AGREEMENT FOR STRATEGIC OPERATING ALLIANCE

 

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                                                                   EXHIBIT 10.18

 

                   AGREEMENT FOR STRATEGIC OPERATING ALLIANCE

 

         THIS AGREEMENT R A STRATEGIC OPERATING ALLIANCE (the "Agreement") is

made this 28th day of January 2004 by and between American Standard Circuits,

Inc., an Illinois corporation ("American Standard"), with a principal place of

business at 3615 Wolf Road, Franklin Park, Illinois, and M-Wave, Inc., a

Delaware corporation ("M-Wave"), with a principal place of business at 475

Industrial Drive, West Chicago, Illinois. American Standard and M-Wave may be

referred to herein individually as a "Party" and collectively as the "Parties."

 

                                    RECITALS

 

         M-Wave and American Standard are each value-added service providers

that develop, manufacture, and market high performance circuit boards

(collectively, the "Products").

 

         M-Wave has a manufacturing facility located at 475 Industrial Drive,

West Chicago, Illinois (the "Manufacturing Facility") at which M-Wave has

heretofore manufactured Products and which M-Wave is selling, together with

certain related manufacturing equipment, to affiliates of American Standard,

concurrently with the execution and delivery of this Agreement.

 

         American Standard and M-Wave desire to enter into a strategic alliance

pursuant to which American Standard shall manufacture Products in place of

M-Wave at the Manufacturing Facility and M-Wave shall assist American Standard

in the sales and marketing of Products, subject to the terms and conditions of

this Agreement.

 

         The Parties have been party to an Interim Agreement for a Strategic

Operating Alliance, dated as of September 2, 2003 amended on November 14, 2003

(the "Prior Agreement") that is null and void upon execution and delivery of

this Agreement, except for accounts receivable due either party thereunder which

are accrued and unpaid as of the date of execution hereof.

 

         In consideration of the mutual promises contained herein, and for other

good and valuable consideration, the receipt and sufficiency of which are hereby

acknowledged, the Parties, intending to be legally bound, hereby agrees as

follows:

 

                                    AGREEMENT

 

         1.         RECITALS. The foregoing recitals are a part of this Agreement

and are hereby adopted by this reference and incorporated herein.

 

         2.        No CONDITIONS PRECEDENT. This Agreement shall be effective

upon its execution and delivery by the Parties and supercedes all previous

writings relating to the subject matter hereof, including without limitation the

Prior Agreement.

 

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         3.        MANUFACTURING. American Standard shall manufacture Products

for M-Wave customers at the Manufacturing Facility in accordance with the terms

of this Agreement. Nothing set forth in this Agreement shall preclude M-Wave,

within in its sole discretion, from fulfilling customer orders for Products

outside the Manufacturing Facility from one or more Asian third party vendors

(such Products are herein referred to as "VM Products").

 

         4.        SALES.

 

         (a)       Selling. During the Term, M-Wave may sell (1) VM Products to

American Standard's current customers, all of which are listed on Schedule

4(a)(i) attached hereto, and any customers subsequently obtained by American

Standard (collectively, "American Standard's Customers") and (ii) Products and

VM Products to its current customers, all of which are listed on Schedule

4(a)(ii) attached hereto, and any customers subsequently obtained by M-Wave

(collectively, "M-Wave's Customers"). American Standard will receive a six

percent (6%) commission on the sale of VM Products procured by M-Wave for resale

to American Standard's customers. It is the intent of the parties, albeit not

binding on either of them and subject to the making by them in writing of mutual

agreements, that within the Term (as defined hereinbelow) M-Wave will commence,

and thereafter during the Term continue, to sell, as a representative of

American Standard, all Products to the American Standard Customers, and not

merely VM Products.

 

         (b)       Administration. During the Term, M-Wave will administer,

invoice, collect and service all VM Products it has sold to the American

Standard Customers and all Products and VM Products it has sold to the M-Wave

Customers.

 

         5.        PURCHASE ORDERS. M-Wave will obtain written purchase orders,

which shall specify all Work to be completed, for review by American Standard.

For the purposes of this Agreement, "Work" shall mean to procure labor,

components, raw materials, equipment and other supplies, and to manufacture,

bond, test, label and deliver the Products to M-Wave. Each purchase order shall

specify the quantity of all Products ordered, the part number, the requested

delivery date and delivery address, price, and reference the applicable written

Specifications. As used herein, "Specifications" shall include, without

limitation, manufacturing plans, test data, quality control data, compositions,

bills of material, samples, schematics, process documentation, labels and test

specifications. Purchase orders shall normally be deemed approved by American

Standard upon receipt, provided, however that American Standard may in good

faith reject any order that (a) American Standard does not have the

technological capacity to manufacture or that does not substantially conform to

the terms and conditions of this Agreement, (b) following a credit check by

American Standard, comes from a customer who does not meet American Standard's

reasonable credit requirements, or (c) does not provide a price that is

reasonably acceptable to American Standard. American Standard shall notify

M-Wave of its disapproval of any purchase order within three (3) business days

of receipt of such order. M-Wave and American Standard will use reasonable

efforts to satisfy any order changes made by a customer and will respond to the

customer regarding meeting the requested change within seven (7) business days

of receipt of a written order requesting such change. The Parties agree that the

 

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terms and conditions contained in this Agreement shall prevail over any terms

and conditions of any purchase order, acknowledgment form or other instrument.

 

         6.        PRICE AND PAYMENT TERMS.

 

         (a)       Unit Price. For each Product manufactured for M-Wave

Customers, M-Wave shall pay to American Standard the "Unit Price," which shall

be the standard cost of such Product as set forth in the pricing matrix

spreadsheet used by M-Wave based upon "version 14 of the Calculator" heretofore

agreed upon by the Parties, as may be changed hereafter from time to time by

mutual agreement of the Parties. The standard cost on such pricing matrix

spreadsheet generally equals the difference between (i) the price of such

Product to the customer and (ii) an agreed-upon discount ("Discount"). M-Wave

shall retain the excess of the amount paid by its customer for the Product over

the Unit Price paid by M-Wave to American Standard and disclose this amount to

American Standard.

 

         (b)       Terms and Lien. Except as otherwise set forth in Section 6(c)

below, payment for each Product by M-Wave to American Standard hereunder is due

within the first to occur of (i) twenty (20) days following the earlier of

shipment to M-Wave or M-Wave's invoicing of the respective receivable or (ii)

five (5) business days following M-Wave's receipt of payment of the applicable

receivable. M-Wave will make best efforts to ship its finished Products within

one (1) business day of manufacture. To secure payment of certain of its

obligations under this Paragraph 6(b), M-Wave hereby grants American Standard a

security interest in its accounts receivable with respect to the payment of such

obligations to American Standard..

 

         (c)       Revised Terms. M-Wave and American Standard agree that, upon

M-Wave obtaining a credit facility to finance its accounts receivable and

inventory separate from its other assets, American Standard shall immediately

provide M-Wave with thirty (30) day payment terms and a maximum credit limit of

$300,000 and, upon receipt of payment from M-Wave of all amounts due under this

Paragraph 6 in excess of $300,000, shall release the security interest in

M-Wave's accounts receivables granted to American Standard pursuant to Paragraph

6(b) above.

 

         (d)       Other. The Unit Price is exclusive of federal, state and local

excise, sales, use and similar taxes, and any duties; and M-Wave shall be

responsible for the collection of all such amounts from customers and the

remission of such amounts to the appropriate authorities. The Unit Price is also

exclusive of freight, insurance and other shipping expenses.

 

          7.        MANUFACTURING EXPENSES. During the Term, the Parties shall

mutually agree in writing as to the allocation between them of the expenses

incurred in connection with the manufacturing activities at the Manufacturing

Facility, including employee costs, insurance, permits and licenses, leasing,

maintenance and repair of equipment, utilities and replacement of equipment.

 

         8.        PACKAGING AND LABELING. M-Wave, at its own expense, will

package and include Labels on or with all M-Wave Products and packaging to be

supplied in accordance with the applicable Specifications. As used herein,

"Label(s)" shall mean all (a) labels and other written,

 

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printed or graphic matter placed upon the Products, (b) containers and/or

wrappers utilized with the Products including, without limitation, Product

inserts which bear the trademarks or trade dress of M-Wave, and (c) other matter

designated in the Specifications or on approved prototypes/samples.

 

          9.        SHIPMENTS. M-Wave, at its own expense, shall ship all Products

to the customer in accordance with the applicable Specifications.

 

         10.       ACCEPTANCE AND REJECTION. If a customer (a) rejects in whole

or in part any shipment of Products because such Products were determined not to

be in accordance with the applicable Specifications (the "Nonconforming

Products") or (b) informs M-Wave of any shortage in quantity of any shipment of

Products, M-Wave shall promptly provide American Standard written notice of such

rejection or shortage and American Standard shall use reasonable efforts to

replace the Nonconforming Products or make up the shortage, at no additional

cost to the customer and as quickly as possible, but in any event within ten

(10) business days of receiving notice of such rejection or shortage. Shipments

of Nonconforming Products may, at M-Wave's option and American Standard's

expense, be returned to M-Wave or destroyed by the customer. The remedy of

replacement or refund will not be available for Nonconforming Products if such

nonconformance was caused by the customer's misuse, unauthorized modifications,

neglect, improper testing or improper storage of such Nonconforming Products.

 

         11.       CUSTOMER COMPLAINTS. If M-Wave receives a consumer complaint

relating to a defect in any Product or the packaging or Label of any Product,

M-Wave may, in a prompt and reasonable manner, seek the resolution of such

complaint by American Standard in accordance with the terms of this Agreement.

 

         12.       HAZARDOUS OR UNSAFE CONDITION OF PRODUCTS. In the event

American Standard or M-Wave learns of any condition relating to a potential

safety hazard or unsafe condition in any of the Products, or is advised of such

by any state or federal regulatory authorities having jurisdiction over such

Products, such Party shall immediately advise the other Party and provide all

relevant information, and the Parties shall exert all reasonable efforts to

promptly resolve the situation.

 

          13.       TERM AND TERMINATION.

 

         (a)       Term This Agreement shall commence on the date hereof and

shall continue in effect for two (2) years thereafter (the "Term").

 

         (b)       Early Termination.

 

                  (i)       Notwithstanding the above, the non-breaching Party

         shall have the right to terminate this Agreement immediately, if the

         other Party materially breaches this Agreement at any time and such

         breach is not cured (x) within seven (7) days of written notice of a

         breach caused by the failure of the other Party to make any payment

         required

 

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         under this Agreement or (y) within thirty (30) days of written notice

         thereof for any other material breach of this Agreement. In either case

         such notice shall specify in detail the nature of the breach.

 

                  (ii)      Either Party may terminate this Agreement, effective

         immediately upon the giving of written notice, if the other Party shall

         file a petition for bankruptcy, or shall be adjudicated a bankrupt or

         insolvent, or shall take advantage of the insolvency laws of any state

         of the United States, or shall make an assignment for the benefit of

         creditors, or shall have a receiver appointed, whether by private

         instrument or by court officer, for its property, or become subject to

         an involuntary petition for bankruptcy, or have a major portion of its

         assets become subject to attachment that is not rescinded within

         forty-five (45) days.

 

                  (iii)     This Agreement may be terminated by either Party upon

         sixty (60) days written notice to the other if any conditions

         constituting a Force Majeure as described in Section 25(b) herein exist

         for a period in excess of forty-five (45) days in any one-year period.

 

(c)       Effect of Termination. Termination or expiration of this Agreement

shall not (i) affect any other rights of either Party which may have accrued up

to the date of such termination or expiration, or (ii) relieve either Party of

its obligation to pay to the other Party sums due in respect of Products

delivered and accepted prior to termination or expiration of this Agreement. The

provisions of Sections 14 (Intellectual Property), 17 (Product Warranty), 18

(Records and Audit), 19 (Confidentiality), 20 (Non-Solicitation of Customers and

Employees), 22 (Indemnification), and 25 (Miscellaneous) of this Agreement shall

survive termination or expiration of this Agreement.

 

         14.       INTELLECTUAL PROPERTY. Unless specifically and expressly

granted herein and notwithstanding a Party's use thereof, no licenses or rights

under either Party's intellectual property rights including, without limitation,

copyrights, trademarks, trade names, trade secrets, patents or any other

proprietary rights issued, honored and/or enforceable under any applicable laws,

are implied or granted in this Agreement. Each Party shall retain full ownership

of all its intellectual property.

 

         15.       REGULATORY MATTERS.

 

         (a)       Each Party represents and warrants that it currently has all

material licenses and permits necessary for the operation of its business as

currently conducted.

 

         (b)       American Standard will be responsible for any reporting of

matters regarding the manufacture of Products, as applicable, to relevant

regulatory authorities, in accordance with pertinent laws and regulations and

shall notify M-Wave of any occurrence or information that arises out of its

manufacturing activities that has adverse regulatory compliance and/or reporting

consequences concerning a Product.

 

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          (c)       American Standard shall be responsible for handling and

responding to any governmental agency inspections with respect to manufacturing

of Products during the Term and shall provide to M-Wave copies of any

information requested by any governmental agency in connection with any

governmental inspection related to the Products.

 

         (d)       Each Party shall comply with all applicable laws, rules and

regulations in fulfilling their obligations under this Agreement.

 

         16.       MANUFACTURING CERTIFICATIONS. American Standard and M-Wave

each represents and warrants that it currently has UL and ISO ce