MANUFACTURING AGREEMENT
This Manufacturing Agreement made this 1st day of October,
2000 by and between Xxxxxxx, Inc., a Delaware corporation ("Seller") and
American Locker Security Systems, Inc., a Delaware corporation ("Buyer").
WHEREAS, Buyer and Seller are parties to a Manufacturing
Agreement dated as of December 29, 1989, as amended (the "Old Manufacturing
Agreement");
WHEREAS, Buyer and Seller wish to enter into this new
Manufacturing Agreement;
WHEREAS, Seller has the production equipment and expertise to
fabricate, assemble, paint, and ship metal lockers and other metal products of a
type sold by Buyer; and
WHEREAS, Buyer wishes to contract with Seller to provide such
fabrication, assembly, painting, and shipping services.
NOW THEREFORE, in consideration of the mutual promises herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. DESCRIPTION OF SERVICES.
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(a) GENERAL. During the term of this Agreement Seller
shall fabricate, assemble, paint, and ship all of Buyer's requirements
of metal lockers and other metal products in accordance with the
Description and Specifications set forth in Exhibit A ("Goods").
(b) DELIVERY. Delivery of the Goods to Buyer shall be
made: (a) within 30 working days after Seller receives from Buyer an
order for standard lockers, (b) within 60 working days after Seller
receives from Buyer an order for non-standard lockers and (c) within a
mutually agreed upon period after Seller receives from Buyer an order
for any other Goods. For purposes of the foregoing, working days shall
include Monday-Friday except holidays and normal summer vacation
periods when production is suspended by Seller. In no event will Seller
be required to deliver any Goods to Buyer with a sales value in excess
of $435,000 in any calendar month except when Buyer provides to Seller
a ninety (90) day production planning notice. Time is of the essence
with respect to the delivery schedules set forth herein and Seller
acknowledges that Buyer may incur significant incidental or
consequential damages in the event that Buyer is unable to fulfill its
obligations to customers on a timely basis as the result of Seller's
failure to meet the delivery schedule. However, Seller will not be
responsible for the failure to perform its obligations for deliveries
if such failure arises out of causes beyond its control and is not the
result of its fault or negligence. Such causes may include but are not
limited to acts of God, fire, strikes and unusually severe weather.
Seller shall not ship, transport or otherwise attempt
to deliver any Goods to Buyer unless and until Seller shall have
received a written notice from Buyer specifying the type and quantity
of Goods required and the location to which such Goods are to be
delivered. Seller shall deliver such Goods in accordance with Buyer's
instructions, the cost of such delivery to be borne by Buyer. The risk
of loss for the Goods shall not pass to Buyer until such time as Seller
has delivered the Goods to the
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carrier in the manner set forth above. Buyer shall be responsible for
obtaining such insurance, if any, as it deems appropriate to cover the
risk of damage or loss in transit.
2. TERM.
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The term of this Agreement (the "Term") shall be for
three years, provided that, subject to termination as provided herein,
this the Term shall automatically renew for a three year period on each
September 1 from September 1, 2001 through and including September 1,
2004 such that the final renewal term will expire on August 31, 2007.
For greater clarity, on September 1, 2001, the Term of this Agreement
shall automatically renew for a three year period and shall expire on
August 31, 2004. At the time of each renewal, Buyer and Seller will in
good faith discuss any necessary or desired revisions to this
Agreement, including cost revisions, tooling list and physical
inventory adjustment. Notwithstanding the foregoing, this Agreement may
be terminated by Buyer or Seller on three hundred sixty-five (365) days
prior written notice to the other party.
3. CONSIGNMENT OF INVENTORY.
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(a) CONSIGNMENT. Buyer hereby consigns and delivers
to Seller and Seller hereby accepts, acquires and holds on consignment
the raw materials, parts, supplies, work-in-process and finished
products enumerated on Exhibit B, attached hereto, which relate to the
manufacture of products for Buyer and which (i) were, as of December
31, 1999, on the premises of Seller in Ellicottville, New York and
which had an agreed value at that date of $1,234,745 ("Initial Locker
Inventory"), and (ii) are hereafter acquired by Seller, either by
purchase or otherwise, in satisfaction of Seller's obligation to
maintain inventory value set forth in Section 3(f) hereof ("Replacement
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Locker Inventory"). The Initial Locker Inventory and the Replacement
Locker Inventory are together herein called "Locker Inventory".
(b) TITLE. Title to the Initial Locker Inventory
shall be retained by Buyer and title to all Replacement Locker
Inventory, upon receipt thereof by Seller, shall immediately vest in
Buyer.
(c) USE AND SALE. Seller shall use the Locker
Inventory solely in the production of Goods for sale to Buyer pursuant
to the terms hereof. Buyer will purchase products set forth on Schedule
A exclusively from Seller except in cases where Buyer and Seller
consent as a result of capacity or scheduling limitation or other
reasons, which consent shall not be unreasonably withheld, conditioned
or delayed by either party. Seller agrees that during the term hereof,
it will not produce products similar to or competitive with the
products listed on Exhibit A for persons or entities other than Buyer.
(d) FINANCING STATEMENT. Seller will, at the request
of Buyer, execute one or more financing statements under the New York
Uniform Commercial Code in form satisfactory to the Buyer, will pay the
costs and all related taxes of filing the financing statements,
amendments and continuation statements in all public offices in which
filing is deemed by Buyer to be necessary or desirable, and will
execute all other documents and take all other actions deemed advisable
by Buyer to evidence Buyer's ownership of the Locker Inventory.
(e) SEGREGATION AND MARKING. Seller shall
conspicuously xxxx its inventory records to indicate that each item of
Locker Inventory is the property of Buyer and is held by the Seller for
Buyer's benefit pursuant to this Agreement. Seller shall also
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conspicuously xxxx each of Seller's purchase orders for items of
Replacement Locker Inventory to indicate that such items are purchased
for the account of Buyer, will, when received, be the property of
Buyer, and will be held by the Seller for Buyer's benefit pursuant to
this Agreement. Seller shall segregate all items of Locker Inventory
which may be conveniently segregated from other inventory of Seller,
and shall xxxx each item of Locker Inventory not so segregated by a red
painted "X" in a manner adequate to permit any person, including one
not familiar with the business of Seller or the process of locker
manufacture, to identify it as an item of Locker Inventory. Seller
shall clearly and visibly delineate the area covered by the segregated
Locker Inventory and shall designate such area with a clear and visible
sign stating that the area contains Locker Inventory which is the
property of Buyer.
(f) INVENTORY REPLENISHMENT. Seller shall at all
times during the term hereof maintain Locker Inventory having a value
equal to or greater than the Initial Locker Inventory value less any
cash payments made under this paragraph 3(f). (Such amount is
hereinafter sometimes called the "Remaining Inventory Value.") If, at
any time during the term of this Agreement, the Locker Inventory value
falls below the Remaining Inventory Value, the amount of the deficit
shall become due and payable in cash by Seller to the Buyer 30 days
after demand for payment is given by Buyer to Seller. If, at any time
during the term of this Agreement, the Locker Inventory value exceeds
the Remaining Inventory Value, the amount of such excess shall become
due and payable in cash by Buyer to the Seller 30 days after demand for
payment is given by Seller to the Buyer. Determination of the existence
of such deficit shall be determined in accordance with the procedure of
paragraph 3(g) hereof.
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(g) PHYSICAL INVENTORY. To assure Seller's compliance
with paragraph 3(f) and the other provisions hereof, and to determine
the amounts, if any, due and payable to Buyer under paragraph 3(f)
hereof, Seller shall furnish Buyer with monthly reports of Locker
Inventory purchases and Buyer shall have the right to enter the
Premises (as hereinafter defined) at reasonable business hours to make
an inspection, a count, and a valuation of the Locker Inventory at the
following times and in the following manner:
(1) At any time during the term hereof, at the
discretion of Buyer a physical inventory and valuation of the
Locker Inventory shall be made in accordance with the
following method:
(a) Items of the Initial Inventory shall
be valued in the manner set forth on the attached
Exhibit C; and
(b) All items of Replacement Inventory
shall be valued at Seller's standard cost.
(2) Whether or not any action is taken under
subparagraph (1) of this paragraph 3(g), not later than the
end of the Term of this Agreement, a physical inventory and
valuation of the Locker Inventory shall be made by Seller in
accordance with the method set forth in subparagraph (1) of
this paragraph 3(g).
The Seller shall cooperate with Buyer in valuing the
inventory. After the inspection and inventory taken under this
paragraph 3(g), any amount found due and
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payable to Buyer under paragraph 3(f) hereof shall be paid in cash
within 30 days after demand for payment thereof is made.
4. EQUIPMENT.
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Buyer hereby grants Seller a non-transferable license to use
the equipment, tools, dies and jigs identified on Exhibit D attached hereto (the
"Equipment") solely for the purpose of manufacturing Goods and selling such
Goods to Buyer. Seller shall maintain the Equipment in its present condition,
reasonable wear and tear excepted. Seller shall conspicuously label the
Equipment as belonging to Buyer and, upon request of Buyer, shall execute
financing statements to evidence ownership of the Equipment by the Buyer. This
license shall terminate at the conclusion of the Term.
5. PRICE OF GOODS.
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The prices charged for Goods delivered to Buyer hereunder are
to be in accordance with Exhibit E attached hereto. Buyer shall pay all invoices
received from Seller on a net basis within 30 days of the date of invoice.
Seller will apply such pricing formula on a consistent basis to all items,
giving consideration to volume and any unique or special situation.
6. WARRANTIES.
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(a) Seller warrants that the Goods to be
manufactured and delivered hereunder shall comply with the specifications set
forth in Exhibit A attached hereto. Any subsequent design changes must be
approved by Buyer before they may be incorporated into the Goods.
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(b) Seller warrants that the Goods shall be of
standard workmanship and free of defects in material for one year after
installation of the Goods, but not more than 15 months after shipment from
Seller to Buyer in accordance with Section 1(b) hereof.
7. BREACH; DAMAGES.
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In the event of breach of this Agreement, the defaulting party
shall be liable for damages as provided by law.
8. ARBITRATION.
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(a) Any controversy, claim or dispute between
the parties to this Agreement directly or indirectly concerning the subject
matter, interpretation, breach of enforcement of this Agreement, including
questions concerning the scope and applicability of this paragraph, shall be
finally settled by arbitration held in Jamestown, New York, in accordance with
the procedural rules then followed by the American Arbitration Association. Each
party shall appoint one person as its Arbitrator, who may be an employee of such
party, and two Arbitrators thereby chosen shall choose a third Arbitrator. The
Arbitrators shall have the right and authority to determine how their decision
or determination as to each issue or matter in dispute may be implemented or
enforced. Any decision or award of the Arbitrators shall be final and conclusive
on the parties to this Agreement and there shall be no appeal from the decision
or award except as provided by law.
(b) The parties agree that an action to compel
arbitration pursuant to this Agreement may be brought in the Supreme Court of
Chautauqua County, New York. Application may also be made to such Court for
confirmation of any decision or award of the Arbitrators, for an order of
enforcement and for any other remedy which may be necessary to
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effectuate such decision or award. The parties consent to waive any objection to
the jurisdiction of the Arbitrators and of such Court.
9. TERMINATION.
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Immediately upon the expiration of the Term, the Seller shall
make available to Buyer all Locker Inventory then held by the Seller, together
with the Equipment, all packed for shipment and available for pickup by Buyer on
Seller's loading dock in Ellicottville, New York. If the value of the Locker
Inventory (determined in accordance with paragraph 3(f) hereof at the date of
termination is less than the Remaining Inventory Value on such date, then Seller
shall, within 60 days after the date of such termination, pay the amount of the
deficit to Buyer in cash. If the value as determined in accordance with
paragraph 3(f) hereof of the Locker Inventory at the date of termination is
greater than the Remaining Inventory Value, the excess shall be paid in cash by
Buyer to Seller upon receipt of the Locker Inventory, provided that the cash
payment, if any, shall not exceed 10% of the Initial Locker Inventory value,
unless Buyer shall have previously agreed in writing to a greater percentage.
10. EVENTS OF DEFAULT.
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Seller shall be in default under this Agreement upon the
happening of any of the following events or conditions:
(a) default by Seller in the performance of any
obligation, covenant or liability contained in this Manufacturing Agreement;
(b) any warranty, representation or statement
made or furnished herein or otherwise to Buyer by or on behalf of Seller proves
to have been false in any material respect when made or furnished;
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(c) loss, theft, damage, destruction, sale or
encumbrance to or of any of the Locker Inventory or the Equipment, or the making
of any levy, seizure or attachment thereof or thereon; or
(d) the commencement by or against the Seller of
any proceeding, for reorganization, dissolution or liquidation; suspension or
liquidation by Seller of its usual business; filing by or against Seller of a
petition under any of the provisions of the Bankruptcy Act; application for, or
appointment of, a receiver of the Seller; calling of a meeting of Seller's
creditors; appointment of a committee of Seller's creditors or a liquidating
agent; or Seller's making an assignment for benefit of creditors.
11. REMEDIES.
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Upon default and at any time thereafter Buyer may declare
Seller's obligations secured hereby immediately due and payable. Immediately
thereafter, Seller shall, upon demand by Buyer, assemble the Locker Inventory
and Equipment and deliver it at Seller's expense to Buyer at a place to be
designated by Xxxxxxx. If Seller fails to assemble and deliver the Locker
Inventory and Equipment upon such demand, Buyer shall have the right immediately
and unconditionally to take possession of and remove the Locker Inventory and
Equipment from Seller's premises.
12. COVENANTS OF SELLER.
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The Seller warrants and covenants:
(a) LOCATION OF INVENTORY AND EQUIPMENT. That the
Locker Inventory and Equipment and all records relating to same will be kept at
the Seller's business in Ellicottville, New York (the "Premises"); that Seller
will promptly notify Buyer of any change in
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the location of the Inventory and Equipment and such records within New York,
and that Seller will not remove the Inventory and Equipment or such records from
New York without the prior written consent of the Buyer.
(b) SELLER'S PLACE OF BUSINESS. That Seller's
place of business is at the Premises, and that Seller will immediately notify
Xxxxxxx and the Buyer in writing of any change in, discontinuance of or
additions to Seller's place of business.
(c) TITLE. Seller will take all action
necessary to ensure that the Locker Inventory and Equipment remain free and
clear of any encumbrances, liens or charges.
(d) SALE OF LOCKER INVENTORY AND EQUIPMENT. That
Seller will not sell or offer to sell or otherwise transfer the Locker Inventory
and Equipment or any interest therein except in the course of selling Goods to
Buyer.
(e) INSURANCE AND RISK OF LOSS. That all risk
of loss of, damage to, or destruction of the Locker Inventory and Equipment
shall at all times be upon Seller, and that Seller will have and maintain
insurance at all times with respect to the Locker Inventory and Equipment
against risks of fire (including so-called extended coverage), theft, and other
risks as Buyer may require, containing such terms, in such form, for such
periods and written by such companies as are satisfactory to Buyer, the proceeds
of such insurance to be payable to Buyer; that all policies of insurance shall
provide for ten days' minimum written cancellation notice to Buyer and at
request of Buyer shall be delivered to and held by it; and that Buyer may act as
attorney for Seller in obtaining, adjusting, settling and cancelling such
insurance and endorsing any drafts.
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(f) PROTECTION OF LOCKER INVENTORY AND EQUIPMENT.
That Seller will keep the Locker Inventory and Equipment in good order and
repair and will not waste or destroy the Locker Inventory and Equipment or any
part thereof; that Seller will not use the Locker Inventory and Equipment in
violation of any statute or ordinance; that Seller will not borrow or attempt to
borrow money or in any other way finance any items of Locker Inventory or
Equipment in any manner which would adversely affect Buyer's title to the Locker
Inventory or the Equipment.
(g) TAXES. That Seller will pay promptly when
due all taxes and assessments upon the Locker Inventory and Equipment or for its
use or operation or upon this Consignment Agreement.
13. EXPENSES.
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At its option, Buyer may pay taxes levied upon, insurance for
and expenses for the maintenance and preservation of the Locker Inventory and
Equipment. Seller agrees to reimburse Buyer on demand for any payment made, or
any expense incurred by Buyer pursuant to the previous sentence.
14. ASSIGNABILITY.
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This Agreement shall be binding upon and inure to the benefit
of the Buyer and Seller and their respective successors and assigns, except that
Seller may not assign or transfer Seller's obligations under this Agreement
without the express written consent of Buyer.
15. APPLICABLE LAW.
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This Agreement shall be construed, interpreted and enforced
under the laws of the Commonwealth of Pennsylvania, excepting its rules relating
to conflicts of laws.
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16. MISCELLANEOUS.
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(a) NOTICES. All notices, requests and demands given to or
made upon the parties hereto shall, except as otherwise specified herein, be in
writing and be delivered or mailed or sent by telecopy to any such party at its
address which:
(i) In the case of Seller shall be:
Xxxxxxx, Inc.
X.X. Xxx 0000
00-00 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
(ii) In the case of Buyer shall be:
American Locker Security Systems, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxx Xxxxxxx
Any party may, by notice hereunder to all parties,
designate a changed address to such party. Any notice, if mailed properly
addressed, postage prepaid, registered or certified air mail, shall be deemed
dispatched on the registered date or that stamped on the certified mail receipt,
and shall be deemed received the fifth business day thereafter or when it is
actually received, whichever is sooner. Any notice sent by telecopy, with
written confirmation copy sent by overnight courier, shall be deemed received on
the first business day after dispatch by telecopier.
(b) COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
and all of which shall constitute together one and the same Agreement.
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(c) INTERPRETATION. Wherever possible, each
provision of this Agreement and each related document shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement or any related document shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement or such related
document.
(d) WAIVER. This Agreement may not be and shall
not be deemed or construed to have been modified, amended, rescinded, cancelled,
or waived in whole or in part, except by written instruments signed by the
parties hereto.
(e) ENTIRE AGREEMENT. This Agreement constitutes
and expresses the entire agreement and understanding between the parties hereto
in reference to all the matters herein referred to, all previous discussions,
promises, representations and understandings relative thereto, if any, had
between the parties hereto, being herein merged.
(f) All financial transactions called for by this
Agreement shall be in U.S. dollars.
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WITNESS the due execution hereof.
XXXXXXX, INC.
By: /s/ XXXXXXX XXXXXXX
----------------------------------------
Title: President and Chief Operating Officer
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AMERICAN LOCKER SECURITY SYSTEMS, INC.
By: /s/ XXX X. XXXXXXX
----------------------------------------
Title: President and Chief Operating Officer
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SCHEDULE OF EXHIBITS
Exhibit A Description and Specification of Goods
Exhibit B Initial Locker Inventory
Exhibit C Valuation of Initial Inventory
Exhibit D Equipment
Exhibit E Price List and Price List Formula
EXHIBIT A
DESCRIPTION AND SPECIFICATION OF GOODS
Locker parts, cabinetry, lock parts, all in accordance with
specifications previously delivered by Buyer to Seller in the course of the
business relationship existing between Buyer and Seller prior to the date
hereof.
EXHIBIT B AND C
INITIAL LOCKER INVENTORY AND
VALUATION OF INITIAL LOCKER INVENTORY
Attached hereto is a schedule listing the results of a physical locker
inventory taken on December 31, 2000, which indicates a valuation of Initial
Locker Inventory of $1,547,362.35.
EXHIBIT D
EQUIPMENT
Attached hereto is a list of the Equipment.
EXHIBIT E
PRICE LIST AND PRICE LIST FORMULA
Effective September 1, 2000 and each succeeding January 1 during the
term hereof, Seller shall determine its standard cost for the upcoming calendar
year for all Goods, such determination to be made in good faith consistent with
Seller's cost accounting system as used in 2000 and prior years. Seller shall
advise Buyer of such standard costs no later than January 1 of each year during
the term hereof. For purposes of the foregoing, Locker Inventory shall be valued
at cost. The purchase price of Goods Sold by Buyer to Seller hereunder shall be
the applicable standard cost divided by .80.
In the event that actual costs exceed applicable standard costs by more
than 2%, Buyer and Seller, upon written notice by Seller, shall meet and in good
faith discuss proposed amendments to the pricing structure. In any case such
amendments shall insure that Buyer obtains sufficient quantities of goods at the
price in effect prior to such discussion to allow Buyer to satisfy all
outstanding orders and quotations.
