.3 Notwithstanding the "in lieu of warranty" basis specified
above, if at any time, in any lot the number of defective
units exceeds [*] of the lot quantity, HDI may, a HDI's
option:
(a) Return the defective Products to SWKT for repair or
replacement at SWKT's expense. SWKT shall be
responsible for airfreight expenses of new Products
if additional Products are required to meet HDI's
sales demand. SWKT may, at its option, offer to
HDI replacement units free of charge in lieu of HDI
returning said Products for repair. Or
(b) Repair the defective Products using HDI's alternate
sources, and SWKT shall reimburse HDI for the cost
of such repairs. HDI shall, before releasing
defective Products to HDI's sources, secure SWKT's
approval for the total cost of labor, materials and
other expenses.
12.4 SWKT shall provide repair parts free of charge, upon
HDI's request. Such repair parts shall be delivered
within [*] after HDI submits its request.
12.5 The warranty provided hereunder shall not apply to any
defect resulting from abuse, misuse, alteration, neglect,
unauthorized repair or installation of the Products,
improper or inadequate maintenance by HDI, operation
outside of the specified environments, or improper site,
preparation or maintenance. The warranty does not apply
to returns of working product by virtue of HDI's return
policy or any other administrative arrangements between
HDI and its customers.
12.6 The above warranty period shall not be extended beyond
the period referred in Section 12.1 if repairs are
performed by HDI's sources.
13. RAW MATERIALS
13.1 SWKT shall work with its material suppliers to reduce the
order lead time to [*] unless otherwise approved by HDI.
However, in addition to maintaining parts for HDI's
Purchase Orders and forecasts, SWKT shall also maintain a
[*] stock of all custom parts and other long-lead parts
required to produce the Products. Long-lead parts are
defined as those generally available to [*] after SWKT
places its parts order with its parts supplier.
13.2 If any of the Products, or parts for the Products, are
discontinued by HDI, SWKT shall:
(a) use its best efforts to return to SWKT's suppliers
for full credit any non-custom parts (in which case
HDI shall reimburse SWKT the amount of such
reasonable restocking fees assessed by SWKT's
suppliers for the return of non-custom parts); and
(b) use its best efforts to transfer any non-custom
parts to other products manufactured for SWKT's
other customers.
For non-custom parts that are not returnable to SWKT's
suppliers, or cannot be transferred to other products,
HDI shall purchase such parts from SWKT at SWKT's cost
plus [*] for SWKT's handling charges. HDI's requirement
to purchase non-custom parts shall apply only to the
revolving long-lead parts stock determined in Section
13.1 herein.
13.3 For custom parts not returnable to SWKT's suppliers or
which cannot be transferred to other products
manufactured by SWKT, HDI shall reimburse SWKT, at SWKT's
cost as evidence by invoices or other documentary proof
reasonably acceptable to HDI plus [*] for SWKT's handling
charges. HDI's reimbursement for custom parts shall be
limited to the revolving stock of long-lead parts stock
determined in Section 13.1 herein.
13.4 If either party discovers an alternate source which may
benefit or lower the cost of the bill of materials for
any particular Product, a proposal for such alternate
sourcing may be brought up for mutual agreement between
HDI and SWKT. The benefits, expressed either in monetary
terms or otherwise, which result from any such alternate
sourcing, shall be shared equally between both parties;
provided, however, that HDI shall be the sole beneficiary
of any reduction in the cost of parts for a particular
Product through a commensurate reduction in the purchase
price paid to SWKT for such Product if the reduction is
the result of a design change initiated by or paid for by
HDI.
13.5 SWKT and HDI shall be jointly responsible for initial
qualification of parts suppliers. Such qualification
shall include, but is not limited to, first article
samples, parts deliveries, parts quality, parts
reliability, and compliance with specifications. SWKT
shall be solely responsible for on going supplier
qualification save that SWKT shall inform HDI in writing
where there is a change in any of the Suppliers.
13.6 HDI may supply to SWKT, on a no charge, consignment
basis, parts for use in SWKT's manufacture of the
Products. These consigned parts, shall be and remain the
sole property of HDI. SWKT shall not use, sell,
distribute, ship or otherwise supply such parts to any
third party without the prior knowledge of, and written
authorization from HDI. SWKT shall be solely responsible
for the safekeeping of such parts supplied by HDI. HDI
may at any reasonable time inspect the parts to ensure
the accuracy of the parts inventory.
HDI's purchase price of the consigned parts, and the per
unit pro-rated freight cost paid by HDI to ship such
parts to SWKT, when used in the manufacture of the
Products, shall be declared on SWKT's invoices as
"Assists" in compliance with U.S. Customs Service
regulations.
14. ENGINEERING CHANGES
14.1 The term "Engineering Change" shall mean any change
which, if made to the Products, changes the
Specifications for a particular Product.
14.2 HDI may propose Engineering Changes be made to Products,
in which event SWKT shall be notified in writing. SWKT
agrees that HDI shall have the right to require such
Engineering Changes and SWKT shall, within [*] of its
receipt of such notification, give a written detailed
appraisal of the Engineering Change stating the cost
increase or cost savings involved and the effect on the
price and delivery of the Products. The approved cost of
special fixture(s) and test equipment; and type approval
(e.g., Federal Communications Commission, Underwriters
Laboratories, etc.) and its associated expense; due to
the engineering change shall be paid by HDI and shall be
the property of HDI.
14.3 SWKT is entitled to submit for HDI's approval Engineering
Change Requests to improve manufacturing ease, improve
quality, alternate components, etc. The non-recurring
costs relating to Engineering Change Requests submitted
by SWKT for these purposes shall be borne by SWKT. No
Engineering Change shall be implemented by SWKT unless
approval in writing by HDI has been granted.
14.4 In calculating the cost impact involved in any
Engineering Change, SWKT shall use the same parameters as
used in the latest accepted quotation for that Product.
This information shall include specific details as to the
proposed point of implementation and indicate the levels
of redundant/surplus material and parts. This
information shall also include a statement on the impact
of the proposed change to requirements for new or
modified jigs, fixtures and any consequences for changes
in test software with reference to the current
specification.
14.5 If HDI requires the Engineering Change to be implemented
to finished Products requiring rework by SWKT, and the
rework is not due to SWKT's workmanship or SWKT's
obligations of ongoing supplier qualification, rework
shall be paid for by HDI and performed by SWKT at cost.
Such costs shall be in the appropriate cost impact
sections of the Engineering Change form.
14.6 SWKT shall maintain and provide to HDI on a weekly basis,
a written report detailing all previously approved
Engineering Changes that have not yet been implemented
with a target date for implementation.
15. QUALITY ASSURANCE
15.1 As soon as practicable following the Effective Date, SWKT
shall submit to HDI for its approval a Quality Plan
relating to, among others, SWKT's internal quality
assurance program and testing of the Products prior to
shipment. Any modifications to the approved Quality
Plan shall only be implemented after the prior written
agreement of both parties. Acceptance of reasonable
modifications shall not be withheld by either party.
15.2 Upon reasonable written request during the term hereof,
SWKT shall permit visits by HDI personnel, guests and
representatives access, during normal working hours, to
SWKT's manufacturing facility and to such other places as
the Products shall be stored; provided that in the case
of HDI guests, the names of the guests and the companies
they represent are given to SWKT at least 48 hours in
advance. HDI personnel, guests and representatives shall
have the right to inspect such manufacturing facility,
the equipment used therein and the Products themselves,
both finished and in process of assembly or manufacture,
in order to monitor the quality of SWKT's manufacturing
facility and to verify that SWKT is in compliance with
its Quality Plan and its contractual and legal
obligations hereunder.
15.3 HDI and SWKT agree that their respective quality
departments shall cooperate to improve the acceptable
quality level of Products by the full disclosure of all
relevant information.
15.4 SWKT guarantees that the Products to be manufactured
under this agreement shall be produced under strict
accordance with the Specifications and the quality
control standards and test procedures for such Product,
which standards of quality are to be submitted by SWKT to
HDI for approval at least thirty (30) days before first
mass production of such Product.
15.5 If any Product manufactured or packaged by SWKT fails to
comply in whole or in part with the Specifications, the
Quality Plan or any directions to SWKT by HDI or its
employees and agents, SWKT shall immediately at its
expense:
(a) either destroy or dispose of in a manner acceptable
to HDI or, only if HDI consents in writing, re-work
or reprocess (at the cost of SWKT) the defective
Products in a manner acceptable to HDI; or
(b) if HDI consents in writing, dispose of the
defective Products through a marketing channel
mutually agreed by HDI and SWKT.
In no event shall SWKT manufacture, sell or deal with any
defective Products in breach of this Section 15.5.
15.6 At the written request of HDI, SWKT shall promptly send
for testing representative samples of the Products at any
state of manufacture or packaging, or samples of specific
Products manufactured for HDI by SWKT, to a quality
control institute or company in Korea, the Philippines,
or elsewhere specified by HDI, at HDI's expense.
16. PRODUCT ACCEPTANCE
16.1 For outgoing Acceptance Quality Level ("AQL") inspection
level, the inspection shall be conducted in accordance
with American National Standard Institute (ANSI)
Sampling Procedures and Tables for Inspection by
Attributes", ANSI publication "ANSI/ASQC Z1.4-1993".
(ANSI/ASQC Z1.4-1993 is equivalent to Military Standard
105E, now obsolete.)
For incoming AQL inspection, HDI shall perform a "double
sampling plan" in accordance ANSI "Sampling Procedures
and Tables for Inspection by Attributes".
(a) For Stable Products, the AQL inspection levels
shall be:
(i) Major Defects - [*] AQL; and
(ii) Minor Defects - [*] AQL.
(b) For new Products, the AQL inspection levels, unless
otherwise notified by HDI, shall be:
(i) Major Defects - [*] AQL; and
(ii) Minor Defects - [*] AQL.
(c) The definitions of major and minor defects are as
set forth in Appendix C.
(d) For Specification requirements, HDI shall establish
guard band limits, such that SWKT shall test at
outgoing Quality Acceptance to tighter limits than
those HDI applies at its incoming inspection.
16.2 SWKT is required to re-work any Product at SWKT's expense
for those Products that are in noncompliance of the AQL
level in effect at the relevant time.
16.3 Any Corrective Action Request shall be acted upon within
[*] of receipt by SWKT. SWKT shall submit a Corrective
Action Plan which shall redress the deficiency within
[*]. This does not stipulate that the correction be
completed in [*] as the Corrective Action Plan is project
complexity dependent. If the deficiency is not corrected
by SWKT within a reasonable period of time, SWKT shall
reimburse HDI for HDI's reasonable costs to correct the
deficiency, including parts, labor inspection and other
expenses.
16.4 HDI may utilize a sub-contractor for source inspection
and process audits. HDI's sub-contractor shall inspect
for shipment acceptance, not product acceptance. HDI's
sub-contractor shall also be responsible for highlighting
product or process deficiencies for corrective action.
16.5 HDI shall bear all expenses for incoming inspection if
the Product meets the AQL levels set forth in Section
16.1. If the order in question fails the incoming
inspection at the agreed upon AQL, SWKT shall reimburse
HDI for its full expenses for inspection and rework, and
for the airfreight of new Products if additional Products
are required to meet HDI's sales demand.
16.6 If any two successive production lots of at least [*]
fails HDI's incoming inspection of major defects, SWKT
shall pay for [*] of costs of inspection by HDI's
inspector at SWKT's facility including but not limited to
costs of transport or accommodation and HDI's incoming
inspection, until such time that two (2) successive
production lots meet the major defect AQL levels.
17. PACKING
17.1 SWKT shall be responsible for proper packing to protect
the Products against rough handling damage, loss and
pilfering occurring during transportation from SWKT's
facility. Bales and packages shall be durable and
appropriate for export to and appropriate for storage at
the destination. As a minimum, SWKT shall tape wrap the
shipping cartons with a special printed tape to seal the
shipping carton.
17.2 Shipping cartons shall be marked, at a minimum, with the
following information:
(a) Hello Direct, Inc., San Jose, CA USA;
(b) HDI's purchase order number;
(c) HDI's product catalog number;
(d) quantity of Products in such container;
(e) carton number; and
(f) country of origin designation (i.e., "Made in
Korea").
17.3 The Products purchased, repaired or replaced under
warranty shall be packed and exported by SWKT at no
additional charge.
18. RECORDS AND REPORTING
18.1 During the term of this Agreement and for [*] thereafter,
SWKT shall maintain complete and accurate Production and
Quality records in relation to materials and components,
test equipment calibration records, production tests and
inspection in connection with this Agreement in line with
its usual record retention procedure. HDI or its sub-
contractor and their respective representatives shall
have access to such records during normal business hours
upon giving reasonable prior notice.
18.2 SWKT shall submit, upon the request of HDI, for each
production lot, Printed Circuit Board Manual Assembly
(PCBMA) yield, Parts Per Million (PPM), In-Circuit Tester
(ICT) yield, final assembly yield, Quality
Assurance/Outgoing Quality Assurance (QA/OQA) level
reports together with corrective action plans. These
reports shall be collected and retained for every
production lot by the manufacturer.
18.3 SWKT shall furnish and render additional reports as may
be requested from time to time by HDI.
18.4 SWKT shall provide monthly inventory reports of consigned
parts to HDI within the first week of each following
month.
19. SPARE PARTS AVAILABILITY
19.1 SWKT shall supply spare parts to HDI until [*] after the
date of the last delivery of the Products to HDI. SWKT
is not required to physically purchase the parts, but
shall maintain the vendor base and contact for the [*]
period. SWKT shall allow HDI to purchase sufficient
quantities of spare parts which HDI deems necessary to
maintain and support the Products which HDI has
previously purchased. Such parts shall be supplied by
SWKT to HDI at SWKT's cost, based on prevailing prices
quoted by SWKT's suppliers, plus [*] for handling and
reasonable profit.
19.2 In the event that SWKT is unable to supply such spare
parts, or SWKT is unable to obtain another source of
supply for HDI, then such inability shall be considered
non-compliance with this Section, and SWKT shall, without
obligation or charge to HDI, provide HDI with technical
information, or any rights required, so that HDI can
manufacture or obtain parts from other sources.
20. TOOLS, FIXTURES AND JIGS
20.1 The tools, jigs, assembly fixtures, and test equipment
uniquely required for each Product is shown in Appendix B
attached hereto. New tools, fixtures and jigs to be
produced, or existing tools, fixtures and jigs requiring
rework by SWKT shall be paid by HDI to SWKT as follows:
(a) [*] deposit when HDI submits its purchase order for
tools, jigs, assembly fixtures, and test equipment;
and
(b) [*] upon acceptance by HDI of first tooling article
samples, and after all critical dimensional
discrepancies of the tooled parts are resolved, or
when the jigs, assembly fixtures, or test equipment
are successfully functioning in a manner that meets
the Specifications for that Product.
20.2 SWKT shall submit a minimum of [*] pieces of each tooled
part for HDI acceptance with SWKT's "First Article
Report" detailing parts or dimensions found to be out of
specification and SWKT's recommendation of corrective
action(s). If SWKT does not submit a First Article
Report, HDI, at its option, shall have the measurements
made and the reasonable costs for such measurements shall
be subtracted from the final tooling payment to SWKT.
20.3 All new tools created by SWKT shall be guaranteed for a
minimum life of [*] cycles. It is expected that the life
of the tools are subject to normal usage, environmental
wear and tear and any modifications approved by HDI.
During this period of tools custody with SWKT, SWKT shall
monitor tooling performance and shall notify HDI when the
tooling no longer produces parts meeting dimensional
specifications. SWKT shall, at the beginning of each
quarter, submit to HDI SWKT's report of tool condition
and the remaining parts life of the tool.
20.4 Any and all tools, jigs, assembly fixtures, and test
equipment paid for by HDI shall be and remain the sole
property of HDI. In addition, any existing tools, jigs,
assembly fixtures, and test equipment supplied to SWKT by
HDI shall remain the sole property of HDI. Further, SWKT
shall at its own cost keep said tools, jigs, assembly
fixtures, and test equipment in good repair at all times
and shall be responsible for their safekeeping. HDI may
at any reasonable time inspect the tools, jigs, assembly
fixtures, and test equipment to ensure they are in proper
order. HDI may require the return, or transfer to a
third party of the tools, jigs, assembly fixtures, and
test equipment to which request SWKT shall promptly
comply. SWKT shall install, label and adequately
identify as the property of HDI and keep and maintain so
labeled and identified any tools, jigs, assembly
fixtures, test equipment, and all other equipment
belonging to HDI pursuant to this provision or otherwise.
20.5 SWKT shall issue a "Certificate of Ownership" to HDI for
all tools, jigs, assembly fixtures, and test equipment
paid for by HDI or supplied to SWKT. Such certificates
shall be issued by SWKT to HDI within thirty (30) days of
payment by HDI, or receipt of the property by SWKT.
21. CONFIDENTIALITY
21.1 During the term of this Agreement, each party may
disclose certain Confidential Information to the other
party. During the term of this Agreement and for four
years thereafter, the receiving party shall: (a) refrain
from using or exploiting any and all Confidential
Information of the disclosing party for any purposes or
activities other than those expressly contemplated in
this Agreement; (b) maintain the secrecy and
confidentiality of all such Confidential Information; (c)
not copy any documents or electronic files containing the
Confidential Information, nor take any extracts from such
documents or electronic files without the prior written
consent of the disclosing party and then only on such
terms as the disclosing party shall stipulate; (d) not
sell or disclose to any third party in any manner,
directly or indirectly, such Confidential Information,
except as necessary in compliance with its obligations
contained herein. For purposes hereof, employees and
consultants bound by obligations of secrecy no less
strict than those set out herein shall not be regarded as
third parties. Each party will implement effective
security procedures in order to avoid disclosure or
misappropriation of such Confidential Information of the
other.
21.2 All files, lists, records, documents, charts, drawings,
specifications and computer programs which incorporate
Confidential Information shall remain the property of the
disclosing party. Such materials shall be promptly
returned upon the earlier of: (a) the owner's reasonable
request; or (b) the termination of this Agreement. At
any time during the term hereof, if so requested by the
disclosing party, the receiving party shall return or
destroy any documents or electronic files containing the
Confidential Information supplied by the disclosing party
or any copies thereof or extracts therefrom made by the
receiving party and any samples of materials supplied by
the disclosing party.
21.3 SWKT shall not, directly or indirectly, manufacture any
product which HDI, in its reasonable discretion, deems
competitive with the Products, except with the written
consent of HDI. SWKT shall not own any interest in any
business which is directly or indirectly in competition
with HDI and any person employed by or associated with
SWKT shall not own a controlling interest in any business
which is directly or indirectly in competition with HDI.
21.4 The parties expressly acknowledge that the covenants
contained in this Article 21 are unique and integral to
this Agreement and that monetary damages would be an
inadequate remedy at law in the event of a breach. For
that reason, the parties consent that such covenants
shall be enforceable in a court of equity by temporary or
permanent injunction, restraining order or a decree of
specific performance. The remedies provided above shall
be cumulative and not exclusive and are in addition to
any other remedies which either party may have under this
Agreement or applicable law.
22. PRODUCT RIGHTS/EXCLUSIVITY
22.1 SWKT acknowledges that HDI and/or its affiliates have the
sole and exclusive rights, title and interest in and to
the Trademarks, the Technical Information, the
Intellectual Property Rights and any Improvements, and
that SWKT is authorized to use the same solely in
connection with the manufacture and assembly of Products
pursuant to this Agreement. SWKT shall not acquire by
performance of this Agreement any vested or proprietary
rights (in the Republics of Korea and Philippines or
elsewhere) in the Intellectual Property Rights. SWKT
undertakes and agrees that it shall have no right, title
or interest nor claim any right, title or interest in any
Intellectual Property Rights or Technical Information, or
assist in any claim to any right, title or interest in
and to any Intellectual Property Rights or Technical
Information adversely to HDI, or do or permit any act
which is directly or indirectly likely to prejudice the
ownership, title and other right of HDI in any
Intellectual Property Rights or Technical Information .
22.2 Any rights in any Improvements or the new designs
produced or implemented under this Agreement by SWKT
(including the right to apply for protection of
intellectual property rights derived therefrom) shall
belong to and be the exclusive property of HDI. Without
further payment to SWKT or any other persons, SWKT shall
execute all documents, take all steps and do all acts and
things as may be reasonably required by HDI to procure
that HDI obtains or retains such protection. All such
Improvements and new designs produced under this
Agreement shall be deemed included in the definition of
"Technical Information" and subject to all provisions of
this Agreement.
23. TRADEMARKS
23.1 SWKT is authorized during the term of this Agreement to
use the Trademarks in connection with its manufacture and
sale of Products as permitted under this Agreement;
provided that no name or Trademark of HDI shall be used
in such manner as to indicate that SWKT is associated
with HDI in any way other than as an independent
contractor and, provided further, that all usage of the
Trademarks shall be in the exact form, style and manner
specified in writing by HDI. SWKT shall not use or
permit to be used, whether for marketing, advertising,
publicity purposes or otherwise, any Trademarks (or on
its letterhead paper, invoices, and at its business
premises) unless specifically authorized in writing in
particular instances by HDI (prior to such use) as
regards each use. SWKT's right to use the Trademarks
shall cease immediately upon the termination of this
Agreement for any reason.
23.2 SWKT shall conform to and observe such standards as HDI
may from time to time prescribe relative to the form,
manner, size, design, position, appearance, marking or
color of Trademarks (including the form, manner, extent
and wording of all advertising and promotional materials,
brochures, memoranda, notices and other communications
referencing Trademarks). SWKT shall not use any
Trademarks as part of its corporate or business name
unless approved in writing by HDI.
23.3 SWKT acknowledges HDI's exclusive right, title and
interest in and to the Trademarks and undertakes and
agrees not to challenge the validity of ownership of any
Trademarks nor claim adversely to HDI any right, title or
interest in and to any Trademarks, nor assist directly or
indirectly with any such claim. Neither this Agreement
nor any other agreement, nor performance of any aspect of
this Agreement or any other agreement shall confer on
SWKT any right, title or interest in any Trademarks.
SWKT neither has nor shall acquire by performance of this
Agreement any vested or proprietary rights (in the
Republics of Korea and Philippines or elsewhere) in any
of the Trademarks. SWKT shall cease use of all
Trademarks immediately (including any affixation of
Trademarks on Products or packaging) upon notification to
that effect by HDI (and in any case no later than seven
(7) days after such notification). SWKT shall not
remove, deface or alter or permit to be removed, defaced,
altered or otherwise obscured, Trademarks on any
Products.
23.4 Without limiting the generality of the foregoing, SWKT
shall not:
(a) register, apply for registration or (subject to this
Article 23) use;
(b) attempt to register, apply for registration or to
use; or
(c) aid any third party in registering, applying to
register, using or attempting to register, apply for
registration or to use, any Trademarks or any words or
marks which resemble or are identical or similar to any
Trademarks, in any jurisdiction.
23.5 SWKT shall not do or permit to be done any act which
would or might jeopardize or invalidate any registration
of registered Trademarks, do or permit any act which
might assist or give rise to any application to remove
any of the registered Trademarks from the relevant
register, or do any act or thing impairing or likely to
impair the distinctiveness or validity of or any right of
HDI in any Trademarks (registered or not) or detrimental
to the reputation and good of HDI. SWKT shall not use
any Trademarks in relation to products other than the
Products.
23.6 SWKT shall, as requested by HDI, cooperate and take all
steps necessary in joining with or assisting HDI in the
filing of any application for registered user in the
Republics of Korea and Philippines or recording HDI as a
registered user of the Trademarks (where registered).
24. INFRINGEMENT OF TRADEMARKS AND OTHER PROPRIETARY RIGHTS
24.1 SWKT shall immediately notify HDI of any actual,
threatened or suspected infringement or improper,
wrongful or unauthorized use of any Intellectual Property
Rights (including Technical Information) or any
Trademarks or any challenge to the validity of any
Intellectual Property Rights (including Technical
Information) or Trademarks or HDI's ownership of the same
or of any claim that the development or manufacture of
the Products infringes any rights of any other person.
SWKT shall provide HDI with full particulars of each such
matter. Without limitation, SWKT agrees to notify HDI
immediately of all applications for registration and
registrations of words or marks the same as or similar to
any Trademarks which come to its attention.
24.2 SWKT shall promptly take at the request of HDI (at the
expense of SWKT) or in cases which HDI deems appropriate,
all relevant steps or procure that all steps are taken to
protect the Intellectual Property Rights or Trademarks
against third party infringement or improper, wrongful or
unauthorized use of the Intellectual Property Rights or
Trademarks and to maintain the validity and
enforceability of all Intellectual Property Rights and
Trademarks or to defend the Intellectual Property Rights
and Trademarks, including the institution of legal
proceedings. Nothing herein shall oblige HDI to take any
legal proceedings.
25. RELATIONSHIP OF PARTIES
25.1 SWKT shall operate as an independent contractor and not
as an agent, partner, or employee of HDI. SWKT has no
express or implied authorization to incur any obligation
or in any manner otherwise make any commitments on behalf
of HDI. SWKT shall employ its own personnel and shall be
responsible for them and their acts and in no way shall
HDI be liable to SWKT, its employees or third parties for
any losses, injuries, damages or the like occasioned by
SWKT's activities in connection with this Agreement,
except as expressly provided herein.
25.2 HDI shall operate as an independent customer of SWKT, and
not as an agent, partner, or employee of SWKT. HDI has
no express or implied authorization to incur any
obligation or in any manner otherwise make any
commitments on behalf of SWKT. HDI shall employ its own
personnel and shall be responsible for them and their
acts and in no way shall SWKT be liable to HDI, its
employees or third parties for any losses, injuries,
damages or the like occasioned by HDI's activities in
connection with this Agreement, except as expressly
provided herein.
26. SALES TERRITORY AND LICENSE FEE
On the terms and subject to the conditions set forth in
Appendix D, SWKT shall have the right to sell the Products, on
a non-exclusive basis, in those countries specified in Appendix
D under the know-how and trade secrets license granted
hereunder by HDI. Such sales by SWKT shall be subject to a
license fee payable to HDI as specified in Appendix D. SWKT
shall be prohibited from selling Products in countries other
than those specified in Appendix D or as otherwise consented to
by HDI in writing, which consent HDI may withhold in its sole
discretion
27. TERMINATION
27.1 HDI may terminate this Agreement at any time, with or
without cause, for any reason or no reason whatsoever, by
giving not less than [*] written notice to SWKT, such
notice to expire at the end of the original term or any
extended term. In the event of termination by HDI
pursuant to this Section 27.1, HDI shall pay SWKT for all
Products complying with and delivered in accordance with
this Agreement up to the effective date of termination.
HDI shall accept financial liability for all components
purchased or ordered by SWKT in line with lead times
relevant at the time to meet HDI's approved forecast
provided SWKT has made every reasonable effort to
mitigate such expense by cancellation of outstanding
orders not needed to fulfill purchase orders and
utilization of components in other products or otherwise,
as stipulated under Article 13.
27.2 SWKT may terminate this Agreement at any time, with or
without cause, for any reason or no reason whatsoever,
upon giving not less than [*] written notice to HDI such
notice to expire at the end of the original term or any
extended term. In the event of termination by SWKT
pursuant to this Section 27.2, SWKT shall accept all
orders up to the approved forecast at the time of
termination and shall further ensure monthly capacity (of
at least the level indicated for the final month of the
forecast supplied under Article 9) is available and shall
accept orders at least up to that level for any notice
period not covered by the forecast.
27.3 Without prejudice to any other rights it may have
hereunder or at law or in equity, either party may
terminate this Agreement immediately by providing written
notice to the other party in the event of any of the
following
(a) the other party defaults in the performance of any
of the terms, obligations, conditions, or
responsibilities of this Agreement, and fails to
cure such default within thirty (30) days after
receipt of written notice to the default;
(b) the other party elects to close or dissolve its
operation or is wound up and dissolved, becomes
insolvent, repeatedly fails to pay its debts as
they become due, makes an assignment for the
benefit of its creditors, files a voluntary
petition in bankruptcy or for reorganization or is
adjudicated as bankrupt or insolvent, or has a
liquidator or trustee appointed over its affairs
and such appointment shall not have been terminated
and discharged within thirty (30) days thereof;
(c) a receiver, judicial manager or similar officer is
appointed in respect of any part of the other
party's assets.
28. EFFECT OF TERMINATION
28.1 Upon termination of this Agreement, SWKT shall:
(a) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any) cease using the Technical
Information and any other Intellectual Property
Rights in any way whatsoever, and also cease
development or manufacturing (as the case may be)
all Products, Improvements and new designs;
(b) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any) destroy or (as instructed by HDI)
otherwise dispose of any Products, Improvements and
new designs (including all samples and consigned
merchandise); or if HDI so chooses, it may purchase
all or any Products then remaining in the
possession or control of SWKT at the invoice value
therefore paid by SWKT (less any deductions for
damage, length of storage or other factors
quantified in accordance with HDI's usual
practice); completion of the sale shall occur at
the date and upon terms and conditions specified by
HDI;
(c) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any) sell to HDI (at HDI's option) any
raw materials purchase by SWKT and unutilized on
hand as at the effective date of termination of
this Agreement, at the invoice value therefore paid
by SWKT (less any deductions for damage, length of
storage or other factors quantified in accordance
with HDI's usual practice); completion of the sale
shall occur at the date and upon such other terms
and conditions specified by HDI;
(d) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any), return, forward or transfer to HDI
(at SWKT's cost) all Intellectual Property Rights
(including reproductions, notes, summaries and
similar documents or literature related to the
Technical Information), and notes, summaries, price
books, dealer manuals, data, promotional and
advertising materials, sales aids, display
drawings, brochures, and any other materials with
any references to the Trademarks, which may be in
SWKT's possession of control;
(e) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any) cease using all Trademarks; and
(f) immediately (but no later than fourteen (14) days
subsequent to the date of termination of this
Agreement or the fulfillment of the last Purchase
Order, if any) surrender to HDI all certificates
and notifications of Product registrations with any
governmental department or agency procured in
connection with this Agreement or the Products, and
all applications filed and correspondence in
connection with such registrations; SWKT shall
immediately upon request by HDI (and no later than
fourteen (14) days following such request) execute
all documents, and effect all acts including
notifications or deregistrations with any
government department or agency required or
expedient to (i) reflect that SWKT is no longer
associated with or has rights to develop or
manufacture the Products or (as applicable) the
materials, and that HDI or other person (including
a company) is the owner or beneficiary of such
registration or registrant of the Products; and
(ii) reflect that SWKT is no longer the owner of or
beneficially entitled to Product registrations, or
the registrant as regards any registrations or
notifications or similar procedures made or
effected concerning the Products or materials; and
(iii) terminate or transfer (as requested by HDI)
any registrations or other interests as regards the
manufacture of the Products, to HDI or such other
person (including a company) designated by HDI.
28.2 HDI may (at its sole discretion) permit or direct
(subject to compliance and observance by SWKT of the
terms of, and all obligations imposed by, this Agreement
as though this Agreement had not been terminated and
subject to the payment of all invoices for materials or
otherwise immediately upon request and subject to HDI
obtaining such security or guarantee of performance by
SWKT as HDI considers appropriate in the circumstance)
SWKT to manufacture the Products only as to the Purchase
Orders for Products received and accepted by SWKT to the
date of notice of termination or expiration of this
Agreement.
28.3 Termination of this Agreement shall be without prejudice
to the right of any party in relation to a default by a
party under this Agreement, or in relation to any other
obligations surviving termination of this Agreement,
including full payment of any payments due under this
Agreement.
28.4 Any amounts spent by SWKT are spent with the knowledge
that this Agreement may be terminated in accordance with
its terms. SWKT waives any claim against or liability of
HDI with respect to SWKT's investment, amounts spent for
advertising or hiring or otherwise in anticipation of
continuation of this Agreement. Any statement to the
contrary by an agent or employee of HDI is strictly
unauthorized and shall not be binding upon HDI. Each of
the parties hereby specifically disclaims any rights to
compensation whatsoever (including special, consequential
or incidental damages) as a result of any termination
effected in accordance with this Agreement (without
prejudice to Section 27.3).
29. INSURANCE
29.1 SWKT shall, at its own expense, keep itself insured for a
minimum of One Million U. S. Dollars (US$1,000,000.00)
against any third-party claims which may be brought
against it, including without limitation, any claim in
respect to a third person as a result of the use of any
Products, and shall effect such insurance under a valid
and enforceable policy issued by an insurer of recognized
responsibility. SWKT shall deliver a copy of all such
policies to HDI together with a copy of each receipt
issued from time to time by the insurer with respect of
the payment of premium thereon if HDI requests.
29.2 HDI shall, at its own expense, keep itself insured for a
minimum of One Million U. S. Dollars (US$1,000,000.00)
against any third-party claims which may be brought
against it, including without limitation, any claim in
respect to a third person as a result of the use of any
Products, and shall effect such insurance under a valid
and enforceable policy issued by an insurer of recognized
responsibility. HDI shall deliver a copy of all such
policies to SWKT together with a copy of each receipt
issued from time to time by the insurer with respect of
the payment of premium thereon if SWKT requests.
30. ADDRESSES, CONTACTS AND MEETINGS
30.1 Any notice to be given hereunder shall be sufficient if
in writing and personally delivered, sent by
international courier, sent by registered mail, postage
prepaid, return receipt requested, or sent by facsimile
transmission or other agreed electronic means of
communication to such party's address as shown in
Sections 30.2 and 30.3. Such notice shall be deemed
given: (a) if personally served or delivered by facsimile
transmission with confirmation of receipt, twenty-four
(24) hours after being sent or the time of actual
receipt, whichever is earlier; and (b) if sent by
international courier or registered mail, on the date of
actual receipt.
30.2 All notices and communications from SWKT to HDI, unless
notified otherwise, shall be addressed to:
Hello Direct, Inc.
5893 Rue Ferrari
San Jose, California 95138-1858
United States Of America
Attention: Donald Chiang
Tel: 408-363-2008
Fax: 408-363-2020
30.3 All notices and communications from HDI to SWKT unless
notified otherwise shall be addressed to:
Seo-Won K-Tec., Inc.
4th Floor, Ilsung Building
6-17 Yangjae-Dong, Seocho
Seoul, Republic of Korea
Attention: B. C. Shin
[*]
30.4 The parties hereby agree to hold meetings at the request
of either party to discuss topics relevant to this
Agreement. The frequency and the location shall be
agreed from time to time. Meetings may, if deemed
appropriate by both parties, be held by means of
conference telephone or other similar communications
equipment by means of which all parties participating in
the meetings can hear each other without being in the
physical presence of each other.
31. WAIVER
The failure on the part of either party hereto to exercise or
enforce any right conferred upon it under this Agreement shall
not be a waiver of any such right nor operate to bar the
exercise or enforcement thereof at any time thereafter.
32. NON-ASSIGNMENT
Each of the Parties shall not, save as otherwise expressly
provided in this Agreement, transfer, assign, license, charge,
contract, sub-license, sub-contract, or in any way dispose of
rights, obligations, or liabilities or other interests under
this Agreement, by operation of law or otherwise, without the
other party's prior written consent.
33. ARBITRATION
33.1 All disputes, controversies or differences which may
arise between the parties out of or in relation to or in
connection with this Agreement which cannot be
satisfactorily resolved by the parties themselves shall
be finally settled by arbitration under the rules of
conciliation and arbitration of the International Chamber
of Conference by which each party hereto is bound.
33.2 If either party seeks resolution by arbitration, the
arbitration shall be held in San Jose, California,
U.S.A., and one arbitrator, who shall be a qualified
arbitrator and engineer with experience in the electronic
industry in the U.S.A shall be nominated by mutual
agreement. If the parties cannot agree on an arbitrator,
the American Arbitration Association shall make a
nomination at either party's request and their nomination
shall be final and binding. All arbitration shall be
performed in English and when finalized shall be binding
on both parties. Judgment upon an award rendered may be
entered in any court having jurisdiction or application
may be made to such court for a judicial acceptance of
the award and an order of enforcement, as the case may
be. [The prevailing party in any such proceeding shall
be entitled to its actual attorneys' fees and all other
costs in connection with the arbitration and enforcement
of the arbiter's award.]
33.3 Either party may, without inconsistency with this
Agreement, seek from a court any interim or provisional
relief that may be necessary to protect the rights or
property of that party, pending the establishment of the
arbitral tribunal or pending the arbitral tribunal's
determination of the merits of the controversy.
34. PATENT AND COPYRIGHT INDEMNITY
34.1 HDI warrants that it owns or is entitled to exercise all
rights for all purposes in the Products and shall
protect, indemnify and hold SWKT harmless from all costs,
damages, expenses, claims and other liabilities as a
result of or arising out of any claims by third parties
that the Products infringe third parties' intellectual
property rights, unless such infringement is the result
of any of SWKT's patented technology incorporated in the
Product.
34.2 HDI reserves the right to defend, at its own expense, any
suit brought against HDI insofar as based upon a claim
that the Products infringe any intellectual property
right and shall indemnify SWKT against any final award of
damages and cost in such suit. This indemnity is
conditional upon SWKT giving HDI notice within seven (7)
days in writing of any suit for infringement, authority
as described above to settle or conduct the defense
thereof and full assistance and cooperation in said
defense. No cost or expense shall be incurred on HDI's
behalf without HDI's prior written consent and no
admission of liability shall be made by SWKT.
35. INDEMNIFICATION
35.1 SWKT shall indemnify and hold HDI, its officers,
directors, employees, successors and assigns from and
against any and all claims, demands, actions,
liabilities, judgments, injuries, damages, losses,
penalties, expenses and costs of any nature whatsoever,
including, without limitation, reasonable attorneys' and
accountants' fees (collectively "Losses"), arising from
or in connection with any occurrence caused by any
negligent act or omission to act on the part of SWKT, and
its sub-contractors and their respective, officers,
employees and agents. SWKT shall, at its expense, defend
any suit, or other proceedings brought against HDI on
account of such negligent act or omission act, and shall
pay all expenses and satisfy all judgments which may be
incurred or rendered against them in connection
therewith.
35.2 HDI shall indemnify and hold SWKT, its officers,
directors, employees, successors and assigns from and
against any and all Losses, resulting from damage to
property or from injuries or death to all persons arising
from any occurrence caused by any negligent act or
omission to act on the part of HDI, its officers,
employees and agents. HDI shall, at its expense, defend
any suit, or other proceedings brought against SWKT on
account such negligent act or omission act, and shall pay
all expenses and satisfy all judgments which may be
incurred or rendered against them in connection
therewith.
36. FORCE MAJEURE
36.1 If the performance of any of the obligations hereunder by
either party is prevented or delayed by acts of civil or
military authority (including governmental priorities),
flood, fire, epidemic, war which prevention or delay
cannot be averted by diligence on the part of the party
affected, that party shall immediately notify the other
party, and upon receipt of such notice shall be excused
from further performance during the continuance of any
such event; provided, however, that if such delay extends
for more than thirty (30) calendar days, the other party
at its discretion may terminate its obligations hereunder
without liability to the extent that the affected party's
performance has been prevented or delayed.
36.2 Neither party shall be deemed to be in breach of this
Agreement or otherwise be liable to the other, by reason
of any delay in performance, or non-performance, of any
of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure of
which it has notified the other party; and the time for
performance of that obligation shall be extended
accordingly.
36.3 If the Force Majeure in question prevails for a
continuous period in excess of thirty (30) days, the
parties shall enter into good faith discussions with a
view to alleviating its effects, or to agreeing upon such
alternative arrangements as may be fair and reasonable.
37. SEVERABILITY
The invalidity of any provision of this Agreement or portion of
a provision shall not affect the validity of any other portion
of this Agreement or the remaining portion of the applicable
provision. If any provision of the Agreement or portion
thereof is held invalid, then in good faith the parties shall
negotiate and prepare and sign a document which amends this
Agreement to comply with the applicable law, and accomplishes
as nearly as possible the original intent of the provision or
portion in question.
38. GOVERNING LAW
This Agreement shall be subject to and be construed in
accordance with the laws of the STATE OF CALIFORNIA, UNITED
STATES OF AMERICA., without regard to its conflict of laws
principles. The parties hereby expressly exclude the
application of the United Nations Convention for the
International Sale of Goods.
39. ENTIRETY OF AGREEMENT
This Agreement constitutes the full understanding of the
parties hereto as to the subject matter hereof. It supersedes
all previous agreements, is a complete and exclusive statement
of the terms of their agreements, and shall not be modified,
rescinded or waived except in writing signed by duly authorized
representatives of both parties hereto.
40. SURVIVAL
The rights and obligations of the parties contained in Sections
4.1(h) and 18.1 and in Articles 12, 19, 21, 22, 28 and 35
hereof shall survive the termination of this Agreement.
41. COMPLIANCE WITH LAW
Each party shall comply with, and shall not be in violation of,
any valid applicable international, national, state or local
statutes, laws, ordinances, rules, regulations, or other
governmental orders of any country in which the Products are
either manufactured or sold.
42. LANGUAGE
During the performance of this Agreement, the language employed
in all communications, including reports and provision of any
and all data shall be English.
43. HEADINGS
Headings in this Agreement are for convenience only and shall
not affect its interpretation.
44. COUNTERPARTS
This Agreement may be executed in one or more counterparts, and
by the parties hereto in separate counterparts; and each of
which when executed shall be deemed to be an original but all
of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first written above by their respective officers
thereunto duly authorized.
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B. C. Shin
----------------- --------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
APPENDIX A
This Appendix is attached to and is made a part of the AGREEMENT
entered into as of the First day of January, 1998 between Hello
Direct, Inc. (HDI) and Seo-Won K-Tec., Inc. (SWKT).
DESCRIPTION AND PRICE
Products are defined by the compliance specification given in and
included as part of the top-level list which follows. The price for
the Products given below are in US Dollars and are [*].
Top Level No. Catalog No. Product Name/Description Price
01-1310-01 1310 Handset Cord, Cordless Headsets [*]
01-1390-01 1390 Multi-Media Adapter Cable [*]
01-1407-01 1407 20' 3.5mm QD Cable Assembly [*]
01-1412-01 1412 Ultralight Headpad, Small [*]
01-1413-01 1413 Ultralight Headpad, Wide [*]
01-1422-01 1422 Cordless Leatherette Cushion [*]
01-1424-01 1424 Foam Mic Screen [*]
01-1425-01 1425 Solo Ear Cone, Small [*]
01-1427-01 1427 Solo Ear Cone, Large [*]
01-1428-01 1428 Solo Ear Bud [*]
01-1429-01 1429 Solo Flat Ear Cushion [*]
01-1431-01 1431 Training (Y-Cable) Adapter [*]
01-1447-01 1447 Foam (Cordless) Battery Pad [*]
01-1456-01 1456 Foam Ear Cushion [*]
01-1457-01 1457 Cordless Foam Ear Cushion [*]
01-1458-01 1458 Ultralight Basic Headset [*]
01-1459-01 1459 Dual Basic Headset [*]
01-1461-01 1461 Handset Cord, 12", Basic Amplifier [*]
01-1463-02 1463 Leatherette Cushion [*]
01-1473-01 1473 HelloSet Basic Amplifier, E6 [*]
01-1477-01 1477 Lapel Clip, Padded (0.130) [*]
01-1478-01 1478 Lapel Clip, Padded (0.080) [*]
01-1504-01 1504 Ultralight Pro Headset [*]
01-1505-01 1505 Dual Pro Headset [*]
01-1506-01 1506 Solo Pro Headset [*]
01-1510-01 1510 10' 3.5mm QD Cable Assy [*]
01-1512-01 1512 FX Headset [*]
01-1521-01 1521 Cellular QD Cable, Right Angle 2.5mm [*]
01-1550-01 1550 HelloSet Pro Amplifier, E6 [*]
01-1553-01 1553 Headset Conference Adapter [*]
01-1566-01 1566 Earbud Hanger, FX Headset [*]
01-1567-01 1567 Stabilizer Clip, FX Headset [*]
01-1568-01 1568 Stabilizer Clip Cushion, FX Headset [*]
01-1572-01 1572 Foam Speaker Cushion, FX Headset [*]
01-1576-01 1576 Mic Lapel Clip, FX Headset [*]
01-1580-01 1580 Ace Plug-Prong Amplifier [*]
01-1584-01 1584 Earhook Foam, Solo Headset [*]
01-1600-01 1600 SuperPro Amplifier (MCU ROM 1) [*]
01-1650-01 1650 SuperPro Amplifier (MCU ROM 2) [*]
01-1607-01 1607 Headset Hanger, SuperPro Amp [*]
01-1609-01 1609 Power Saver Plug [*]
01-1707-01 1707 10' QD Extension Cord [*]
01-1740-01 1740 ReadiLine [*]
01-1752-01 1752 ReadiLine Extension [*]
01-1753-01 1753 Ring Detector, ReadiLine [*]
01-1747-01 1747 Headset Hanger, Office Rover [*]
01-1996-01 1996 Headset (for Cordless Telephones) [*]
01-2706-01 2706 Computer Headset [*]
01-3770-01 3770BLK SureSound, Black [*]
01-3770-02 3770IVY SureSound, Ivory [*]
01-3790-01 3790 Recorder Adapter, SureSound [*]
01-5850-01 5850 Digital Adapter (LineStein) [*]
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B.C. Shin
----------------- -------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
APPENDIX B
This Appendix is attached to and is made a part of the AGREEMENT
entered into as of the First day of January, 1998 between Hello
Direct, Inc. (HDI) and Seo-Won K-Tec, Inc. (SWKT).
TOOLS, JIGS AND FIXTURES
Tool No. Part/Tool Name Product
121 - 3954 Top Housing Pro/Basic Amplifier
121 - 3955 Bottom Housing Pro/Basic Amplifier
41-0108-01 Headset/Handset Switch Cap Pro/Basic Amplifier
121 - 3957 Momentary Switch Cap Pro/Basic Amplifier
121 - 3959 Volume Control Knob Pro/Basic Amplifier
121 - 3961 Slide Switch Cap Pro/Basic Amplifier
20 - 015 Cable Assembly Pro/Basic Amplifier
Receptacle Pro/Basic Amplifier
Main PCB Pro/Basic Amplifier
121 - 3956 Battery Door Pro/Basic Amplifier
090 - 9025 Dual AA Contact Pro/Basic Amplifier
11-018 Detent Clip Pro/Basic Amplifier
090 - 9030 Single AA Terminal Pro/Basic Amplifier
6064-10100 Top Case Ace Plug-Prong Amplifier
6064-10300 Bottom Case Ace Plug-Prong Amplifier
6064-10400 Plug Case, Top Ace Plug-Prong Amplifier
6064-10500 Plug Case, Bottom Ace Plug-Prong Amplifier
6064-10200 Volume Knob Ace Plug-Prong Amplifier
6064-10700 Mute Knob Ace Plug-Prong Amplifier
6064-10901 Spring, Detent Ace Plug-Prong Amplifier
1064-11510 PCB Ace Plug-Prong Amplifier
6064-10600 Lens Ace Plug-Prong Amplifier
51-0032-02 FCC Label Ace Plug-Prong Amplifier
6066-12000 Plug, Foam Cushion Ace Plug-Prong Amplifier
40-0046-01 Housing, Top SuperPro Amplifier
40-0047-01 Housing, Bottom SuperPro Amplifier
41-0115-01 Button, Mute SuperPro Amplifier
41-0110-01 Slide Holder SuperPro Amplifier
41-0138-01 Light Pipe, On Line SuperPro Amplifier
41-0114-01 Cover, Light Pipe, On Line SuperPro Amplifier
41-0111-01 Button, Headset/Handset SuperPro Amplifier
41-0113-01 Case, Contact, Battery SuperPro Amplifier
41-0112-01 Door, Battery SuperPro Amplifier
41-0109-01 Knob, Volume Control SuperPro Amplifier
13-0026-01 PCB, SuperPro SuperPro Amplifier
41-0117-01 Light Pipe, Mute SuperPro Amplifier
01-1609-01 Power Saver Plug SuperPro Amplifier
41-0116-01 Host Port Plug SuperPro Amplifier
41-0139-01 Rubber Foot SuperPro Amplifier
43-0050-01 Contact, Battery, Positive SuperPro Amplifier
43-0049-01 Contact, Battery, Dual SuperPro Amplifier
43-0048-01 Contact, Battery Negative SuperPro Amplifier
10 - 025 Headpad Ultralight/Dual Headsets
10 - 042 Headpad, Wide Ultralight/Dual Headsets
10 - 025 Headpad Ultralight/Dual Headsets
10 - 040 Headpad Wide Ultralight/Dual Headsets
10 - 023 Inner Housing Ultralight/Dual Headsets
10 - 032 Pivot Housing Ultralight/Dual Headsets
10 - 022 - 02 Outer Housing Ultralight/Dual Headsets
10 - 027 Housing, Binaural Ultralight/Dual Headsets
10 - 041 Boot, Microphone Ultralight/Dual Headsets
1463 Leather Ear Cushion Ultralight/Dual Headsets
10 - 040 Microphone Foam Ultralight/Dual Headsets
36-0051-01 Extrusion, Mic Boom and Headband Ultralight/Dual Headsets
10 - 043 Foam Spacer Ultralight/Dual Headsets
10 - 044 Foam Spacer, Thick Ultralight/Dual Headsets
11 - 009 Spring Detent Ultralight/Dual Headsets
11 - 016 Friction Spring Ultralight/Dual Headsets
20 - 008 Headband, Binaural Ultralight/Dual Headsets
20 - 004 Headband, Monaural Ultralight/Dual Headsets
20 - 014 PCB Ultralight/Dual Headsets
10 - 021 Speaker Foam Ultralight/Dual Headsets
20 - 016 Cable Assembly, Top Ultralight/Dual Headsets
10 - 028 End Stop Ultralight/Dual Headsets
10 - 039 Housing, Microphone Ultralight/Dual Headsets
10 - 038 Housing, Boom - Fixed Ultralight/Dual Headsets
10 - 024 Sleeve Ultralight/Dual Headsets
41-0039-01 Clip, Bottom Ultralight/Dual Headsets
41-0038-01 Clip, Top Ultralight/Dual Headsets
41-0151-02 Swivel Ultralight/Dual Headsets
Cable Clip, Large Ultralight/Dual Headsets
Strain Relief Ultralight/Dual Headsets
10 - 063 Ear Hook Right Solo Pro Headset
10 - 052 Ear Hook, Left Solo Pro Headset
10 - 053 Speaker Housing, Top Solo Pro Headset
10 - 054 Speaker Housing, Bottom Solo Pro Headset
10 - 055 Ear Canal Insert Solo Pro Headset
10 - 056 Over Ear Insert Solo Pro Headset
10 - 057 Mic Boom Over Mold Solo Pro Headset
37-0010-01 Phono Plug Solo Pro Headset
11-021-02 Speaker Contact, Right Solo Pro Headset
11-021-01 Speaker Contact, Left Solo Pro Headset
12 - 050 Ear Hook PCB Solo Pro Headset
10 - 058 Foam, Ear Hook Solo Pro Headset
10 - 060 Foam, Over Ear Solo Pro Headset
21 - 003 Gooseneck Boom Solo Pro Headset
10 - 061 Foam, On Ear Solo Pro Headset
10 - 065 Foam, Ear Canal, Small Solo Pro Headset
10 - 059 Foam, Ear Canal, Large Solo Pro Headset
20 - 030 Cable Assembly Solo Pro Headset
41-0037-01 Swivel, Cable Clip, Small Solo Pro Headset
40-0023-01 Housing, Mic, Horn Side F/X (Helix) Headset
40-0024-01 Housing, Mic, Nest Side F/X (Helix) Headset
41-0034-01 Cap, Microphone F/X (Helix) Headset
41-0035-01 Boot, Microphone F/X (Helix) Headset
41-0036-01 Swivel, Mic Holder F/X (Helix) Headset
41-0033-01 Strain Relief, Upper F/X (Helix) Headset
41-0032-01 Strain Relief, Lower F/X (Helix) Headset
41-0130-01 Top Cover F/X (Helix) Headset
41-0129-01 Bottom Cover F/X (Helix) Headset
41-0131-01 Clip F/X (Helix) Headset
01-1568-01 Foam, Stabilizer F/X (Helix) Headset
01-1566-01 Clip, Stabilizer & Ultrasonic Jig/Horn F/X (Helix) Headset
Helix Ultrasonic Jig/Horn F/X (Helix) Headset
35-0057-01 Cable Assembly Computer Headset
Strain Relief Computer Headset
Rip Stop Band Computer Headset
Pi 3.5 Stereo Plug Computer Headset
35-0025-02 New Top, w/Right Angle QD, Headset (for Cordless Phones)
Strain Relief and Connector Overmold
14-0029-01 PCB Headset (for Cordless Phones)
41-0141-01 Boot, Microphone Headset (for Cordless Phones)
1457 Speaker Foam Cordless Headset
20 - 036 Foam Pad Cordless Headset
Plastic Backing Cordless Headset
Adhesive Cordless Headset
40-0025-01 Fix Mic Boom Cordless Headset
41-0120-01 Base ReadiLine
41-0127-01 Base, Extension ReadiLine
41-0121-01 Cover, Side ReadiLine
40-0048-01 Housing, Tower ReadiLine
40-0050-01 Housing, Bottom, Motor ReadiLine
40-0049-01 Housing, Top, Motor ReadiLine
41-0123-01 End Cap, Motor ReadiLine
41-0139-01 Foot, Rubber ReadiLine
35-0052-01 Cable Assembly, DIN ReadiLine
16-0022-00 PCB ReadiLine
43-0062-01 Bracket ReadiLine
41-0124-01 Housing, Clutch ReadiLine
41-0126-01 Friction Band ReadiLine
53-0014-01 Insert Packing ReadiLine
40-0063-01 Housing, Mic ReadiLine
40-0064-01 Cap, Mic ReadiLine
43-0052-01 Knob, Retention ReadiLine
38-0021-01 Insert ReadiLine
41-0059-01 Pin, Clutch ReadiLine
43-0061-01 Spring ReadiLine
Outer Adhesive ReadiLine
Gift Box ReadiLine
6063-10100 Top Case SureSound
6063-20100 Bottom Case SureSound
6063-20200 Slide Knob SureSound
6063-10300 Clarity Shaft SureSound
6063-10400 Plate SureSound
6061-10400 Volume Knob SureSound
6061-20200 Battery Door SureSound
6061-11201 Light Pipe SureSound
1063-00510 PCB, Main SureSound
6061-10900 Battery Terminal "A" SureSound
6061-11000 Battery Terminal "B" SureSound
6061-11100 Battery Terminal "C" SureSound
6061-10700 Spring "C" SureSound
6061-10800 Spring "D" SureSound
TBA Top Housing Digital Adapter (Linestein)
TBA Bottom Housing Digital Adapter (Linestein)
TBA Lock Ring Digital Adapter (Linestein)
TBA Learn Button Digital Adapter (Linestein)
TBA Learn Indicator Digital Adapter (Linestein)
TBA In-Use Indicator Digital Adapter (Linestein)
TBA PCB Digital Adapter (Linestein)
22 - 011 Mounting Panel Tri-Amp Accessory
22 - 011 Headset Hanger Tri-Amp Accessory
20 - 012 Headset Hanger Support Tri-Amp Accessory
23721-001 Housing, Outer (Double Shot Tool)Helium
Insert, Housing, Outer Helium
23721-002 Housing, Inner Helium
23721-003 Mount, Speaker (Nylon 6/6) Helium
23721-004 Cover, Speaker (Nylon 6/6) Helium
23721-005 Spring, Detent, Turret (SST) Helium
23721-006 Cushion, Speaker Helium
23721-007 Headband (Nylon 6) Helium
Extrusion Helium
Rolling Tool Helium
Bending Tool (Headband) Helium
Stripping Tool Helium
Bending Tool (Stiffener) Helium
Steel Wire Removing Tool Helium
23721-008 Cushion, Headpad Helium
23721-009 Insert, Headpad Helium
23721-010 Turret Helium
23721-011 Boom Helium
Extrusion Helium
Steel Wire Removing Tool Helium
Rolling Tool Helium
23721-012 Mic Housing Helium
23721-013 Mic Boot Helium
Cable Assembly:W/O Female Part) Helium
1st Overmold (PVC 30%) Helium
2nd Overmold(PVC 65%) Helium
23721-016 Pin, Pivot (Ball) Helium
23721-017 Washer, PSA, Speaker (Foam) Helium
23721-018 Disk, Foam, Speaker Helium
23721-024 Flex Circuit, Main (+ Mic-Flex) Helium
Housing, Outer, Binaural Helium
Turret Inserting Jig Helium
Ultrasonic Horn/Jig Helium
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B. C. Shin
----------------- --------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
APPENDIX C
This Appendix is attached to and is made a part of the AGREEMENT
entered into as of the First day of January, 1998 between Hello
Direct, Inc. (HDI) and Seo-Won K-Tec, Inc. (SWKT).
Quality Inspection Defect Definition for Major, Minor,
and Notice
Major Minor Notice
1. Carton, gift box wrong [
incorrect printing
legible printing defect
broken
2. Operating Manual/Card wrong
printing defect
3. Printing missing
wrong color
discoloration
printing defect > 2 mm
printing defect > 1 mm
printing defect < 1mm
4. Function defective
5. Assembly error
unit not assembled properly
6. Electrical Test Parameters
out of limits > 10%
out of limits < 10%
*
7. Appearance defective
wrong color
discoloration > 2.5 (Delta E)
discoloration < 2.5 (Delta E)
contamination cleaning easy by dry cloth
contamination cleaning not easy
8. Screw
screw missing
screw loose
9. Surface damage
Visual inspection
damage visible from distance of:
Primary Surface > 30 cm
> 20 cm
Secondary Surface > 60 cm
> 40 cm
10. Plastic injection defective worse than
approved golden sample
prevents proper assembly
cosmetic
11. Foreign material inside unit,
metal
dimension: > 10 mm
5 - 10 mm
< 5 mm
non-metal
12. Safety of user ]
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B. C. Shin
----------------- --------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
APPENDIX D
This Appendix is attached to and is made a part of the AGREEMENT
entered into as of the First day of January, 1998 between Hello
Direct, Inc.. (HDI) and Seo-Won K-Tec, Inc. (SWKT).
EXCLUSIVE SALES TERRITORY:
None
NON-EXCLUSIVE SALES TERRITORY:
[*] Other regions may be included in the Territory subject to HDI's
approval.
LICENSE FEE:
The License Fee for each product sold shall be one-half (1/2) of
the difference between the minimum selling price of each product
listed below and the [*] Cost of each product as shown in Appendix A.
The [*] Cost of each product is subject to adjustments, upward or
downward, based on quarterly USA-Korea and USA-Philippine currency
exchange fluctuations in accordance with Section 6.2.
License Fee = Minimum selling price Less [*] Cost
----------------------------------
2
License Fees shall be paid quarterly by SWKT to HDI in the form of
a check or other appropriate form as instructed by HDI.
SWKT shall be fully responsible for all the costs and expenses,
including applicable taxes and duties, in the sale of the Licensed
Products in the Non-Exclusive Territory. HDI may provide SWKT free
of charge with reasonable quantities of printed material related to
the Products.
PRODUCTS:
Catalog No. Product(s) Minimum Selling Price
1550 + 1510 HelloSet Pro Amplifier, E6, with [
10' 3.5mm QD Cable Assembly
1473 HelloSet Basic Amplifier, E6
1580 + 1510 Ace Plug-Prong Amplifier, with
10' 3.5mm QD Cable Assembly *
1504 Ultralight Pro Headset
1458 Ultralight Basic Headset
1505 Dual Pro Headset
1459 Dual Basic Headset
1506 Solo Pro Headset ]
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B. C. Shin
----------------- --------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
APPENDIX E
This Appendix is attached to and is made a part of the AGREEMENT
entered into as of the First of January, 1998 between Hello Direct,
Inc. (HDI) and Seo-Won K-Tec., Inc. (SWKT).
HELLO DIRECT REGISTERED TRADEMARK
Hello Direct Logo
REGISTERED TRADEMARKS TRADEMARKS
SuperPro ReadiLine
HelloSet CODiT
Ultralight Office Rover
SureSound Cordless
ConferencePro Executive
LineStein
HELLO DIRECT, INC. SEO-WON K-TEC., INC.
by /s/ Donald Chiang by /s/ B. C. Shin
----------------- --------------
DONALD CHIANG B. C. SHIN
Director of Purchasing President
Date: February 20, 1998 Date: February 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED BALANCE SHEET AS OF March 31, 1998 AND
THE CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
March 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,370
<SECURITIES> 5,199
<RECEIVABLES> 7,466
<ALLOWANCES> 662
<INVENTORY> 6,010
<CURRENT-ASSETS> 22,622
<PP&E> 7,666
<DEPRECIATION> 2,896
<TOTAL-ASSETS> 31,861
<CURRENT-LIABILITIES> 4,308
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 27,374
<TOTAL-LIABILITY-AND-EQUITY> 31,861
<SALES> 17,910
<TOTAL-REVENUES> 17,910
<CGS> 8,319
<TOTAL-COSTS> 8,789
<OTHER-EXPENSES> (203)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,005
<INCOME-TAX> 402
<INCOME-CONTINUING> 603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 603
<EPS-PRIMARY> $0.12
<EPS-DILUTED> $0.12
</TABLE>
