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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
[ ] 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: 0-21142
NEMATRON CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2483796
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices) (Zip Code)
(734) 214-2000
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act during the past 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.
[ X ] YES [ ] No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
No par value Common Stock: 5,339,538 SHARES OUTSTANDING AS OF
FEBRUARY 5, 1998
Transitional Small Business Disclosure Format: [ ] YES [X] NO
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 454,765 $ 1,142,988
Accounts receivable, net of allowance for doubtful
accounts of $422,000 at December 31, 1997, and
$410,000 at September 30, 1997 4,303,337 4,205,196
Inventories (Note 2) 4,643,071 4,399,426
Prepaid expenses and other current assets 593,622 528,471
------------ ------------
Total Current Assets 9,994,795 10,276,081
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $4,029,513 at December 31, 1997 and $3,749,528
at September 30, 1997 4,209,442 4,264,301
OTHER ASSETS:
Software and related development costs, net of amortization
of $1,758,441 at December 31,1997, and $1,619,919 at
September 30, 1997 3,202,123 2,724,819
Other intangible assets, net of amortization of $625,002 at
December 31, 1997 and $516,168 at September 30,1997 2,900,822 3,008,547
------------ ------------
Net Other Assets 6,102,945 5,733,366
------------ ------------
TOTAL ASSETS $ 20,307,182 $ 20,273,748
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 2,877,000 $ 1,141,000
Accounts payable 1,550,936 1,711,936
Other accrued expenses 1,629,578 1,818,138
Current maturities of long-term debt (Note 3) 683,869 681,231
------------ ------------
Total Current Liabilities 6,741,383 5,352,305
LONG-TERM DEBT, less current maturities (Note 3) 3,537,047 3,595,378
DEFERRED TAX LIABILITY 1,000,000 1,000,000
------------ ------------
Total Liabilities 11,278,430 9,947,683
STOCKHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized; 5,339,538 and
5,329,938 shares issued and outstanding at December 31, 1997 and
September 30, 1997,
respectively 21,630,904 21,589,413
Foreign currency translation adjustment (8,155) (7,571)
Accumulated deficit (12,593,997) (11,255,777)
------------ ------------
Total Stockholders' Equity 9,028,752 10,326,065
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,307,182 $ 20,273,748
============ ============
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
QUARTER QUARTER
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET REVENUES $ 4,351,308 $ 5,108,430
COST OF REVENUES 2,400,217 2,921,477
------------ ------------
GROSS PROFIT 1,951,091 2,186,953
OPERATING EXPENSES:
Product development costs 461,780 357,052
Selling, general and administrative expenses 2,685,197 $ 1,755,896
----------- ------------
Total Operating Expenses 3,146,977 2,112,948
------------ ------------
Operating Income (Loss) (1,195,886) 74,005
OTHER INCOME (EXPENSE):
Other income, net 1,154 29,199
Interest expense (143,487) (87,746)
Foreign currency gain (loss) -0- 58
------------ ------------
Total Other Income (Expense) (142,333) (58,489)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,338,219) 15,516
INCOME TAXES (NOTE 4) -0- (5,000)
------------ ------------
NET INCOME (LOSS) $ (1,338,219) $ 10,516
============ ============
BASIC EARNINGS (LOSS) PER SHARE (NOTE 6) $ (0.25) $ 0.00
============ ============
DILUTED EARNINGS (LOSS) PER SHARE (NOTE 6) $ (0.25) $ 0.00
============ ============
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,338,219) $ 10,516
Adjustments to reconcile net income (loss) to net cash flows
used in operating activities:
Depreciation and amortization 547,968 266,895
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (98,142) (292,610)
Inventories (243,645) (52,002)
Prepaid expenses and other current assets (65,151) 9,552
Accounts payable (161,000) (35,825)
Accrued expenses (188,560) 3,446
----------- -----------
Net Cash Used In Operating Activities (1,546,749) (90,028)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to capitalized software development costs (638,214) (389,977)
Additions to property and equipment, net of minor disposals (224,474) (293,819)
----------- -----------
Net Cash Used In Investing Activities (862,688) (683,796)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to bank 1,736,000 -0-
Increase in other notes payable 109,613 -0-
Proceeds from exercise of options and warrants 41,491 67,860
Payments of long-term debt (165,306) (41,111)
Payments of deferred financing fees -0- (29,917)
----------- -----------
Net Cash Provided By (Used In) Financing Activities 1,721,798 (3,168)
----------- -----------
FOREIGN CURRENCY TRANSLATION EFFECT ON CASH (584) (3,846)
----------- -----------
Net Decrease In Cash and Cash Equivalents (688,223) (780,838)
Cash and Cash Equivalents at Beginning of Period 1,142,988 3,942,963
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 454,765 $ 3,162,125
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 149,026 $ 117,746
Cash paid for income taxes -0- -0-
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Nematron Corporation (the "Company") and its wholly-owned
subsidiaries, NemaSoft, Inc. and Imagination Systems, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation of the
consolidated condensed financial statements for the interim periods have been
included. 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 S.E.C. rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest annual
report on Form 10-KSB, as amended.
The results of operations for the three-month periods ended December 31, 1997
and 1996 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2 - INVENTORIES
Inventories consist of the following at December 31, 1997, and September 30,
1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1997
<S> <C> <C>
Purchased parts and accessories $ 3,208,761 $ 2,928,277
Work in process 432,659 349,069
Finished goods, demo units and service stock 1,001,651 1,122,080
---------- ---------
Total Inventory $ 4,643,071 $ 4,399,426
========== =========
</TABLE>
NOTE 3 - SHORT-TERM AND LONG-TERM DEBT
The Company is in the process of negotiating an extension of its existing credit
facility (the "Agreement") which expires February 28, 1998. The Agreement allows
borrowings under the line of credit of up to $6,000,000, limited by a borrowing
formula tied to a percentage of eligible accounts receivable and eligible
inventory. Borrowings under this facility bear interest at 2.5% over LIBOR and
are collateralized by substantially all assets and a second mortgage on the
Company's Ann Arbor facilities. The Company expects that the facility will be
renewed for a one-year period in an amount of $6,000,000 with borrowings at an
interest rate of 3.0% over LIBOR. Collateralization provisions are not expected
to change from those in the existing Agreement.
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SHORT-TERM AND LONG-TERM DEBT - CONTINUED
Long-term debt includes the following debt instruments at December 31, 1997, and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1997
<S> <C> <C>
Mortgage loan payable to bank $ 2,118,265 $ 2,156,481
Term note payable 1,500,000 1,590,000
Capitalized lease obligations and other notes 602,651 530,128
----------- -----------
Total long-term debt 4,220,916 4,276,609
Less current maturities (683,869) (681,231)
----------- -----------
Long-term debt, less current maturities $ 3,537,047 $ 3,595,378
=========== ===========
</TABLE>
The mortgage loan contains a covenant that requires the Company to
maintain a minimum tangible net worth and a minimum debt-to-equity ratio, which
the bank modified in December, 1997. The Company was in compliance with these
modified covenants at December 31, 1997.
The loan agreement with the bank regarding the term note and two equipment notes
includes various affirmative and negative covenants, which were modified in
December, 1997. The most restrictive of the covenants are (1) the prohibition of
dividend payments, and (2) requirements to maintain (a) a specified ratio of
current assets to current liabilities, (b) a specified ratio of liabilities to
tangible net worth, (c) a specified debt coverage ratio, and (d) a specified
level of tangible worth. The Company was in compliance these modified covenants
at December 31, 1997.
NOTE 4 - TAXES ON INCOME
There was no provision for income tax expense for the three month period ended
December 31, 1997 due to the net loss reported. Current tax expense, computed at
the expected tax rate of 34%, is $5,000 for the three month period ended
December 31, 1996.
The Company has NOLs of approximately $11,570,000 as of September 30, 1997 that
may be applied against future taxable income. The NOLs expire beginning 2003
through 2012. Utilization of these carryforwards is subject to annual
limitations under current Internal Revenue Service regulations.
NOTE 5 - ACQUISITIONS
On March 31, 1997, the Company completed a merger of its wholly-owned
subsidiary, NemaSoft, Inc., with Intec Controls Corp. ("Intec"), a Walpole,
Massachusetts-based developer of high-performance regulatory control software
solutions used primarily by process industries.
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
On June 20, 1997, the Company completed a merger of its wholly-owned subsidiary,
Imagination Systems, Inc. ("ISI"), with Virtual-Time Software, Inc. ("VTS"), a
Santa Clara, California-based developer of real-time operating system products
which provide high-speed deterministic performance to MicroSoft's Windows (R)
operating systems.
The following unaudited pro forma information presents a summary of consolidated
results of operations for the three months ended December 31, 1996 of the
Company, Intec and VTS as if the acquisitions had occurred on October 1, 1996,
the earliest period presented herein, and does not purport to be indicative of
what would have occurred had the acquisitions actually been consummated at that
date nor the Company's future results of operations:
Net revenues $ 6,177,000
Net loss $ (2,540,000)
Net loss per share $ (0.46)
NOTE 6 - EARNINGS (LOSS) PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Standards No.
128, "Earnings Per Share." This statement requires that entities replace Primary
and Fully diluted Earnings Per Share ("EPS") disclosures with Basic and Diluted
EPS disclosures. Basic EPS is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
EPS is calculated giving effect to the dilutive effects of common stock
equivalents (stock options and warrants) outstanding during the period. A
reconciliation of the weighted average number of common shares outstanding used
in the Basic and Diluted EPS calculations is as follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
December 31, December 31,
1997 1996
<S> <C> <C>
Weighted average common shares outstanding - Basic 5,335,168 4,556,079
Net effect of dilutive stock options and warrants(1) -0- 326,613
--------- ---------
Weighted average common shares outstanding - Diluted 5,335,168 4,882,692
========= =========
</TABLE>
(1)Because the Company reported a net loss for the quarter ended
December 31, 1997, the effect of options and warrants is anti-dilutive and,
therefore, is not included in the calculation of Diluted EPS.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1996
Revenues for the first quarter of fiscal 1998 decreased $757,000
(14.8%) to $4,351,000 compared to the same period last year. The decrease is
attributable to decreases in sales of older model Industrial Workstations and
related parts and service, primarily to automotive customers, offset by an
increase in sales of software and bundled products. Management expects that
revenues for the second quarter of fiscal 1998 will be below second quarter
fiscal 1997 revenues and that revenues will increase in the last two quarters
of fiscal 1998 compared to year earlier periods. These revenue changes are
expected due to anticipated customer response to the Company's continued
increases in sales and marketing efforts, existing scheduled production
releases and expected shipments under existing contracts.
Gross profit for the first quarter of fiscal 1998 decreased $236,000 (10.8%) to
$1,951,000 compared to the same period last year. Gross profit as a percentage
of sales in the first quarter of fiscal 1998 was 44.8% compared to 42.8% in the
same period last year. The improvement in gross profit percentage is due
primarily to a higher percentage of sales of higher margin software products in
the current period compared to the same period last year. Gross profit margins
are expected to remain constant throughout the year as the mix of sales in the
remaining quarters of fiscal 1998 is expected to replicate the sales mix
experienced in the first quarter of fiscal 1998.
Product development expenses for the first quarter of fiscal 1998 increased
$105,000 (29.3%) to $462,000 compared to the same period last year. The increase
is due primarily to increased staff assigned to hardware and software
development efforts. Product development efforts are expected to remain
relatively constant in the remaining quarters of fiscal 1998.
Selling, general and administrative expenses for the first quarter of fiscal
1998 increased $929,000 (52.9%) to $2,685,000 compared to the comparable period
of last year and increased as a percentage of net revenue to 61.7% in the first
quarter of fiscal 1998 from 34.4% in the comparable period of fiscal 1997. The
increase was primarily a result of adding sales and support staff, increasing
marketing and sales expenses for product introductions and selling efforts, and
increases in administrative costs due to the acquisitions of Intec and VTS in
the second and third quarters of fiscal 1997, respectively. Management expects
that selling, general and administrative expenses will continue at the same
level for the remaining quarters of fiscal 1998, but will decrease as a
percentage of revenues as revenues are expected to increase in the remaining
quarters of fiscal 1998.
Interest expense for the first quarter of fiscal 1998 increased $56,000 (63.5%)
to $143,000 compared to $88,000 for the comparable period last year due to
higher average borrowing levels. Interest and other income decreased to $1,000
compared to $29,000 a year ago due to the lack of investments in the current
quarter compared to the same period a year ago.
Due to the loss in the current quarter of fiscal 1998, there was no tax expense.
In the comparable period of fiscal 1997, the Company provided for taxes at a 34%
effective tax rate.
YEAR 2000 ISSUE
The Company has conducted a review of its internal computer systems and
of its software products offered for sale to its customers to identify systems
which could be affected by the Year 2000 issue. The Year 2000 issue is the
result of certain computer programs being written using two digits rather than
four digits to define the applicable year. The Company recently purchased and
installed a new enterprise-wide computer system which is Year 2000 compliant.
Additionally, management believes that its software products sold to third
parties do not pose operational problems for its customers. Accordingly, the
Company believes that the Year 2000 issue will not have a material effect on its
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS -
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Nematron has working capital of approximately $3,253,000. Primary sources of
liquidity are cash from operations and the Company's $6,000,000 bank line of
credit. At December 31, 1997, permitted borrowings available under the line of
credit were approximately $3,500,000, of which $2,877,000 was outstanding. The
bank line of credit agreement expires February 28, 1998. The Company expects
that the facility will be renewed for a one-year period in an amount of
$6,000,000 with borrowings at an interest rate of 3.0% over LIBOR.
Collateralization provisions are not expected to change from those in the
existing Agreement.
Management expects that current cash, cash generated from operations, and
existing credit facilities will be sufficient to pay the Company's costs and
expenses as they become due and to fund the Company's planned product
development activities. The foregoing statement is a "forward looking" statement
within the meaning of the Securities Exchange Act of 1934. The extent to which
such sources will be sufficient to meet the Company's anticipated cash
requirements is subject to a number of uncertainties including the ability of
the Company to generate sufficient cash to support operations and other
uncertainties described in "Management's Discussion and Analysis of Results of
Operations - Uncertainties Relating to Forward Looking Statements." The
Company is attempting to increase the amounts available under its credit
facility currently being negotiated by changing the availability formula.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations" contains "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934, as amended, based on current management
expectations. Actual results could differ materially from those in the forward
looking statements due to a number of uncertainties, including, but not limited
to, those discussed in this section.
Factors that could cause future results to differ from these expectations
include general economic conditions particularly related to automotive
manufacturing, demand for the Company's products and services, the
ability of the Company to successfully implement its strategy to lead the
industrial automation market migration from closed architecture PLCs to open
architecture PC-based solutions, changes in Company strategy, difficulties in
raising additional cash if needed, product life cycles, competitive factors
(including the introduction or enhancement of competitive products), pricing
pressures, raw material price increases, delays in introduction of planned
hardware and software products, software defects and latent technological
deficiencies in new products, changes in operating expenses, fluctuations in
foreign exchange rates, inability to attract or retain sales and/or engineering
talent, changes in customer requirements and evolving industry standards.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are set forth on the Index to Exhibits, which is
incorporated herein.
(b) The Company filed no reports on Form 8-K during the quarter ended December
31, 1997.
ALL OTHER ITEMS OMITTED ARE NOT APPLICABLE OR THE ANSWERS THERETO ARE NEGATIVE.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEMATRON CORPORATION
BY:
FEBRUARY 13, 1998 /S/ FRANK G. LOGAN, III
- --------------------- ---------------------------------------------
DATE FRANK G. LOGAN, III, PRESIDENT & CEO
(DULY AUTHORIZED OFFICER)
FEBRUARY 13, 1998 /S/ DAVID P. GIENAPP
- --------------------- ---------------------------------------------
DATE DAVID P. GIENAPP, EXECUTIVE VICE PRESIDENT -
FINANCE &ADMINISTRATION
(CHIEF ACCOUNTING OFFICER)
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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
10.1 Vendor Original Equipment Agreement Between Schneider
Automation Inc. and Nematron Corporation dated January
16, 1998*
11 Statement regarding computation of earnings per share
27 Financial Data Schedule
----------
* - Portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment under Rule
24b-2.
<PAGE> 1
EXHIBIT 10.1
VENDOR ORIGINAL EQUIPMENT MANUFACTURING AGREEMENT
BETWEEN
SCHNEIDER AUTOMATION INC.
ONE HIGH STREET
NORTH ANDOVER, MA 01845
AND
NEMATRON CORPORATION
5840 INTERFACE DRIVE
ANN ARBOR, MI 48103
AGREEMENT NUMBER: VMA - NMC - 0198
REV 6/13/97 FINAL DRAFT 01-16-98
<PAGE> 2
TABLE OF CONTENTS
NAME PAGE
1. PRODUCTS (APPENDICES A, D, F AND J).................................. 5
2. TERM OF AGREEMENT.................................................... 5
3. RENEWAL.............................................................. 5
4. ORDERING PROCEDURE................................................... 6
5. PURCHASING AND PURCHASE COMMITMENTS (APPENDIX A)..................... 6
6. TAXES, DUTIES AND FEES............................................... 8
7. PAYMENT.............................................................. 8
8. DELIVERIES (APPENDIX B).............................................. 8
9. EXPEDITING DELIVERIES/INCREASING QUANTITIES AND CANCELLATION......... 9
10. LATE DELIVERIES...................................................... 9
11. CONFORMANCE REVIEW................................................... 9
12. CERTIFICATE OF COMPLIANCE AND PACKING SLIP........................... 10
13. TITLE................................................................ 11
14. F.O.B. POINT......................................................... 11
15. SHIPPING INSTRUCTIONS AND PACKAGING (APPENDICES E AND E.1)........... 12
16. LABELING............................................................. 12
17. FINAL ACCEPTANCE..................................................... 12
18. QUALITY ASSURANCE (APPENDIX K)....................................... 12
19. SOURCE INSPECTION.................................................... 14
20. WARRANTY............................................................. 14
21. PRODUCT FAILURES..................................................... 14
2
<PAGE> 3
TABLE OF CONTENTS
NAME PAGE
22. LOGISTIC SUPPORT..................................................... 15
23. PRODUCT RETURNS...................................................... 15
24. REPAIR SERVICES (APPENDIX C)......................................... 16
25. SPARE PARTS (APPENDIX D)............................................. 16
26. EMERGENCY SPARES SUPPORT ............................................ 16
27. SOFTWARE & SOFTWARE SUPPORT (APPENDIX C.1)........................... 16
28. ESCROW ACCOUNT (APPENDIX H).......................................... 17
29. MANUFACTURING RIGHTS................................................. 17
30. TERMINATION.......................................................... 18
31. CHANGES TO THE PRODUCT............................................... 18
32. TECHNICAL SUPPORT (APPENDICES C.2 and C.3)........................... 20
33. DOCUMENTATION (APPENDIX G)........................................... 20
34. BUYER'S PROPERTY (APPENDIX I)........................................ 22
35. TRAINING............................................................. 22
36. PROPRIETARY INFORMATION.............................................. 22
37. TRADEMARK OR TRADENAME............................................... 23
38. INFRINGEMENT......................................................... 24
39. FORCE MAJEURE........................................................ 24
40 APPLICABLE REGULATIONS............................................... 25
41. ENFORCEABILITY....................................................... 25
42. ASSIGNMENT........................................................... 25
3
<PAGE> 4
TABLE OF CONTENTS
NAME PAGE
43. ABSENCE OF LITIGATION................................................ 25
44. FINANCIAL INFORMATION................................................ 26
45. LAW.................................................................. 27
46. DISPUTE RESOLUTION................................................... 27
47. NOTICES AND COMMUNICATIONS........................................... 28
48. HOLD HARMLESS........................................................ 29
49. SURVIVAL OF PROVISIONS............................................... 30
50. COST REDUCTION PROGRAM............................................... 31
51. PRODUCT DEVELOPMENT AGREEMENT........................................ 31
52. SALES/MARKETING PLAN................................................. 31
53. GENERAL.............................................................. 32
Appendix A - Products and Pricing
Appendix B - Forecast For Planning Purposes
Appendix C - Support Services
Appendix C.1 - SELLER's Software and Software Support
Appendix C.2 - Product Support - Support Standard
Appendix C.3 - PSR Procedure
Appendix D - Spare Parts
Appendix E - Standard Routing Instructions
Appendix E.1 - Packaging Specifications
Appendix F - Product Specifications
Appendix G - Documentation
Appendix H - Escrow Account Agreement
Appendix I - BUYER's Property
Appendix J - Shipping Check List
Appendix K - Product Acceptance Criteria
Appendix L - Product Development Agreements
Appendix M - Sales/Marketing Plan
4
<PAGE> 5
VENDOR ORIGINAL EQUIPMENT MANUFACTURING AGREEMENT
This Agreement made and effective as of the sixteenth day of January, 1998 (the
"Effective Date") by and between SCHNEIDER AUTOMATION INC., with its principal
offices at One High Street, North Andover, Massachusetts 01845 (hereinafter
"BUYER") and NEMATRON CORPORATION with its principal offices at 5840 Interface
Drive, Ann Arbor, MI 48103 (hereinafter "SELLER") in consideration of the mutual
benefits derived from an Agreement between the parties, the following special
terms and conditions shall apply to purchases between BUYER and SELLER for the
Products covered by this Agreement. In the event of a conflict between the
standard terms and conditions of BUYER or SELLER and this Agreement, the
provisions of this Agreement shall prevail.
1. PRODUCTS (APPENDICES A, D, F AND J)
The products covered by this Agreement are set forth in Appendices A
and D of this Agreement. (the "Products")
SELLER shall sell the Products to BUYER pursuant to the terms and
conditions of this Agreement.
The Products shall be designed, manufactured and tested in accordance
with the specifications as set forth in A Shipping Check List (Appendix
J) will be provided and maintained for each item in Appendix A and
Appendix D as required.
BUYER reserves the right to add additional Products to this Agreement
for purchase at mutually agreed upon pricing. The pre-production
release steps required to add such additional Products will be:
marketing discussions, agreement on specifications and launch time
frames, reviews of specifications and test plans, prototype unit
evaluation, participation in testing including Beta, review of product
test results, review of user documents, addition of the new Products to
this Agreement, and first unit inspection.
If the Product is custom designed to BUYER's specifications, then the
Product shall be designated as exclusive to BUYER and SELLER may not
sell or distribute the Product, nor use any custom tooling to promote
any Product for any third party.
2. TERM OF AGREEMENT
The term of this Agreement shall be for four years from January 16,
1998, through January 154, 2002, for purchasing Products.
3. RENEWAL
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This Agreement shall be automatically renewed for additional two (2)
year terms unless either of the parties hereto give the other party at
least six (6) months prior written notice to terminate this Agreement
before the expiration of the initial or any renewed term of this
Agreement. If such prior written notice is made by either party, then
this Agreement shall terminate on the initial or duly renewed
expiration date.
4. ORDERING PROCEDURE
All purchases by BUYER hereunder shall be made only upon issuance of
BUYER's purchase order. Each purchase order shall make specific
reference to the Agreement number assigned by BUYER to this Agreement
and shall contain the following information: description of Product,
quantity, routing instructions, delivery schedule, destination and
confirmation of price. SELLER shall acknowledge acceptance of each
purchase order within fifteen (15) days of receipt. Failure to return
such an acknowledgment will not affect SELLER's obligation to sell in
response to all purchase orders which are issued pursuant to and in
conformance with the terms of this Agreement.
BUYER's subsidiaries and affiliates, as validated by BUYER and wherever
located, shall be eligible to make purchases of Product under this
Agreement subject to the terms and conditions and prices herein
contained. In the event BUYER's purchase order specifies shipment to a
location outside of the United States, SELLER agrees to prepare and
furnish BUYER with all necessary export/import documentation.
5. PRICING AND PURCHASES COMMITMENTS (APPENDIX A)
Appendix A contains the net unit pricing and purchase commitments
applicable to this Agreement. These prices are based on the * Formula
contained in Appendix A. Any general price reductions, sales incentive
programs, or additional list price discounts will become applicable to
the Agreement as of the effective date of the price reduction
announcement. The price structure may not be modified during the term
of this Agreement unless agreed to in writing between the parties.
SELLER warrants that the prices charged herein do not exceed those
charged to other customers purchasing similar products under comparable
terms and conditions.
In the event that BUYER terminates this Agreement except as permitted
in Section 30 or that SELLER terminates this Agreement as permitted in
Section 30, then BUYER shall nonetheless be obligated to pay for any
BUYER unique inventory specifically purchased by SELLER as detailed in
Appendix A.
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Unit pricing includes all costs relating to labeling (including bar
coding), packaging, packaging material, mounting hardware (if any),
procurement, receipt and packing of documentation (Reference Appendix
G).
BUYER is involved with many large projects that will include
significant Product orders along with the system software being
delivered. Cost competition is strong and many times margins must be
significantly reduced to secure business. SELLER agrees to use its best
efforts, consistent with sound business practices, to negotiate in good
faith, with BUYER, to reduce Product costs to BUYER for those large,
cost competitive projects. The costs required will be determined on a
case-by-case basis and will be discussed at the time a large project is
identified. A large project is identified as a procurement of twenty
(20) units or more. Any * reductions will be shared equally by both
BUYER and SELLER.
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED THEREFORE. ALL SUCH MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SEC PURSUED TO RULE 24B-2.
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6. TAXES, DUTIES AND FEES
The prices stated are exclusive of any federal, state, municipal or
other government tax now or hereinafter imposed upon the production,
storage, sale, transportation or use of the Products described herein.
Such taxes applied directly to the sale hereunder shall be paid by
BUYER, excluding income taxes imposed upon SELLER or, in lieu thereof,
BUYER shall provide a tax exemption certificate acceptable to the
taxing authorities.
For shipments with an ultimate destination outside the United States,
all required import duties, tariffs, licenses and fees shall be payable
by BUYER in addition to the stated prices.
7. PAYMENT
Unless otherwise specifically stated to the contrary, the terms of
payment shall be once per month, on the twenty-fifth of each month with
the average payment date not to exceed net twenty-five (25) days from
the date of invoice receipt. In case of partial shipments, pro-rata
payments shall become due on each shipment. BUYER reserves the right to
set off any payments or credits due under this Agreement against any
invoice from SELLER.
8. DELIVERIES (APPENDIX B)
For planning purposes only, a forecast in the form of Appendix B of
this Agreement will be provided by BUYER to SELLER. Actual delivery
dates will be established by purchase orders issued under this
Agreement. All delivery dates are to be interpreted to mean delivery of
Product at BUYER's designated location, NOT shipment of Product from
SELLER's location.
Delivery dates are based upon prompt receipt of all necessary documents
from the BUYER. Shipments are scheduled after acceptance of an order in
accordance with BUYER's requirements unless specifically stated to the
contrary. However, where existing priorities and schedules prevent
strict compliance with requested delivery dates, orders will be entered
as close as possible to the requested date, and BUYER will be advised
of the actual shipping schedule.
BUYER may reject and return any shipment received more than five (5)
days prior to the scheduled delivery date, or at BUYER's sole
discretion, the shipment may be held at BUYER's facility and formally
received on the scheduled delivery date. SELLER shall ensure that
material is received at BUYER's designated location no more than 5 days
early and 0 days late from SELLER's acknowledged delivery date.
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9. EXPEDITING DELIVERIES, INCREASING QUANTITIES, AND CANCELLATION
BUYER may expedite ("pull in") scheduled deliveries of Products
provided at least five (5) days written notice is given to the SELLER.
If BUYER requires expedited shipments, SELLER will use its best
efforts, consistent with sound business practices, to accommodate the
expedited shipments of Products.
BUYER may increase the total quantities of its Product on order so long
as SELLER is given five (5) working days written notice (lead time).
SELLER will use its best efforts, consistent with sound business
practices, to accommodate deliveries to BUYER of increased quantities.
BUYER shall not be responsible for any material ordered by SELLER in
advance of SELLER receiving delivery requirements unless BUYER
specifically agrees in writing to assume the liability.
Some less than normal lead-time orders may require expediting charges
to meet customer delivery requirements. BUYER will reimburse SELLER for
all such charges. Charges will be communicated, reviewed, and accepted
by BUYER prior to being incurred.
Orders may not be canceled after shipment by SELLER. For orders that
are canceled by BUYER more than three (3) days after order entry and
less than five (5) days from shipment (lead-time), BUYER will pay a
cancellation charge equal to 50% of the order price.
10. LATE DELIVERIES
In the event that Product is not shipped in accordance with the
agreed-upon delivery schedule, at BUYER's request, SELLER shall ship
all such Products by air freight and SELLER shall be responsible for
payment of the additional charge.
11. CONFORMANCE REVIEW
An initial conformance review will be held six (6) months after the
effective date of this Agreement followed by a review each six (6)
months thereafter or as needed.
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The purpose of the review is to discuss how the business relationship
is progressing and will cover such topics as quality, software,
delivery, industry pricing structures and BUYER's future requirements.
The sites of meetings will be as mutually agreed upon by both parties.
12. CERTIFICATE OF COMPLIANCE AND PACKING SLIP
A certificate of compliance indicating SELLER's adherence to the
specifications of the Products will accompany each shipment to the
BUYER. In addition, a packing slip containing, at a minimum, the
purchase order number, BUYER's part number, revision, quantity, serial
number and Product identification, will be provided upon each shipment
(see Item 15 for details). All Products to be exported shall have
written "Country of Origin - U.S.A." on all invoices and packing slips.
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13. TITLE
The title to the Products passes from SELLER to BUYER upon shipment of
the Products.
14. F.O.B. POINT
F.O.B. Point shall be SELLER's facility.
Transportation charges and insurance are the responsibility of BUYER.
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15. SHIPPING INSTRUCTIONS AND PACKAGING (APPENDICES E, E.1)
SELLER may be responsible for drop shipping all Products from SELLER's
facilities to customer locations designated by BUYER. All Product
should be packaged by SELLER in accordance with BUYER's requirements as
outlined in BUYER's specifications 043504117 in Appendix E.1 to this
Agreement. The following documentation will be required for all
shipments:
A. A copy of the invoice will be sent to BUYER, ATTN: Accounts
Payable.
B. A copy of the packing slip and bill of lading/airway bill will be
sent to BUYER, ATTN: Traffic Manager.
C. A special packing slip will be provided by BUYER that will be
completed by SELLER and accompany all drop shipments to BUYER's
customers.
D. International shipments will require customs documentation that
will be mutually agreed upon between BUYER and SELLER.
The routing of all shipments to BUYER's facility in North Andover MA
shall be as outlined in Appendix E.
16. LABELING
It will be the responsibility of SELLER to affix BUYER's label and part
number in accordance with specification 043504190, (Appendix E.1), to
the Products shipped. BUYER will provide the necessary data to allow
SELLER to purchase labels from a BUYER designated source. The costs for
these labels will be added to SELLER's proposal cost. SELLER may be
required to purchase BUYER recommended label printing equipment in
order to comply with the above.
17. FINAL ACCEPTANCE
The timing of final acceptance of all Products covered by this contract
shall be at the discretion of BUYER. BUYER shall have thirty (30) days
from receipt to accept some or all items of a shipment. Failure of the
BUYER to reject any items within the thirty (30) days shall constitute
final acceptance of the items.
18. QUALITY ASSURANCE (APPENDIX K)
A. Quality Assurance Program
SELLER agrees to maintain a Quality Assurance System in
accordance with the requirements of ISO 9000 and ISO 9001 unless
otherwise agreed to and documented in this contract. BUYER
acknowledges SELLER's current position concerning ISO 9001
Certification efforts and understands that SELLER is not ISO 9001
compliant at the date of this Agreement. SELLER acknowledges that
the ISO 9001 Certification program has begun and SELLER intends
to be ISO 9001 compliant by December 31, 1998. SELLER
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agrees to allow the BUYER access to his facilities and Quality
Records for the purpose of verifying the Quality Systems
implementation and effectiveness.
B. Qualification Plan
When required by either the Product specification document or the
contract, SELLER agrees to develop, implement and report the
results of a Product Qualification Plan. Approval by BUYER of the
Qualification Plan and the test results must be documented before
a release of the production quantities can occur.
C. Quality Planning
SELLER shall provide BUYER with a Quality Plan for the Product
which describes the major manufacturing, test and quality control
process steps and the key characteristics being controlled.
D. Final or Pre-Shipment Acceptance Testing
SELLER shall submit its Final Acceptance Test for review by
BUYER. Once agreed to, there shall be no changes without the
written consent of BUYER's Supplier Quality Assurance Department.
However, if areas of product capability are discovered that are
not satisfactorily tested by SELLER's test procedures, SELLER
will promptly improve its test procedures after receiving written
notification from BUYER. No shipments can be made until the BUYER
is assured that the test process change agreed to by both parties
has been implemented. The BUYER may require the retesting, at no
charge, for Product previously delivered to assure compliance
with the new procedures.
E. Quality Data
SELLER agrees to provide BUYER quality data that is used to
monitor and measure the outgoing quality, warranty and delivery
performance of the Product on a periodic schedule. SELLER further
agrees to develop a continuous improvement plan within ninety
(90) days of the Effective Date, using this data as a basis for
measuring performance to the plan.
F. Corrective Action
SELLER agrees to acknowledge BUYER's written request for
Corrective Actions within five (5) working days, and said
response shall define how long the Corrective Action will take to
complete. All Corrective Actions shall define the root cause of
the problem, the action to contain affected Product, the actions
taken to prevent a recurrence and the date of effectivity.
G. Failure Analysis
SELLER agrees to provide BUYER with a written Failure Analysis
Report for all Product returned for repairs. This report shall
include warranty status, symptoms, repair action and turnaround
time. In addition, SELLER must maintain a data base capable of
failure trend analysis and related corrective actions. SELLER
agrees to supply BUYER's Quality Department with a monthly report
of the failure trends and the Corrective Actions taken to prevent
a recurrence or improve the overall Product performance.
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19. SOURCE INSPECTION
BUYER reserves the right to perform a source inspection at SELLER's
facility prior to any shipment provided the BUYER provides SELLER with
reasonable notice of the intent to perform source inspection. SELLER
should provide BUYER with five (5) working days notice of when Products
will be available for source inspection.
BUYER's representative may elect to conduct an inspection either on a
random sample basis or to the extent of one hundred percent (100%)
inspection. The waiver of any inspection or non-conformity on one
shipment does not constitute a waiver of any subsequent shipments or
requirements. All inspections will be conducted using a sampling plan
where "c" (the number of defective Products acceptable) equals zero.
20. WARRANTY
SELLER warrants Products shipped under the terms of this Agreement to
be in accordance with all specifications and free from defect in
design, workmanship and material under normal use and service for a
period of twenty-four (24) months after the date of shipment or at the
end of any additional warranty purchased pursuant to Appendix A. The
warranty on repaired Product shall be ninety (90) days after repair or
the remaining period of the original warranty, whichever is greater.
SELLER agrees to repair or replace, in accordance with warranty
procedures in Appendix C, without charge, all defective Product within
the applicable warranty period, provided that the defects are as
specified above and provided further, the Product has not been altered
or repaired, other than with authorization from SELLER and by its
approved procedures, has not been subjected to misuse, improper
maintenance, negligence or accident, damaged by excessive current, or
otherwise had its serial number or any part thereof altered, defaced or
removed. All defective Product released hereunder shall become the
property of SELLER. This warranty applies only to hardware Products.
This paragraph states BUYER's sole and exclusive remedy for breach of
warranty.
THIS WARRANTY IS IN LIEU OF AND SELLER DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THOSE OF MERCHANTABILITY OR FITNESS FOR
PURPOSE.
The warranty set forth herein may not be extended, altered or modified
except by written amendment to this Agreement.
21. PRODUCT FAILURES (APPENDIX C.2)
If an epidemic of failures of functional specification non-conformities
of any single Product due to the same specifically identified symptoms
occur at a rate greater than * percent * of the sample inspected or *
percent * of the total installed customer base within * in or out of
warranty, SELLER agrees to provide, at SELLER's expense, technical
personnel to determine and implement the remedy for the failed goods.
Upon receipt of written notice of such failures, SELLER
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has * working days to implement corrective action in accordance with
the Product Support Standard contained in Appendix C.2. Failure to
implement corrective action within * working days shall be considered
an event of default. The goal shall be to have returns due to Product
failures occur at a rate of less than * of total Product shipments per
year.
22. LOGISTIC SUPPORT
SELLER commits to provide the BUYER spare parts and repair services for
a period of at least ten (10) years from the conclusion of this
Agreement at SELLER's then current commercial rates and prices. If
components that are not to be specially manufactured by SELLER are not
commercially available, SELLER commits to expend the engineering
resources necessary to qualify and use substitute parts that are
commercially available. SELLER will use its best efforts consistent
with sound business practices to provide at least twenty-four (24)
months written notice of SELLER's intention to discontinue logistic
support or manufacturing.
In addition, SELLER shall maintain records of the repair activity for a
period of three (3) years from the date of each repair. Appropriate
schematics and/or test diagnostics which will be sufficient for BUYER
to assume the logistic support activity for any Products covered by
this Agreement will be passed to BUYER when logistics activity ceases.
BUYER will also require a copy of all schematics under the direct
control of SELLER at the start of the program. Revisions to schematics
will be provided on an as-required basis.
23. PRODUCT RETURNS
When a Product is returned for warranty work or failed final
acceptance, BUYER shall return the Products to SELLER freight collect
and issue a debit memo covering such returned equipment. This debit
memo will be used as appropriate to reduce, set off, or be deducted
from any payments due under this Agreement.
SELLER has fourteen (14) calendar days to repair or replace said
defective Products.
All brand new units that fail upon installation or within 30 days of
installation shall be replaced with another brand new unit.
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC PURSUANT TO
RULE 24B-2.
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24. REPAIR SERVICES (APPENDIX C)
SELLER agrees to provide repair services for out-of-warranty Products
in accordance with the repair rates and schedule as set forth in
Appendix C. BUYER will provide SELLER, for each unit returned to the
BUYER, a written description of the failure, the application the unit
is used in when available, and other data necessary for the repair
staff to make a determination as to the cause of the reported failure.
SELLER will notify BUYER within forty-eight (48) hours of receipt of a
shipment, of the nature, cost and time required for repair work.
The repair turnaround time is a maximum of fourteen (14) calendar days
from the date of receipt by SELLER until repair and shipment by SELLER.
Items are to be repaired or replaced to the then current revision level
of the specification unless otherwise instructed by BUYER.
25. SPARE PARTS (APPENDIX D)
For the term of this Agreement, SELLER agrees to sell to BUYER, the
spare parts in Appendix D at the prices set forth therein. Appendix D
shall be updated twice per year by SELLER to reflect changing prices of
purchased parts. Prices for spare parts will reflect the Margin Sharing
Formula contained in Appendix A. The maximum shipping time for such
spare parts is two (2) business days after SELLER's receipt of an order
from BUYER. All spare parts shall be packaged in boxes that do not bear
the SELLER's name. The spare parts will also not contain SELLER's name
unless otherwise agreed.
26. EMERGENCY SPARES SUPPORT (APPENDIX D)
SELLER shall, within the limits of production capability, use its best
efforts consistent with sound business practices to provide emergency
spare parts within twenty-four (24) hours after receipt of an emergency
order.
27. SOFTWARE AND SOFTWARE SUPPORT (APPENDIX C.1)
SELLER shall provide technical support to BUYER for any of SELLER's
standard software installed on Products. Any changes in drivers not
supplied by BUYER, maintenance upgrades to operating systems, or BIOS
updates will be provided electronically to BUYER's Technical Support
department for distribution as appropriate. (Appendix C.1.)
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28. ESCROW ACCOUNT (APPENDIX H)
If requested by BUYER, SELLER agrees to deposit in an escrow account a
copy of the latest version of all designs, drawings, parts lists,
manufacturing processes, test procedures, documentation, schematics and
software necessary to manufacture or produce the Products covered by
this Agreement. The escrow account shall be established and maintained
pursuant to an Escrow Account Agreement in accordance with Appendix H.
The annual cost of maintaining any escrow account hereunder will be
paid by BUYER.
SELLER shall provide the proper approvals for BUYER's access to
SELLER's offsite documentation storage supplier in the event that
logistic support ceases. Proof of access to SELLER's offsite
documentation storage will be provided to BUYER within 120 days of the
Effective Date and attached to Appendix H.
29. MANUFACTURING RIGHTS
Upon the election of SELLER to discontinue logistic support (Section
22) or a significant breach by SELLER of a term of this Agreement and
said breach has not been cured within sixty (60) days of receipt of
notice of such alleged breach or if it is impossible to cure the breach
and no corrective action has been implemented within sixty (60) days as
this Agreement allows, resulting in a default by SELLER and a
termination of this Agreement by BUYER, then SELLER hereby grants
BUYER, BUYER's parent company, and affiliates, a nontransferable
license to manufacture internally or subcontract the manufacture of the
Products covered by this Agreement for an agreed upon purchase price,
negotiated in good faith between BUYER and SELLER. Such pricing shall
be based on the Margin Sharing Formula contained in Appendix A and
reflect the increased engineering support to be provided by BUYER.
Further, the escrow agent will be directed to turn over possession of
any and all escrow material (see above) to the BUYER after payment by
BUYER to SELLER of the negotiated fee. BUYER shall keep the escrow
material in confidence and shall use it only for the purpose of
manufacturing the Products as permitted hereunder.
If BUYER requests manufacturing rights for the Products, when there has
been no breach by either BUYER or SELLER, the parties agree to discuss
the manufacturing rights/support issues in good faith. Payments to
SELLER resulting from such a grant shall be based on the Margin Sharing
Formula in Appendix A and cost savings for each unit produced as
determined by reference to the standard or mutually modified bill of
materials costed out at current actual purchase prices. These rights
shall include repair services and ECN support. Payments will be issued
net 30 days payable quarterly.
If BUYER requests manufacturing rights for the Products, when there has
been no breach (by either BUYER or SELLER) and termination has
occurred, based on written notice from BUYER, then SELLER shall
consider such request and enter into negotiations in good faith to
provide such rights.
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30. TERMINATION
The BUYER may cancel, at no financial liability (except for payments of
any balance due for conforming Product delivered prior to default) in
whole or in part thereof, this Agreement through non-performance by
SELLER or delivery of poor quality and workmanship Products only after
SELLER has had a period of sixty (60) days after written notification
to rectify said problems. The notification by BUYER shall state in
detail the number of instances of non-conforming material, the
percentage of total shipments that such non-conforming material
represents, the serial numbers of non-conforming Product if BUYER
manufactures or repairs Products, the application such units were used
in wherever possible, and the part name and number that gave rise to
the non-conforming material report.
Either party may give notice in writing to the other party to terminate
this Agreement in the event that the other party shall:
A. commit a breach or non-observance of any of the provisions herein
that remains uncured sixty (60) days after written notice; or
B. become insolvent or petition for reorganization under the
bankruptcy act or is adjudicated as bankrupt or if a receiver is
appointed for that party's business or if that party makes an
assignment for the benefit of creditors.
31. CHANGES TO THE PRODUCT
All Engineering Change Notices (ECN's) for Products will be
electronically transmitted to BUYER's Quality and Service Departments
upon generation. Unless objected to by BUYER within ten (10) working
days after receipt by BUYER, such changes shall be considered approved.
A summary of all ECN's that were implemented during a given calendar
quarter will be provided to BUYER's Quality Department at the end of
that calendar quarter.
BUYER reserves the right to request changes to the Product or
specifications at any time during this Agreement. If such changes
should result in delay in delivery or additional expense to SELLER,
then SELLER should notify BUYER and both parties agree to make an
equitable adjustment in the delivery and price schedules under this
Agreement.
Changes made as a result of BUYER's PSR Procedure (Appendix C3) will be
assigned a priority code per Section 32D of this Agreement.
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If such changes cannot be accomplished by SELLER for technical reasons
using technology reasonably available to SELLER consistent with sound
business practices and BUYER is notified in writing to that effect,
then BUYER may either rescind the change or cancel this Agreement in
accordance with the cancellation clauses.
The SELLER must provide written/electronic notification upon
formalization of an action plan to BUYER (including a Shipping Check
List) of any mandatory changes to the Product which are in the opinion
of SELLER necessitated because of changes in technology, Product safety
and correction of deficiencies under the Product Failures paragraph
above, or material supply issues. Unless objected to by BUYER within
ten (10) working days, such changes shall be considered approved. If
such mandatory changes are required, then SELLER shall provide BUYER at
no charge all necessary materials and installation instructions to
implement the changes promptly. SELLER shall replace or credit BUYER
with all logistic support inventory made obsolete by the change(s). Any
changed Products are to be included in any volume commitments made
under this Agreement.
BUYER's Product Marketing Group will supply the initial test software
and test suites for SELLER's change qualification testing. Thereafter
BUYER's Technical Support Group will supply any necessary updates.
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32. TECHNICAL SUPPORT (APPENDIX C.2, C.3)
SELLER will provide the following support as required worldwide at no
charge:
A. Engineering support to BUYER in the form of telephone
consultation by SELLER's engineering personnel at SELLER's place
of manufacturing during normal working hours.
B. Qualified technical support in the form of telephone, fax, or
electronic mail consultation will also be provided twenty-four
(24) hours a day at no charge to BUYER.
C. Field support to BUYER's field engineering personnel in the form
of telephone, electronic consultation by SELLER's manufacturing
division.
D. SELLER agrees to resolve Product performance problems in
accordance with specification 043501244 contained in Appendix
C.3. The priority level shall be set per Appendix C.2 by BUYER in
consultation with SELLER. BUYER and SELLER agree that any
differences in classification will be resolved by SELLER's Vice
President of Engineering and BUYER's Manager of Quality.
BUYER shall provide the first line of on site support for BUYER's
customers. If BUYER is unable to resolve Product problems while on
site, SELLER agrees to provide BUYER with qualified factory-trained
technical support when such assistance is reasonably required by BUYER
within a time not to exceed twenty-four (24) hours from notification by
BUYER. Whether the cost of this assistance shall be borne by SELLER or
BUYER depends on whether the Product is in compliance with SELLER's
warranty. If the Product is in compliance, BUYER is to bear the cost
and will be billed at SELLER's then-prevailing published rates.
SELLER shall provide BUYER's Technical Support Department with a base
documentation package that will enable BUYER to provide first line
support for the Products. That package will include the following
items, but is not limited to: assembly drawings, mechanical/dimensional
layout drawings, wiring diagrams, electrical schematics, repair
procedures, copies of Read-Me sheets that are shipped with Products, a
copy of Errata Sheets that are shipped with Products, certificates of
Agency compliance (i.e., CE, CSA, UL, etc.), hardware specifications,
software specifications, Shipping Check List, list of field replaceable
spare parts, Qualification Test Plans and results, Troubleshooting and
Diagnostic Guides, user manuals, panel mounting and cutout information.
It is acknowledged by BUYER that some of the above items are not
developed at the time of this Agreement and that SELLER will make
reasonable efforts to provide the support information required by BUYER
within one year of the Effective Date.
33. DOCUMENTATION (APPENDIX G)
The BUYER shall have the right to reproduce any documentation and
specifications of Products developed or supplied under this Agreement
by the SELLER for incorporation in BUYER's technical documentation and
publications at BUYER's expense.
SELLER shall supply all necessary information to BUYER in order to
facilitate the creation of manuals, documentation and/or instructions.
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The BUYER agrees to affix, when appropriate, SELLER's copyright notices
on any documentation reproduced by BUYER which was supplied by SELLER.
SELLER shall provide BUYER with copies of SELLER's standard commercial
documentation specifically developed or modified for the Products
covered by this Agreement.
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34. BUYER'S PROPERTY (APPENDIX I)
All tools, dies, jigs, patterns, equipment or material and other items
purchased, furnished and charged to or paid for by BUYER (commonly
referred to as non-recurring engineering "NRE" charges or special
tooling charges) and any replacement thereof are listed in Appendix I
and shall remain the property of BUYER.
Such property shall be plainly marked to show it is the property of
BUYER and shall be safely stored apart from other property. SELLER
shall maintain a listing of all BUYER owned property, by serial number
where appropriate, and transmit listing to BUYER for confirmation on a
semi-annual basis. SELLER shall not substitute other property for
BUYER's property and shall not use such property except in filling
BUYER's orders. SELLER shall hold such property at its own risk in the
same condition as originally received by SELLER, reasonable wear and
tear excepted. SELLER agrees to maintain such property at no cost to
BUYER reasonable wear and tear excepted for so long as BUYER continues
to purchase applicable Product from SELLER. Upon termination or default
by SELLER, all BUYER's property shall be forwarded to BUYER.
35. TRAINING
Upon thirty (30) days' advance notice, SELLER will provide initial
training to BUYER's personnel at no charge to BUYER. Such training
shall consist of two (2) courses, each containing no more than twenty
(20) students. The course shall cover in detail the installations,
adjustments, operations, tests, and maintenance of said Products. Each
course shall include a reasonable amount of hands-on experience along
with classroom-type training. In addition to copies for the trainees,
SELLER will provide BUYER with copies of the course outline, training
guides, and materials for each model or Product, at no charge to BUYER,
and BUYER shall have the right to reproduce and transmit copies of such
documentation to BUYER's own trainees. BUYER shall pay all reasonable
travel and living expenses of SELLER's personnel as agreed upon in
advance and shall supply all necessary equipment as specified in
advance by SELLER to conduct such training, if such training does not
take place at SELLER's site.
Initial training will take place in North Andover, MA and Sophia,
France.
Additional training courses may be offered by SELLER at SELLER's
prevailing rates offered to its other customers. (Reference Appendix C)
36. PROPRIETARY INFORMATION
All proprietary information which is specifically designated as such
and is disclosed by either party to the other in connection with the
Agreement, shall be used solely for installation, operation,
maintenance and support of equipment furnished under this order only
and shall be protected by the recipient from disclosure to others with
the same degree of care as that which is accorded to its own
proprietary information. Information will not be subject to this
provision if it is or becomes a matter of written record in the
recipient party's files prior to disclosure to it by the other party,
if it was or is received by the recipient party from a third person
under circumstances permitting its disclosure, or its disclosure is
required by any United States
22
<PAGE> 23
governmental agency. The obligation imposed by this paragraph shall
continue for the period of this Agreement and for ten (10) years
thereafter. The parties acknowledge that any violation of this
obligation could result in injunctive relief as well as monetary
damage.
37. TRADEMARK OR TRADENAME
BUYER may market Products furnished by SELLER under the terms of this
Agreement as part of BUYER's systems under BUYER's own trademarks and
tradenames. Without SELLER's express written approval, BUYER may not
market Products under SELLER's trademarks or tradenames. SELLER will
affix BUYER's trademark only to Products sold to BUYER unless otherwise
specified by BUYER. SELLER shall not supply Products under this
Agreement with SELLER's trademarks or tradenames affixed to the Product
unless otherwise specified by BUYER.
23
<PAGE> 24
38. INFRINGEMENT
SELLER shall undertake, at its own expense, the defense of any suit or
proceeding brought against the BUYER insofar as such suit or proceeding
is based upon a claim that any equipment made to SELLER's design and
furnished hereunder constitutes an infringement of any patent,
copyright, trademark, trade secret or license on condition that BUYER
promptly notifies SELLER in writing of such suits or threats thereof
and cooperates by giving SELLER any requested authorization,
information and assistance for the defense of same. SELLER shall
indemnify BUYER all costs incurred by BUYER in connection with such
suit or proceeding, and if it is finally determined that an
infringement exists, to procure for BUYER the right to continue
purchasing the Product or to replace or modify the Product so that it
is non-infringing but functionally equivalent, or if neither option is
commercially feasible, to terminate this agreement with respect to the
infringing Product and refund the purchase price for all unused Product
returned to SELLER, freight collect. The foregoing shall not apply in
instances in which normally non-infringing SELLER's Product is rendered
infringing by BUYER's unique specifications, alteration, combination
with other equipment or use of said equipment. The sole obligation of
SELLER shall be full compliance with this clause.
39. FORCE MAJEURE
If performance of any part of this Agreement by SELLER or BUYER is
prevented or delayed by reason of any cause beyond the control of and
without the fault of the party affected (including without limitations
acts of God, acts of the other party, acts of civil or military
authority including governmental priorities, fires, floods, epidemics,
wars and riots) and which cannot be overcome by diligence, the party
affected shall be excused from such performance to the extent that it
is necessarily prevented or delayed thereby during the continuance of
such happening or event, and this Agreement shall be deemed suspended
so long as the extent that any such cause prevents or delays its
performance, provided however, that after sixty (60) cumulative days of
such suspension on the part of one party the other party may, at its
discretion, terminate without liability its obligations under this
Agreement to the extent that the affected party's performance has been
prevented or delayed. In order to obtain a suspension under this
article, the party delayed shall send written notice of the delay and
the reason therefore to the other party within five (5) calendar days
from the time the party delayed, knew or should have known of the force
majeure in question.
24
<PAGE> 25
40. APPLICABLE REGULATIONS
SELLER certifies that it complies with all applicable federal, state
and local laws and ordinances, including but not limited to the
requirements of the Fair Labor Standards Act of 1938 as amended, the
Walsh-Healy Public Contract Act, Equal Employment Opportunity as
defined in Executive Order 11246 and the Occupational Safety and Health
Act (OSHA). If BUYER's order is placed as a sub-contract under the
United States government prime contract, only those clauses of the
Federal Acquisition Regulation (FAR) that are required by federal law
are hereby incorporated by reference except that nothing contained
herein shall be construed as a representation that SELLER offers its
standard Products on a cost reimbursement basis or that the SELLER
makes any representation regarding the cost of standard Products.
SELLER agrees to execute any additional certifications and
representations as to status of compliance as may be requested by BUYER
in accordance with federal, state or local regulations.
41. ENFORCEABILITY
No delay or failure of either party in exercising any right hereunder
and no partial or single exercise hereof shall be deemed to constitute
the waiver of such right or any other rights hereunder.
If any provisions of this Agreement shall become inoperative or
unenforceable as applied in any particular case or becomes in conflict
with any other provisions hereof, such circumstances shall not have the
effect of rendering the provision in question invalid, inoperative or
unenforceable in any other case or circumstances. The invalidity of any
one or more phrases, sentences, clauses or sections contained in this
Agreement or any part thereof shall not affect the enforceability of
the remainder of the Agreement.
42. ASSIGNMENT
Neither party shall assign this Agreement without the prior written
consent of the other party, provided however, that a successor in
interest by merger, by operation of law, assignment, purchase or
otherwise of the entire business of either party shall acquire all
interest of such party hereunder.
43. ABSENCE OF LITIGATION
There are no pending threats of action or proceedings before any court
or administrative agency which may adversely affect either party's
ability to perform its obligations in accordance with this Agreement.
25
<PAGE> 26
44. FINANCIAL INFORMATION
Each party agrees to provide, upon request of the other party,
financial information such as financial statements and other
information such as may be reasonably required in order to establish
financial responsibility and stability.
26
<PAGE> 27
45. LAW
This Agreement shall be deemed to be a contract made under and
interpreted in accordance with the laws of the State of Michigan.
46. DISPUTE RESOLUTION
Except for a lawsuit to collect the price of a Product or to seek
injunctive relief with respect to intellectual property or other
proprietary rights, any controversy or claim arising out of or relating
to this Agreement or any breach thereof shall be settled by arbitration
in the State or Commonwealth of the responding party, in accordance
with the rules then in effect of the American Arbitration Association
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
Prior to filing any arbitration or lawsuit with respect to any claim
out of or relating to this Agreement, or the breach thereof, the party
believing itself to be aggrieved shall give notice to the other party,
and each party shall use its best efforts to arrange personal or
telephone conferences between negotiators for parties at not less than
three successively higher management levels. The negotiators shall use
their best efforts to resolve the dispute within a total of twenty (20)
business days, during which time, no fewer than three (3) conferences
shall be held between negotiators. If a resolution is not achieved by
negotiators at the final management level within the allotted time,
then either party may initiate arbitration.
27
<PAGE> 28
47. NOTICES AND COMMUNICATIONS
All notices and communications under this Agreement should be directed
to the respective authorized representatives, subject to change upon
written notice.
BUYER: Schneider Automation Inc.
One High Street
North Andover, Massachusetts 01845
Attention: Director of Materials
SELLER: Nematron Corporation
5840 Interface Drive
Ann Arbor, MI 48103
Attention: President
28
<PAGE> 29
48. HOLD HARMLESS
Each party shall indemnify and hold the other party harmless from and
against any and all claims for personal injuries including death or
damage to property caused by the negligent act or omission of the
respective party or the negligent act or omission of such parties'
officers, directors, employees, agents and representatives. Neither
party shall be liable for consequential damages with respect to the
Agreement or any portion thereof.
29
<PAGE> 30
49. SURVIVAL OF PROVISIONS
The following provisions (as set forth above) shall survive the
completion or termination of this Agreement to the extent that they
relate to any activity performed under this Agreement: Warranty,
Logistic Support, Proprietary Information, Patent Protection, Trademark
or Tradename, Termination, Software and Software Support, Manufacturing
Rights if invoked during the term of the Agreement, and Hold Harmless.
30
<PAGE> 31
50. COST REDUCTION PROGRAM
In anticipation of potential market pressure on price structures, it is
the goal of SELLER to strive for a cost reduction in the Products
covered by this Agreement. SELLER hereby agrees to develop a formal
ongoing cost reduction program to be submitted to BUYER for review and
approval within * months of the Effective Date. The goal of SELLER's
cost reduction program will be to reduce the cost of the Product * each
*.
51. PRODUCT DEVELOPMENT AGREEMENT (IF APPLICABLE)
If a Product Development Agreement (PDA) was executed by the Parties
and contains some or all of the Products covered by this Agreement,
that Agreement is hereby incorporated by reference insofar as it is not
inconsistent with the provisions of this Agreement.
For reference, the Product Development Agreement Numbers are shown in
Appendix L.
52. SALES/MARKETING PLAN (APPENDIX M)
The Sales/Marketing Plan jointly developed and attached hereto as
Appendix M represents the parties current plan to sell and distribute
Products within their distribution channel. The Sales/Marketing Plan
shall be reviewed no less than annually.
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24B-2.
31
<PAGE> 32
53. GENERAL
A. This Agreement with all attached appendices supersedes all prior
Agreements by the parties hereto and constitutes the entire
understanding between the parties with respect to the subject
matter hereof.
B. SELLER agrees to only accept direction, orders, communications
and technical changes from BUYER's purchasing representative
unless otherwise directed in writing by BUYER's Purchasing
Department. The parties accept that BUYER will not be responsible
for and SELLER assumes all liability for any action made by
SELLER without written authorization from BUYER's purchasing
representative.
C. It is understood and accepted by the parties that both are
independent parties and no agency, partnership, joint venture or
other legal form is created by this Agreement. Neither party is
authorized to act on behalf of the other, and if such
unauthorized act is done by a party, the party agrees the
indemnify the other for all liability or damages resulting from
the act.
D. No subsequent changes or additions hereto shall be binding unless
reduced to writing and agreed to between the parties
32
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year indicated below.
BUYER: SELLER:
SCHNEIDER AUTOMATION INC. NEMATRON CORPORATION, INC.
By: /s/ Edward Mueskes By: /s/ Frank G. Logan III
----------------------------------- ----------------------------
Typed: Edward Mueskes Typed: Frank G. Logan III
Title: Director of Materials and Purchasing Title: President and CEO
Date: January 16, 1998 Date: January 15, 1998
--------------------------------- --------------------------
33
<PAGE> 34
APPENDIX A
PRODUCTS AND PRICING
1. Products
Hardware:
ICC-5000 Industrial Control Computer family with *
ICC-6000 Industrial Control Computer family with *
ICC-7000 Industrial Control Computer family with *
FlexBox Industrial Control Computer family with *
500i Industrial Control Computer family with *
600i Industrial Control Computer family with *
700i Industrial Control Computer family with *
Pre-configured ICC 5000, 6000 and 7000 models with *
Pre-configured ICC
500i, 600i and 700i models with *
User Guides:
In English, French, Italian, German, & Spanish for all Hardware
Products
2. Pricing *
* Indicates that material has been omitted and confidential treatment
has been requested therefore. All such omitted material has been
filed separately with the SEC pursuant to Rule 24B-2.
34
<PAGE> 35
Purchase Commitments
During the term of this Agreement, BUYER agrees not to market any
non-portable, open architecture industrial computers (Defined as
industrial computers designed to support any Microsoft operating
system), except: a) the Products purchased under this Agreement; and b)
any such products currently marketed by BUYER as of the Effective Date.
BUYER agrees to provide SELLER with a list of the currently marketed
products referenced above within 120 days of the Effective Date.
SELLER shall make best efforts to participate in the development and
manufacture of new industrial computers as required by BUYER. BUYER
shall make best efforts to use the technology available to SELLER for
new industrial computers wherever possible. If, after good faith
discussions, SELLER elects not to manufacture new industrial computer
products required by BUYER, SELLER shall notify BUYER in writing. Upon
receipt of written notification, BUYER may obtain such industrial
computers from any third party. In this event, no other terms and
conditions are waived for other existing or future products unless
otherwise agreed per this paragraph on a case by case basis.
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24B-2.
35
<PAGE> 36
APPENDIX B
FORECAST FOR PLANNING PURPOSES
BUYER will supply SELLER with a monthly rolling twelve (12) month forecast of
shipment requirements by Product family by model. The forecast shall be designed
by the BUYER to assist the SELLER with planning its material purchases and labor
requirements, and such format will be reviewed no less than annually. The format
should reflect SELLER's basic requirement, including:
1. 120+ days; SELLER will plan capacity with vendors and place firm purchase
orders for very long-lead items.
2. 90-120 days; SELLER will place purchase orders with its vendors to
accommodate the forecast.
3. 30-60 days; SELLER will build sub-assemblies to the forecast.
4. 1-30 days; SELLER will place firm purchase orders to Just-In-Time
vendors. SELLER will final assemble units to configurations stated on
the purchase orders.
5. Safety stock of finished units, the quantities of which will be jointly
agreed to by the parties, will be held by SELLER to specific
configurations provided by BUYER.
BUYER's initial unit forecast as of the date of this Agreement is as follows:
North America Rest of the World
1998 1999 2000 1998 1999 2000
*
High
Medium
Low
ShoeBox:
High
Medium
Low
Special Configuration
Total *
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24B-2.
36
<PAGE> 37
APPENDIX C
SUPPORT SERVICES
1. On-site hardware support program:
SELLER shall provide 24-hour phone support to BUYER seven days per week at
no cost to BUYER.
SELLER shall provide on-site technical support to BUYER as required under
the Agreement at the then prevailing published price list established for
each class of technician or engineer, less 10%. (Terms and conditions in
Section 32 not withstanding.) The costs of such on-site services shall be
billed to BUYER and shall be paid to SELLER within thirty (30) days of
invoice date. It is expected that BUYER will invoice its customer in turn;
SELLER shall not be a party to such transaction and BUYER may invoice its
customer any amount or on any commercial terms that it deems advisable.
2. Out of warranty factory repair prices shall be based on the Margin Sharing
Formula in Appendix A:
SELLER shall provide out-of-warranty repair services at locations in Ann
Arbor, MI (United States), at IP Systems in Lyons, France, and at such
other locations as mutually agreed to from time to time, based upon
sufficient volume of repairs being demanded in other parts of the world. It
is understood that if BUYER desires to make such repairs in its own
facilities, SELLER shall provide the schematics and drawings and other such
materials to allow BUYER's technicians to make such repairs in a timely and
efficient manner.
Repair prices shall be set by SELLER, according to the Margin Sharing
Formula in Appendix A. If the repairs are made at a BUYER's facility, BUYER
shall invoice the customer according to its established billing practices
and list prices, and shall remit to SELLER an amount in accordance with the
Margin Sharing Formula contained in Appendix A within thirty (30) days
after the date of the invoice.
It is the intent of both parties that repair facilities be conveniently
located in areas where repairs are most likely to occur. Therefore, as time
passes and data provides evidence to both parties that a repair facility in
Asia or Australia or some other part of the world is necessary, the parties
will discuss in good faith the location of such facility and establish a
facility where it is needed. The cost of such facility shall be borne by
the party collecting the repair fees charged to the facility's customers.
3. Training:
37
<PAGE> 38
SELLER may provide customer training if required. Course outline and class
duration will be determined with BUYER input.
4. Hardware changes beyond the current specification:
Support for added features beyond those identified as within the current
specification will be negotiated in good faith between the parties for
pricing and scheduling on a per event basis.
38
<PAGE> 39
APPENDIX C.1
SOFTWARE AND SOFTWARE SUPPORT
Special provisions for non-BUYER supplied software to be added as required.
39
<PAGE> 40
APPENDIX C.2
PRODUCT SUPPORT-
SUPPORT STANDARD
*
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24B-2.
40
<PAGE> 41
*
* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFORE. ALL SUCH OMITTED MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SEC PURSUANT TO RULE 24B-2.
41
<PAGE> 42
APPENDIX C.3
SPECIFICATION 043501244
PSR PROCEDURE
Attached.
42
<PAGE> 43
APPENDIX D
SPARE PARTS
BUYER will stock a specified quantity of spare parts, with such quantity
selected to service customers in a prompt and effective manner. BUYER shall
determine the quantities of spare parts it desires and order such parts from
SELLER. SELLER shall ship such parts to such locations and invoice BUYER
according to the Margin Sharing Formula contained in Appendix A. BUYER shall be
allowed to pay such spare parts invoices in 90 days, which is roughly equal to
the period of time the quantity of spare parts is intended to cover.
Spare parts lists and pricing will be developed by BUYER based upon SELLER's
part lists, and drop locations shall be provided to SELLER promptly after
finalization of this Agreement.
Spares parts list shall be added no later than 120 days after the Effective
Date. SELLER and BUYER's Concurrent Development Team shall jointly decide which
parts shall be added to this Appendix.
FRONT BEZEL PRICE TBD
DOCUMENTATION PRICE TBD
43
<PAGE> 44
APPENDIX E
STANDARD ROUTING INSTRUCTIONS
The following routing instructions are to be strictly followed.
GENERAL
1. Indicate purchase order number provided by BUYER and number of boxes on
all containers and shipping documents.
2. Do not insure any shipments.
3. Where rates are dependent upon declared or released valuation, your
Bill of Lading or Airway bill must state the value which will provide
the lowest rate.
4. If expedited service is utilized, note on the Bill of Lading "Expedited
Service Requested By __________________________ of (BUYER's Company)
ROUTING
Recommended transportation method to North Andover MA
1. Surface
Under 130 lbs. -- UPS
Over 130 lbs. -- Preston
2. Air
Under 130 lbs. -- Airbourne
Over 130 lbs. -- Airbourne
If SELLER has any problems or questions, please notify BUYER's Traffic
Manager.
44
<PAGE> 45
APPENDIX E.1
PACKAGING SPECIFICATIONS
Specification 043504117 - Packaging attached.
Specification 043504190 - Labeling attached.
45
<PAGE> 46
APPENDIX F
PRODUCT SPECIFICATIONS
will be added to this Agreement prior to the initial production shipment of
each Product contained in this Agreement. Future Product specifications shall be
added at the same time that the Product is added to this Agreement. Included in
the Product specifications shall the MBTF information and the return ratios.
BUYER's Quality Department will assist SELLER in establishing a computational
method for calculating MBTF. Return Ratios for equivalent existing non-private
labeled products will be provided when Products are added to this Agreement.
Return Ratios will be provided when sufficient data is available for new
Products, for which, SELLER does not have equivalent existing non-private
labeled products.
46
<PAGE> 47
APPENDIX G
DOCUMENTATION
SELLER will provide all required customer documentation with the Product. Any
third party documentation (VGA card information, CPU documentation, etc.) which
is required by BUYER will be included unmodified with the Product.
Any customer literature (Installation, User Guides, Readme Doc or Errata Sheets)
created by SELLER shall either be generic (no company reference) or be enclosed
by a jacket which displays BUYER's name (logo and colors). If customer
literature will display BUYER's name, all descriptions and examples shall be
modified to reference BUYER's Product only.
The BUYER reserves the right to review and approve all user information prior to
its inclusion with any of the Products (Appendix A). Any changes to the
documentation will be preceded with an ECN from the SELLER and acknowledged
(accepted) by the BUYER. Documentation changes will require updated Shipping
Check Lists (even for revision changes).
BUYER will be able to procure User Guides (Appendix A) from SELLER for resale
and internal distribution. Prior to accepting a Purchase Order for User Guides
from BUYER, SELLER must notify BUYER and receive acknowledgment of such
information of when the next planned document revision will occur.
If SELLER modifies the User Documents without the notification and
acknowledgment of BUYER, then the BUYER may invoice SELLER for all obsolete
documents at cost (Appendix A) plus twenty percent (20%) for restocking.
Localization of User Documentation costs will be paid by BUYER as part of the
initial NRE payment. Localization is required to French, German, Italian, and
Spanish. Delivery schedules will be mutually agreed to between the parties.
47
<PAGE> 48
APPENDIX H
ESCROW ACCOUNT AGREEMENT
If requested by BUYER, the parties shall negotiate in good faith and execute an
Escrow Account Agreement which shall include the following terms:A
Product specifications, schematics, process sheets, prints and other documents
required to produce the Products which are covered by this Agreement shall be
reproduced and a copy of each document shall be placed in escrow at a location
mutually agreed to by the parties. The Escrow Agent shall release such documents
to BUYER by mutual agreement, or, upon written receipt of instructions to do so
from the Arbitrator selected, to resolve any dispute between the parties,
pursuant to Section 46 of this Agreement.
48
<PAGE> 49
APPENDIX I
BUYER'S PROPERTY
Silk-screen Frame at Membrane Switch Manufacturer
49
<PAGE> 50
APPENDIX J
SHIPPING CHECK LIST
For each part number listed in Appendix A (Products) and Appendix D (Spare
Parts), SELLER will submit and maintain a Shipping Check List. The Shipping
Check List will have the following format (Example only):
DOC-SHP-XXX Schneider Automation/Nematron Shipping Checklist
ICC-5300 Series
ICC-5300 S.A. Model # SA-IC53 [ ]
Nematron Part # IC53 [ ]
1 Industrial Control Computer
Processor P200
Hard Drive 2 GB
Floppy 1.44 MB
DRAM 32 MB
Operating System Win 95
1 Hardware User's Guide DOC-IWS-XXX
1 Shipping Kit containing:
X mounting clips
Power Cord
Power Cord retainer
Operating System on media
Drivers on media
(other items TBD)
Shipping Label
S.A. Model # SA-IC53 [ ]
Qty 1
Serial # YRMNXXXXX
Description ICC-5300, P200, 2 GB, 32 MB, floppy, Win 95
Package Size XX" x XX" x XX"
Package Weight approx. XX lbs.
50
<PAGE> 51
DOC-SHP-XXX Schneider Automation/Nematron Shipping Checklist
ICC-7300 Series
ICC-7300
S.A. Model # SA-IC73 [ ]
Nematron Part # IC73 [ ]
1 Industrial Control Computer
Processor P133
Hard Drive fixed none
Hard Drive rem. 2 GB
Floppy 1.44 MB
DRAM 64 MB
CD-ROM 24X
Operating System Win NT 4.0
1 Hardware User's Guide DOC-IWS-XXX
1 Shipping Kit containing:
X mounting clips
Power Cord
Power Cord retainer
Operating System on media
Drivers on media
(other items TBD)
Shipping Label
S.A. Model # SA-IC73 [ ]
Qty 1
Serial # YRMNXXXXX
Description ICC-7300, P133, 2 GB rem, 64 MB, floppy, CD, Win NT
Package Size XX" x XX" x XX"
Package Weight approx. XX lbs.
51
<PAGE> 52
APPENDIX K
PRODUCT ACCEPTANCE CRITERIA
Beta, and qualification plans and the results thereof for new products will be
made available to BUYER for review as soon as they are completed.
52
<PAGE> 53
APPENDIX L
PRODUCT DEVELOPMENT AGREEMENTS
None as of the Effective Date.
53
<PAGE> 54
APPENDIX M
SALES/MARKETING PLAN
Where both parties have prospective sales at a common customer, the parties
agree to work together to maximize sales opportunities and minimize channel
conflict.
Sales Management from both parties will meet quarterly or as needed to discuss
sales/channel issues and resolve any conflicts.
SELLER shall bundle in, at BUYER's option, BUYER's proprietary communications
protocol (Modbus+, S908, Unitelway, FIP drivers, Ethway, FIP I/O, Synap) and the
required additional hardware, if in final form ready for customer release, in
Products at no additional charge. SELLER's communication protocol products shall
be available to BUYER as separate option Products.
SELLER shall not bundle BUYER's proprietary communications protocol, as detailed
in the above paragraph, in SELLER's products. Such products shall be marketed
only as separate option products.
BUYER and SELLER agree to concurrently test new products that will be sold by
BUYER and SELLER and to simultaneous release such new products.
54
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
Quarter ended Quarter ended
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Net income (loss) $(1,338,219) $ 10,516
=========== ===========
Weighted average common shares outstanding - Basic 5,335,168 4,556,079
Assumed conversion of outstanding options and warrants 867,393
Assumed repurchase of outstanding common shares (540,780)
----------- -----------
Weighted average common shares outstanding - Diluted 5,335,168 4,882,692
=========== ===========
Basic earnings (loss) per share $ (0.25) $ (0.00)
=========== ===========
</TABLE>
Diluted earnings per share are not shown because the results thereof are
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 454,765
<SECURITIES> 0
<RECEIVABLES> 4,303,338
<ALLOWANCES> 422,000
<INVENTORY> 4,643,071
<CURRENT-ASSETS> 9,994,796
<PP&E> 8,238,955
<DEPRECIATION> 4,029,513
<TOTAL-ASSETS> 20,307,182
<CURRENT-LIABILITIES> 6,741,383
<BONDS> 3,537,047
0
0
<COMMON> 21,630,904
<OTHER-SE> (8,155)
<TOTAL-LIABILITY-AND-EQUITY> 20,307,182
<SALES> 4,351,308
<TOTAL-REVENUES> 4,351,308
<CGS> 2,400,217
<TOTAL-COSTS> 3,146,977
<OTHER-EXPENSES> (1,154)
<LOSS-PROVISION> 0
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