Exhibit 5.1
MANUFACTURING SERVICES AGREEMENT
THIS MANUFACTURING SERVICES AGREEMENT ("Agreement") is made
and entered into as of this 16 day of April, 2004 by and between Cox
Technologies, Inc., a North Carolina Corporation ("Cox") and Sensitech Inc, a
Delaware Corporation ("Sensitech") in connection with that certain Asset
Purchase Agreement, dated as of December 12, 2003, by and between Cox, Sensitech
and Cox Acquisition Corp. (the "Buyer"), pursuant to which Sensitech and the
Buyer are purchasing the Purchased Products and the Purchased Inventory (the
"Transaction"). Cox and Sensitech may be referred to herein individually as a
"party" and collectively as the "parties." Capitalized terms not defined herein
shall have the meanings set forth in the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
STRUCTURE OF RELATIONSHIP.
Services Provided. Subject to the terms and conditions of this Agreement,
Cox will provide manufacturing per existing specifications for Purchased
Products, testing, Materials (as hereinafter defined) procurement,
reconditioning, programming, storage and packaging services to Sensitech in
connection with the Purchased Inventory (the "Services"), and in accordance with
one or more Orders (as defined in Section 2.1 below). The Services will be
performed in substantially the same manner, including quality and volume, as Cox
performed such services prior to the Effective Date.
Storage. Unless otherwise requested by Sensitech, Cox shall store the
Purchased Inventory and Materials (as hereinafter defined), in suitable
condition at Cox's facilities, during the term of this Agreement (but no later
than June 1, 2004), at no cost to Sensitech. For purposes of this Agreement,
"Materials" mean raw materials and parts for a Purchased Product.
ORDER, DELIVERY AND ACCEPTANCE.
Orders. Sensitech may order Purchased Products from time to time by submitting
to Cox an order indicating the quantity and type of Purchased Products Sensitech
desires Cox to manufacture ("Order"). Cox will use its best efforts to fulfill
each Order placed by Sensitech during the term of this Agreement, including
without limitation:
Having Kurt Reid personally serve in an oversight role throughout the
term of this Agreement, and enlisting the support and expertise of James Cox and
David Caskey (with Sensitech's permission after the Closing) as necessary;
Bringing to Sensitech's attention immediately any occurrences,
beginning with the date of the Asset Purchase Agreement, of employee
resignation, critical Materials shortages or other changes that could impact
Cox's ability to fulfill Sensitech Orders;
Offering all production employees of Cox a minimum of two weeks
incentive pay to continue their employment with Cox until their respective
termination dates;
Offering additional cash or stock incentives as necessary to retain
Cox's current Vice President of Manufacturing and manufacturing supervisors;
Aggressively hiring for lost employees, including recruiting former Cox
employees and, if necessary, Cox's former manufacturing supervisor;
Paying overtime to fulfill Sensitech orders; and
Weekly reporting of inventory and order status to Sensitech's Vice
President of Operations and Chief Operating Officer.
Orderly Production. Sensitech agrees to place its last order no later than
90 days after the Closing Date (unless an extension is mutually agreeable by
both sides) so that Cox may plan an orderly phase-out of its operations.
Sensitech agrees to use its best efforts to place Orders with sufficient
quantities and lead times to permit a relatively even production (measured by
units) of Purchased Products so that Cox may plan its production runs and needs
for production workers accordingly and consistent with its past practices;
provided, that Cox shall not be obligated to fulfill Orders for newly
manufactured graphic recorder units in excess of 6,000 units per calendar week.
In the event that there are days in which there are no unfilled Orders from
Sensitech (an "Order Gap") for graphic recorders, Sensitech will pay Cox $3,000
(an "Order Gap Fee") for each business day in which there was an Order Gap.
However, Cox must advise Sensitech three days in advance of when Cox estimates
that Cox will have all orders filled. No Order Gap Fee will be due for any day
that Cox did not provide such three-day notice.
Fulfillment. Upon its acceptance of an Order, Cox will manufacture, test,
label and package the Purchased Products specified therein in accordance with
the applicable Order and the past practices of Cox and ship the Order according
to Sensitech's instructions.
Sensitech Responsibilities. Sensitech will take delivery of and pay for all
Purchased Products, including shipping, set forth in any Order that has been
accepted by Cox, upon acceptance of such Purchased Products by Sensitech, or 15
days after shipment, if later.
Delivery. Delivery of Purchased Products will be F.O.B. Cox's facilities in
Belmont, North Carolina, Upland, California or other domestic locations where
Purchased Products are located, no later than the delivery times set forth in
the applicable Order; provided, that at the option of Sensitech, delivery will
be made directly to the third parties indicated in the applicable Order. Cox
will pack finished Purchased Products for shipment in Cox's standard shipping
cartons, or such other cartons requested by Sensitech, marked for shipment as
specified in the Order. Cox will comply with Sensitech's reasonable instructions
with respect to the selection of carriers and procurement of insurance for the
Purchased Products in transit and will use commercially reasonable shipment
procedures. For the term of this Agreement, Cox will continue its current
insurance coverages with respect to loss of any production equipment necessary
to perform under this Agreement, naming Sensitech as an additional loss payee.
Acceptance Testing. Products will be subject to interim and final
acceptance testing following procedures no less stringent than are now carried
out by Cox.
Failure of Cox to perform hereunder.
If Cox cannot or does not agree to meet or continue to perform the
manufacturing requirements reasonably required under an Order to produce a
specific Purchased Product, and Cox does not cure such breach within ten (10)
days from Sensitech's written notice, then Sensitech shall have the right to
procure manufacturing services from a third party for the Purchased Products in
question. If such breach is not cured within the cure period, Sensitech shall
further have the right to take possession of any or all of the Purchased
Products, Purchased Inventory or Materials then in the possession of Cox. All
costs associated with such taking of possession, including without limitation
costs of shipping such Purchased Products, Purchased Inventory or Materials to
another location, shall be borne by Cox during the first 30 days from the
Closing Date, and by Sensitech thereafter, provided that all other material
terms of this Agreement are complied with.
If Sensitech procures manufacturing from a third party pursuant to this
Section 2.7, to the best of Cox's ability given the knowledge and experience of
the existing Cox employees at that time, Cox shall (i) provide Sensitech and
such third party with all necessary information and reasonable cooperation in
order for the third party to be able to properly manufacture and supply the
relevant Purchased Product; and (ii) if Cox has failed to accept or to complete
its manufacturing services with respect to an Order placed within the first 30
days following the Closing Date, reimburse Sensitech for any incremental costs
of such manufacture and supply of the relevant Purchased Product by the third
party. Any required reimbursement pursuant to this clause (ii) or payment
pursuant to Subsection 2.7(a) shall not exceed $25,000 and shall, to the extent
that there is any remaining amount otherwise payable pursuant to Section 2.03(b)
of the Asset Purchase Agreement, be offset against such remaining amount;
otherwise, such required reimbursement shall be remitted to Sensitech by Cox
within thirty (30) days from the date of notice from Sensitech regarding such
incremental costs.
ORDER MANAGEMENT. For each Order, each party will designate in writing one
(1) qualified person on its staff to serve as its manager and liaison to
represent it in connection with the activities under that Order.
MATERIALS MANAGEMENT. Upon receipt of an Order, Cox will use Purchased
Inventory and Materials currently in Cox's possession to complete the Order. If
such Purchased Inventory and Materials are insufficient, Cox will, with
Sensitech's prior written consent, purchase additional Materials for Sensitech's
account in accordance with Cox's standard purchasing practices in effect before
the acquisition, of the same grade and quality as Cox had been procuring prior
to the Transaction, and in accordance with such other procurement guidelines and
customer requirements as may be set forth in the applicable Order. Cox shall use
reasonable efforts to find competitive prices for all Materials and will
cooperate with Sensitech in the event that Sensitech desires Cox to use
Sensitech's preferred sources. Except as otherwise provided in this Agreement,
Sensitech bears the cost and risk of loss in carrying inventory of Materials.
Title to Materials in inventory will remain with Sensitech. Cox shall furnish to
Sensitech monthly written reports of usage and month-end levels of Purchased
Products, Purchased Inventory and Materials in the possession of Cox. Sensitech
shall be permitted at reasonable times during the term of this Agreement to take
physical inventories of Purchased Products, Purchased Inventory and Materials
then in the possession of Cox.
REPAIRS; REFURBISHMENT. Unless otherwise specified in the applicable Order,
Cox will, during the term of this Agreement, make its standard factory repair or
product refurbishment services available to Sensitech with respect to Purchased
Products manufactured by Cox, at Cox's then-current fees and terms, a copy of
which will be available to Sensitech upon request. Sensitech will bear
round-trip shipping expense and risk of loss during transit of all Purchased
Products delivered to Cox for repair or refurbishment. Notwithstanding the
foregoing, Cox shall be responsible for all costs needed for repairs covered by
warranty hereunder subject to and in accordance with Section 9.2.
PRICE AND PAYMENT.
Pricing. For all Purchased Products manufactured by Cox during the term of
this Agreement, the parties agree to the pricing set forth in Exhibit A.
Payment Terms. The purchase price for Purchased Products will be invoiced
upon shipment and is due fifteen (15) days thereafter. All payments will be made
in U.S. dollars. Sensitech will be responsible for paying any applicable sales
tax, excise tax or value-added tax on the purchase of Purchased Products or the
provision of Services hereunder except as such taxes relate to the income of
Cox.
Expenses. Except as expressly provided in this Agreement or in an Order,
each party will bear its own costs and expenses in performing its obligations or
exercising its rights hereunder.
WARRANTIES.
Product Warranty. Cox warrants solely to and for the benefit of Sensitech
that it will perform the Services in a manner consistent with its past practices
and to ensure that each finished Purchased Product will be free from defects in
materials and workmanship and will be built in accordance with its applicable
Order. Sensitech's exclusive remedy for breach of this warranty is to notify Cox
of the breach in writing within ninety (90 days) after delivery to Sensitech,
whereupon Cox, as its sole obligation and liability, will either repair or
replace the nonconforming Purchased Product or, at Sensitech's election for
Purchased Products shipped within 30 days following the Closing Date, or Cox's
election for Purchased Products shipped after 30 days following the Closing
Date, refund to Sensitech the price paid for the nonconforming Purchased
Product. This warranty does not apply to Purchased Products that have been
subject to misuse, unauthorized modification, neglect, improper testing or
installation, attempts to repair or accident, flood, fire, radiation or other
hazard.
DISCLAIMER. EXCEPT FOR THE WARRANTY PROVIDED IN SECTION 7.1, THE PURCHASED
PRODUCTS AND SERVICES ARE PROVIDED "AS-IS" WITHOUT WARRANTY OF ANY KIND AND, TO
THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW, COX DISCLAIMS ALL OTHER WARRANTIES
OF ANY KIND, INCLUDING, BUT NOT LIMITED TO, WARRANTIES ARISING UNDER STATUTE,
IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE, NONINFRINGEMENT OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE
OF DEALING OR COURSE OF PERFORMANCE.
LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR LOSS OF GOODWILL), WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR ANY OTHER LEGAL THEORY, ARISING OUT OF OR RELATED TO
THIS AGREEMENT. COX'S TOTAL LIABILITY ARISING OUT OF OR RELATED TO THIS
AGREEMENT, WHETHER BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE), OR ANY OTHER
LEGAL THEORY, WILL NOT EXCEED THE PRICE PAID BY SENSITECH FOR THE PURCHASED
PRODUCTS WITH RESPECT TO WHICH LIABILITY HAS ARISEN. SENSITECH'S TOTAL LIABILITY
ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR ANY OTHER LEGAL THEORY, WILL NOT EXCEED THE AMOUNTS
EXPRESSLY PAYABLE BY SENSITECH UNDER THIS AGREEMENT OR THE APPLICABLE ORDER FOR
THE PURCHASED PRODUCTS WITH RESPECT TO WHICH LIABILITY HAS ARISEN. THE EXISTENCE
OF MORE THAN ONE CLAIM WILL NOT ENLARGE THIS LIMIT. THE LIMITATIONS OF LIABILITY
AND DAMAGES IN THIS SECTION 8 WILL NOT APPLY TO CLAIMS BY EITHER PARTY FOR
MISAPPROPRIATION BY THE OTHER OF ITS CONFIDENTIAL INFORMATION OR INFRINGEMENT BY
THE OTHER OF ITS INTELLECTUAL PROPERTY.
TERM AND TERMINATION.
Term. This Agreement will commence upon the Effective Time and will remain
in effect through and including June 1, 2004 unless earlier terminated by
Sensitech pursuant to this Section 9.1, or unless such term is changed by mutual
agreement. At anytime Sensitech may terminate this agreement prior to June 1,
2004 by providing Cox a notice (the "Termination Notice") of at least three
business days (the "Notice Period") of such termination. Cox will not be
required to provide the Services after the later of the end of the Notice
Period, or when Cox has filled all Orders placed prior to the Termination
Notice.
Relationship of Parties. The parties hereto expressly understand and agree
the parties are acting hereunder as independent contractors and neither party
will be partner, joint venturer, fiduciary or agent of the other. Under no
circumstances will the personnel of one party be deemed employees of the other
party for any purpose. Neither party has the power or authority as agent,
employee or in any other capacity to represent, act for, bind or otherwise
create or assume any obligation on behalf of the other party for any purpose
whatsoever. There are no third party beneficiaries under this Agreement.
Assignment. Neither party hereto may assign this Agreement without the
prior written consent of the other party, except that Sensitech may assign this
Agreement to the Buyer.
Export Control. Regardless of any disclosure made to Cox of an ultimate
destination of the Purchased Products, Sensitech acknowledges that all such
materials are being released or transferred to Sensitech in or from the United
States and may be subject to U.S. export control laws and regulations. If
Sensitech requests Cox to ship Purchased Products outside of the United States,
Sensitech will, upon request, provide Cox with documentation and certification
establishing that all required permits and licenses have been obtained and that
the proposed shipment is fully compliant with all applicable laws and
regulations.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to enter into this Agreement as of the Effective
Time.
COX: COX TECHNOLOGIES, INC.
BY: /s/ Kurt C. Reid
---------------------------------
Kurt C. Reid
Co-Chief Executive Officer
BY: /s/ Brian D. Fletcher
---------------------------------
Brian D. Fletcher
Co-Chief Executive Officer
SENSITECH: SENSITECH INC.
BY: /s/ Eric B. Schultz
---------------------------------
Eric B. Schultz
Chairman of the Board and
Chief Executive Officer