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EXHIBIT 10.16
MANUFACTURING AGREEMENT
This Manufacturing Agreement (this "Agreement") covers the manufacture of
electronics products and related services by Hi-Tech Manufacturing, Inc.
("HTM"), a Delaware corporation, located at 00000 Xxxxx Xxxxx, Xxxxxx, XX 00000
for Xybernaut Corporation ("Xybernaut"), a Delaware corporation, whose principal
place of business is 00000 Xxxx Xxxxx Xxxxxx, Xxxxx 000, Xxxxxxx, XX 00000. The
effective date of this Agreement is January 13, 1997.
PREAMBLE
The general purpose of this Agreement is to document responsibilities wherein:
* HTM would expect to technically and organizationally be able to
satisfy and fulfill the Xybernaut purchase order requirements as
accepted by HTM;
* HTM would expect ongoing purchase orders and forecasts to be reliable
and sufficiently in advance in order to procure components and plan
factory capacity such that the basis upon which the purchase order
pricing was generated can be realized;
* Xybernaut would expect HTM processes to remain flexible enough to
accept a certain level of engineering and schedule changes;
* if HTM cannot satisfy the purchase order requirements, HTM should
inform Xybernaut without delay and help develop alternative plans that
will satisfy the demand (including, alternative manufacturing);
* HTM would not be expected to take any inventory risk for components
acquired pursuant to Xybernaut purchase orders;
* HTM would not be expected to finance Xybernaut inventories for
long-term significant changes to schedules;
* if consignment builds are required, HTM would expect Xybernaut to
provide timely, complete consignment kits (inclusive of shrink
quantities) unless the quote allows for, and arrangements are made
for, HTM to provide receiving, warehousing and kitting services; and
* since through no fault of either HTM or the Xybernaut, programs
oftentimes are not executed as planned, Xybernaut should expect HTM's
response to changes to be proactive and HTM would expect Xybernaut
purchase order pricing to be adjusted fairly for the changes in the
level of the work.
1.1 PURCHASE ORDERS AND FORECAST. This Agreement is not a purchase order.
Xybernaut is not required to purchase products from HTM until Xybernaut issues a
firm purchase order pursuant to these terms and conditions of this Agreement.
The terms and conditions set forth in this Agreement will prevail over
conflicting terms on a purchase order. Based upon present forecasts, it is
Xybernaut's intention to have HTM build, at least, 5,650 units under this
Agreement. Notwithstanding the foregoing, Xybernaut is not making any
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warranty, or guaranty, as to the actual number of units of products to be
ordered from HTM pursuant to this Agreement.
Xybernaut will provide HTM with a manufacturing forecast, specified by
Xybernaut's designated part number, for an initial 12 month period. Such
forecast will be updated monthly and is not binding unless covered by a
Xybernaut purchase order.
It is understood and acknowledged that HTM will only order material pursuant to
and based upon Xybernaut's purchase orders.
Unless this Agreement is terminated, Xybernaut shall provide orders for the
first 3 months of its forecast and then monthly, will provide purchase orders
for one additional month so as to maintain a minimum of 3 months of products
covered by purchase orders. Purchase orders should reference this Agreement and
specify the item numbers, quantities ordered, unit of measure, Xybernaut part
number, description of items, unit price, requested delivery dates to each
particular location, method of shipment, FOB point and tax status of each
shipment HTM will normally affirmatively accept all purchase orders within 10
working days from HTM's receipt of each purchase order or, within such 10
working day period, will advise Xybernaut of modifications if the purchase order
is not acceptable to HTM. Absent notification within such 10 day period, the
purchase order will be deemed accepted by HTM.
1.2 RESCHEDULE OF PURCHASE ORDER(S). Due to factory capacity planning, HTM
ordinarily cannot accept purchase order reschedules, especially those within 30
days of the scheduled delivery date. However, reschedules may be allowed at the
sole but reasonable discretion of HTM based on the capacity costs of
rescheduling as reasonably determined by HTM. In circumstances where factory
capacity or inventory planning is not adversely effected, HTM will allow
reschedules without cost to Xybernaut. In any event, purchase orders for
deliveries outside of 30 days may be rescheduled for up to 60 days for a single
product's monthly requirement without cost to Xybernaut.
1.3 CANCELLATION OF PURCHASE ORDER(S). For reasons attributable to Xybernaut,
purchase orders may be either cancelled by Xybernaut or deemed cancelled by
being not deliverable. "Not deliverable" includes those instances in which late
or delinquent deliveries of components/material provided by Xybernaut to HTM
cause HTM not to be able to deliver according to the Xybernaut purchase order.
Upon any cancellation or deemed cancellation, Xybernaut will be liable for
material costs and non-material purchase order price as defined below.
MATERIAL COSTS. "Material Costs" are defined as the cost of material, plus
incoming shipping costs, if any, and (b) a xxxx-up of five percent (5%).
Under all circumstances, Xybernaut will be responsible and liable for any
and all material costs incurred by HTM for either: (1) material purchased
pursuant to a Xybernaut purchase order or, (2) material purchased pursuant
to a written authorization by Xybernaut (common for long-lead time
components). The material liability is inclusive of any and all on order
inventory unless
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cancelable (in which case the liability will be limited to any actual
cancellation charges), on-hand component inventory and work-in-process.
Upon cancellation, Material Costs will be separately calculated and
invoiced. Payment terms for cancelled Material Costs are net 30 days. HTM
will continually attempt to mitigate Material Costs by returning components
to vendors, cancelling components on order and utilize cancelled material
on other customer programs.
NON-MATERIAL PURCHASE ORDER PRICE. For purposes hereof, Non-material
purchase order price shall mean the purchase order pricing minus the
Material Costs. With respect to orders cancelled within 30 days of
delivery, nonmaterial purchase order price will be invoiced at the lesser
of: (1) the non-material purchase order of the product or (2) the
reasonable capacity costs of cancellation as determined solely by HTM. With
respect to orders cancelled more than 30 days from delivery will be
invoiced at the lesser of (1) one-half the non-material purchase order
price of the product and (2) the reasonable capacity costs of cancellation
as determined solely by HTM.
Payment terms are net 30 days.
1.4 RESPONSE TIME. In the absence of the cancellation or rescheduling of a
purchase order, HTM shall manufacture and deliver products to Xybernaut or its
designee in accordance with Xybernaut's purchase orders. Should HTM materially
fail to meet the targeted delivery dates, Xybernaut shall be entitled to
terminate this Agreement without any further obligation to HTM.
1.5 TITLE AND RISK OF LOSS. Title to products and liability for loss or damage
to products shall pass to Xybernaut upon HTM's delivery of the products to a
common carrier for shipment to Xybernaut and/or Xybernaut's designee, and the
issuance of a xxxx of lading or similar title document by the common carrier.
1.6 ADVANCE PAYMENTS. Xybernaut shall pay to HTM the sum of $120,000 upon the
effectiveness of the execution and delivery of this Agreement, and the sum of
$60,000 upon the dates that are thirty (30) and sixty (60) days thereafter. The
$240,000 aggregate amount of these advance payments shall serve as an advance
against the amounts payable by Xybernaut to HTM hereunder. After the aggregate
$240,000 has been paid by Xybernaut, and provided the parties are otherwise not
in default in respect of any of their respective obligations hereunder, HTM and
Xybernaut shall negotiate in good faith regarding a modification to the terms of
the timing of Xybernaut's payment obligations hereunder.
2.1 MANUFACTURING SHRINK. Turnkey material costs are quoted to include
manufacturing shrink. Customer consignment material should include shrink
quantities either on a component level or on an average xxxx of material level
as mutually agreed between HTM and Xybernaut. If there is no separate agreement,
a minimum of 1% component shrink will be assumed for purposes of this Agreement.
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2.2 PRODUCT QUALITY. All products manufactured by HTM hereunder shall meet the
quality standards agreed upon by Xybernaut and HTM. Such quality standards shall
be set forth in an exhibit attached hereto.
3.1 INVOICING OF PRODUCTS. HTM will invoice Xybernaut upon shipment. Shipping
terms are FOB HTM factory. Payment terms are net 30 days.
4.1 INSPECTION. Xybernaut shall have 30 days from date of delivery to inspect
the products. If any product is deemed defective by Xybernaut, Xybernaut or its
designee shall notify HTM of particular deficiencies within 10 days from the end
of the 30 day period. Upon receipt of a written RMA, Xybernaut or its designee
shall be entitled to return such defective product to HTM for repair at HTM's
cost.
5.1 PRODUCT CHANGES; DRAWINGS. (a) Xybernaut may submit a written Engineering
Change Order Notice (the "Change Order Notice") to make changes in the drawings,
designs, specifications, or method of shipment or packaging concerning any of
the products. HTM shall provide Xybernaut with an appropriate statement setting,
forth any resulting cost differences as soon as reasonably possible after
receipt of the Change Order Notice. The new purchase price shall be effective
upon the first invoice after the implementation of the changes. HTM will not
implement any changes unless approved in writing by Xybernaut.
(b) HTM may recommend to Xybernaut at any time proposed changes in the
products' drawings, designs, specifications, process changes, or packing
requirements that could result in improved reliability or cost reduction. HTM
will implement such recommendations only upon receipt of Xybernaut's written
authorization in the form of the Change Order Notice. HTM shall have no
obligation or liability for its recommendations. If HTM's recommended changes
decrease the cost of the assembly process, HTM and Xybernaut agree to a cost
sharing program with HTM whereby any savings identified by HTM will be split 75%
to Xybernaut and 25% to HTM, effective upon the first invoice after the
implementation of the changes.
Xybernaut shall pay all reasonable costs actually incurred by HTM as of result
of with a Change Order Notice (including any engineering and documentation
costs, rework charges for work in process and obsolete materials) within 30 days
of the date of HTM's invoice for such costs.
6.1 LIMITED WARRANTY. HTM warrants to Xybernaut that each product from under
ordinary and proper use shall be free from defects in workmanship and materials
for a period of 90 days in respect of each product from the date of receipt of
the product by the applicable end user and for 12 months from the date with
respect to individual parts. This warranty requires that products will: (a) be
manufactured in accordance with HTM's manufacturing workmanship standards, (b)
conform to the product specifications, and (c) successfully complete any
mutually agreed upon product acceptance tests.
HTM's sole warranty obligation under this Agreement shall be to repair, replace
or credit Xybernaut for any products found to be defective during the warranty
period; provided that (i)
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HTM is promptly notified of the defect; (ii) the defects were not the result of
misuse, accident, neglect, improper alteration or improper testing, storage,
installation, or use; and (iii) such products are returned to HTM.
The express warranty as set forth in this section is in lieu of all other
warranties, express or implied, including, without limitation, the warranties of
merchantability and fitness for a particular purpose or freedom from third party
infringement claims. The express obligation stated above is in lieu of all
liabilities or obligations of HTM for consequential damages, including but not
limited to loss damage or injury, direct or consequential, arising out of or in
connection with the delivery, use or performance of the products, and it is
agreed that repair or replacement is Xybernaut's sole remedy for such loss,
damage or injury. HTM expressly discuss all implied warranties of title for any
consigned or Xybernaut supplied materials. Xybernaut agrees that HTM will not be
liable for any lost profits, loss of business, or the like, or for any claim or
demand against Xybernaut by any other party. In no event will HTM be liable for
special, indirect or consequential damages even if HTM has been advised of the
possibility of such damages.
7.1 PATENT AND COPYRIGHT INDEMNIFICATION. Xybernaut will defend at its expense
any action brought against Xybernaut and/or HTM to the extent that such action
is based on a claim that products manufactured, developed and/or supplied by HTM
in compliance with Xybernaut's specifications directly infringe any United
States copyright or duly issued U.S. patent. Xybernaut will pay all damages and
costs finally awarded against Xybernaut or HTM in such action attributable to
such claim. HTM will promptly provide Xybernaut with any communication, notice
or other action relating to the alleged infringement and will give authority,
information and assistance (at Xybernaut's expense) necessary to defend or
settle such claim.
(b) HTM will defend at its expense any action brought against HTM and/or
Xybernaut to the extent that it is based on a claim that HTM's manufacturing
process for the products directly infringes any United States copyright or duly
issued United States patent. HTM will pay all damages and costs finally awarded
against HTM or Xybernaut in such action attributable to such claim. Xybernaut
will provide HTM with any communication, notice or other action relating to the
alleged infringement and will give authority, information and assistance (at
HTM's expense) necessary to defend or settle such claim.
7.2 DATA AND PROPRIETARY RIGHTS IN DATA. All documentation, designs, drawings,
samples, specifications, publications, schedules, engineering details and
related data of Xybernaut and HTM pertaining to the products and manufacturing
processes are confidential information. Xybernaut and HTM shall protect such
confidential information from any use or disclosure to third parties; provided
that disclosure shall be permitted pursuant to subpoena and any similar judicial
or regulatory process.
8.1 SERVICE ARRANGEMENT. Promptly after the execution and delivery of this
Agreement, Xybernaut and HTM shall begin good faith negotiations with respect to
a service arrangement
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between them pursuant to which HTM would service the products (for compensation
payable to HTM) for defects after the end of the applicable warranty period.
9.1 TERM AND TERMINATION. This Agreement shall be effective for 1 year
following the effective date unless sooner terminated by mutual agreement and
will automatically renew for successive 1 year periods for as long as HTM
retains manufacturing responsibilities for the products and unless 90 days prior
to the then expiry date, Xybernaut notifies HTM in writing that it does not
intend for this Agreement to be extended. The foregoing is subject to the
limited rights of termination expressly set forth herein.
10.1 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which, when
taken together, shall constitute one and the same instrument and shall be
effective when executed counterparts are delivered and exchanged by the parties.
10.2 APPLICABLE LAW. This Agreement shall be governed by and construed under
the laws of the State of Delaware, without regard to it principles of conflicts
of law. Xybernaut and HTM hereby irrevocably consents to the jurisdiction of the
Federal District Court located in the Ste of Delaware and the courts of the
State of Delaware.
10.3 ASSIGNMENT. This Agreement may not be assigned or delegated by either
party without the prior written consent of a duly authorized officer of the
other party, and any attempt to assign or delegate any rights, duties or
obligations under this Agreement will be void.
10.4 REMEDIES. All rights and remedies hereunder shall be cumulative and may
be exercised singularly or concurrently.
10.5 AMENDMENT. Any amendments or modifications to, or waivers from, to the
terms and conditions of this Agreement must be in writing and will not be valid
and effective unless evidenced by an instrument in writing executed by a duly
authorized officer of each of the parties.
10.6 FORCE MAJEURE. Neither party to this Agreement shall be liable, either
wholly or in part, for nonperformance or a delay in performance of its
obligations under this Agreement if due to force majeure or contingencies or
causes beyond the reasonable control of such party or its suppliers. The delayed
party shall report any delays to the affected party within three (3) working
days after the occurrence giving rise to delay. Should an event of force majeure
effecting HTM or its suppliers materially interfere with the ability of HTM to
meet the delivery requirements of Xybernaut as provided in Xybernaut's forecast
and/or outstanding purchase orders, than Xybernaut may determine, which
determination shall be reasonable and in good faith, to terminate this Agreement
upon written notice to HTM.
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10.7 PUBLICATION. Except as may be required by applicable law, neither party
hereto shall, without the prior written consent of the other party (which shall
not be unreasonably withheld or delayed), publicly announce or otherwise
disclose the existence or the terms of this Agreement.
10.8 NON-WAIVER. Failure of any party to insist upon strict compliance with
any term, covenant, or condition hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
10.9 SEVERABILITY. If any provision of this Agreement shall be deemed invalid
or unenforceable, the applicability or validity of any other provision of this
Agreement shall not be affected, and if any such provision shall be deemed
invalid or unenforceable in any respect, such provisions shall be deemed limited
to the extent necessary to render it valid and enforceable.
10.10 NOTICES. All notices, consents, agreements and the like required or
permitted under the terms and conditions of this Agreement shall be in writing
and shall be sent by registered mail (return receipt) with postage prepaid and
will be effective upon actual receipt by the recipient at the address set forth
in the heading to this Agreement or such other address as may be specified to
the other party.
10.11 ENTIRE AGREEMENT. This Agreement constitutes the complete, exclusive and
entire Agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior and/or contemporaneous
understandings with respect to such subject matter (whether written or oral) all
of which are merged herein. Any term or condition in any order, confirmation or
other document furnished by either party which is in any way inconsistent with
or in addition to these terms and conditions is expressly rejected.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers effective the date written above.
Hi-TECH MANUFACTURING, INC. XYBERNAUT CORPORATION
("HTM") ("Xybernaut")
By: /s/ XX XXXXXXX By: /s/ XXXXXX X. XXXXXX
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Title: President Title: President
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Date: 1/13/97 Date: 1/11/97
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