Manufacturing And Supply Agreement

MANUFACTURING AND SUPPLY AGREEMENT


This Agreement, dated as of November 29, 1994, is by and between Ciba Composites Anaheim, a business unit of Ciba Composites, a Division of Ciba-Geigy Corporation, a corporation organized under the laws of the State of New York, with offices at 5115 East La Palma Avenue, Anaheim, California 92807-2018 ("Ciba") and Engelhard/ICC, a general partnership formed under the laws of the Commonwealth of Pennsylvania, with offices at 441 North Fifth Street, Philadelphia, Pennsylvania 19123 ("Manufacturer").


WITNESSETH


WHEREAS, Ciba and Manufacturer are parties to the Asset Purchase Agreement and various ancillary agreements dated as of the date hereof, relating, among other things, to the acquisition by Manufacturer of certain assets associated with the operation of Ciba's honeycomb core production plant located in Miami, Florida and Ciba's licensing of certain honeycomb technology to Manufacturer (hereinafter collectively referred to as the "Asset Purchase Agreement"); and


WHEREAS, in connection with the transactions in the Asset Purchase Agreement Ciba is unable to obtain a source for its Product requirements and wishes to have Manufacturer supply Ciba with its Product requirements until such time as Ciba can complete the qualification of a facility to produce Product and have such facility fully operational;


WHEREAS, Ciba further wishes to have Manufacturer conduct developmental production trials at the Facility; and


WHEREAS, Manufacturer wishes to manufacture Product and to conduct certain developmental production trials for Ciba subject to the terms and conditions set forth below.


NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties agree as follows:


1. Definitions. Where used in this Agreement and identified with initial capital letters, the following items have the meanings set forth below:


a. "Agreement" means this Agreement between Ciba and Manufacturer, including the exhibits attached hereto and made a part hereof.


b. "Asset Purchase Agreement" means the agreement for the purchase and sale of certain assets of Ciba's manufacturing facility located at 3550 N.W. 49th Street, Miami, Florida, made as 2 of the date hereof, and the License Agreement, Technical Assistance Agreement and Operational Services Agreement entered into simultaneously thereof.


c. "Contract Year" means a twelve (12) month period beginning on the Closing Date or any anniversary thereof during the term of this Agreement.


d. "Closing Date" means the date on which the transactions contemplated in the Asset Purchase Agreement close.


e. "Ciba Supplied Materials" or Supplied Materials means those materials which are authorized to be purchased by the Manufacturer from a Designated Supplier under an established Ciba Supply Agreement and/or Ciba Purchase Order. A list of Ciba Supplied Materials as set forth in Exhibit 1e and f.


f. "Designated Suppliers" means those suppliers qualified to provide Ciba Supplied Materials to manufacture the Products, as set forth in Exhibit 1e and f.


g. "Dispose or disposal" means any discharge, deposit, injection, dumping, spilling, leaking, or placing of any Waste into or on any land or water and the arrangement of any of the foregoing, and shall include any storage, pretreatment, treatment (including incineration), any other actual disposal, use, sale, sampling or other transfer or application of Waste of any kind or nature whatsoever.


h. "Facility" means the manufacturing plant located at 3550 N.W. 49th Street, Miami, Florida.


i. "Facility Capacity" means the production capacity of the Facility when operated five (5) days a week on a twenty-four (24) hour per day basis.


j. "Hazardous Waste" means (a) any material or substance defined as or containing materials defined as a "hazardous substance" or "hazardous waste" pursuant to Laws and Regulations including the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, and any similar successor or supplementary legislation, and the regulations promulgated thereunder or (b) any material or substance that is radioactive.


k. "Honeycomb Core" means a manufactured product made from aramid paper paper, resin impregnated glass fabric, or any other substrate which is formed into cells usually of a hexagonal shape, or other shapes as configured.


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l. "laws and Regulation" means all applicable federal, state, territorial and local and foreign laws, regulations, orders, ordinances, and rules.


m. "Permits" means all licenses, permits and similar authorizations required for the manufacture, processing, packaging, sale and delivery of the Products and the conduct of Manufacturer's business.


n. "Product(s)" means the Honeycomb Core products described in The Specifications/Qualified Product List in Exhibit 1n. Ciba shall be able to add new products that are substantially similar to Products to Exhibit 1n from time to time. The parties agree that the Manufacturing Fee for any such new products shall be computed in accordance with Exhibits 4.5 and 5.1. Without prejudice to Ciba's rights, if Manufacturer chronically fails to deliver any Product within the time specified in this Agreement, and shows no progress toward cure, Ciba shall be able to delete such Product from the scope of this Agreement, to the extent Ciba is negatively impacted by this chronic failure or deletion of Product, Ciba shall be entitled to recover from the Manufacturer the direct damages suffered by Ciba. For the purposes of this provision, the parties agree lost profits shall be considered a direct damage.


o. "Waste" means all materials that are produced or generated in connection with the manufacturer of any Product or reworked Product sold to Ciba, including but not limited to materials that are Hazardous Waste (as hereinafter defined), co-product, by-product, Product that fails to conform to the specifications, wastewaters, residues, wastes, bottoms and other remainders and materials, packaging of components of any Product, and components of any Product that are not used in the manufacture of any Product.


2. Term. The term of this Agreement shall commence on the Closing Date of the Asset Purchase Agreement and shall continue for a period of five (5) years (the "Term"); provided, however, that Ciba shall have the option to terminate this Agreement on the giving of six (6) months written notice, which notice can be given at any time after eighteen (18) months from the Closing Date.


3. Quantity.


3.1 Minimum Quantities. During each Contract Year, Ciba shall purchase from Manufacturer its requirements for Products or products substantially similar to Products for its internal use or sale in Mexico, Canada and the United States in the minimum percentages set forth in Exhibit 3.1. For the purpose of computing requirements hereunder, new products not added pursuant to 1n above on the basis that they were not substantially similar to Products, shall not be considered.


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3.2 Available Facility Capacity. During each Contract Year, Manufacturer shall make available to Ciba the percentages of the Facility Capacity set forth in Exhibit 3.2 ("Ciba's Share"). Notwithstanding this availability, Ciba shall be responsible only for ordering the minimum quantities set forth in Section 3.1.


Beginning two months prior to the second anniversary of the Closing Date, Ciba shall use its reasonable efforts to give Manufacturer two (2) months written notice of any projected decrease in its need to utilize Ciba's Share for a month for which such notice was given. During the first Contract Year, Ciba shall not be allowed to require Manufacturer to produce for Ciba, in any calendar month, Products requiring more than 1/12 of Ciba's Share. During each subsequent Contract Year, Ciba shall not be allowed to require Manufacturer to produce for Ciba, in any calendar month, Products requiring more than 1/12 of 110% of Ciba's Share. For periods of less than a calendar month, these determinations will be made on a pro rata basis.


3.3 Conflict. In the event Ciba's requirements in Section 3.1 exceed Ciba's share and Manufacturer fails to accommodate Ciba's requirements three times in any 6 month period, upon Ciba's written request, Manufacturer shall have the option, exercisable upon five (5) working days written notice, of dedicating other existing capacity, or committing to provide Ciba with a plan, reasonably acceptable to Ciba, to add new capacity to meet Ciba's requirements, each at no additional cost to Ciba over the existing fees set out in Exhibit 4.5. If Manufacturer fails to exercise this option, Ciba can either elect to add additional capacity at the Facility, at Ciba's sole cost and expense or be released from its obligation to order that portion of the minimum quantities which exceed Ciba's Share for the following 12 month period.


3.4 Lead Time and Minimum Order Quantities. Lead times and minimum order quantities shall be as set forth in Exhibit 3.4 as such Exhibit may be amended by mutual consent of the parties. The parties shall work together in good faith to resolve any problems associated with the implementation of this Exhibit.


3.5 Damages. In the event Ciba fails to order the minimum quantities set forth in Section 3.1, as it may be amended by Section 3.3 herein, or Manufacturer fails to make available to Ciba Ciba's Share, the party negatively impacted by such failure shall use diligent efforts to mitigate the damages. To the extent either party is negatively impacted by the failure of the other party, the damaged party shall be entitled to recover from the other party the direct damages suffered by it. For the purposes of this provision, the parties agree lost profits shall be considered a direct damage.


-4- 5 4. Manufacture of Product.


4.1 Manufacturing Services. Manufacturer agrees to manufacture Product(s) in conformance with the specifications set forth in Exhibit 1n ("Conforming Product"), utilizing, in part, Ciba Supplied Materials and Designated Suppliers, as set forth in Exhibit 1e and f. Notwithstanding anything in this Agreement to the contrary, in no event shall Manufacturer be responsible and/or liable for defects in Products to the extent such defect is the result of Supplied Materials defective at the time of receipt.


THE FOREGOING EXPRESS WARRANTY IS IN LIEU OF ANY AND ALL OTHER WARRANTIES ARISING BY LAW AND/OR CUSTOM, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.


4.2 Quantities of Supplied Materials. During the Term, Ciba will make available Supplied Materials from its Designated Supplier. Manufacturer is responsible for placing orders for Supplied Materials in such quantities and for delivery at such times as Manufacturer deems necessary to meet its requirements pursuant to Section 6. Ciba will be responsible for payment for the Supplied Materials supplied by Designated Suppliers. Manufacturer shall use Supplied Materials only for the manufacture of Products supplied under this Agreement.


4.3 Inventory. Manufacturer will conduct a physical inventory of Supplied Materials during the fourth quarter of each calendar year and at the termination of this Agreement. Manufacturer shall reimburse Ciba for any inventory shortages, adjusted for any differences that Manufacturer can demonstrate to Ciba's satisfaction is traceable to reporting differences that were reflected and credited to Ciba as favorable material usage variances in accordance with the provisions of Section 5.2.


4.4 R600 Consumption. Manufacturer shall report consumption of R600 used in production of Manufacturer's product on a monthly basis (showing calculation of consumption in gallons). This report will be accompanied by a credit memo to Ciba at Ciba's average selling price per gallon.


4.5 Other Materials and Inputs. Manufacturer shall be responsible, at its sole cost and expense, for providing all materials (except Supplied Materials), labor, disposal activities and other inputs necessary to produce the Product ordered by Ciba pursuant to this Agreement. Manufacturer agrees that the sole compensation due to Manufacturer for supplying the Products is the manufacturing fee provided in Exhibit 4.5.


4.6 Developmental Production Trials. At Ciba's option, Manufacturer will conduct production trials for Ciba on Honeycomb Core which is not Product. Such trials shall be produced in


-5- 6 accordance with the terms of the Agreement, and quantities so produced shall be included in calculating the Products ordered by Ciba for the purpose of meeting its minimum ordering obligations hereunder. Facility Capacity used therefor shall be charged against Ciba's Share. The manufacturing fees set forth in Section 7.1 shall be applicable to, and paid by Ciba to Manufacturer for, any and all products produced during such production trials.


5. Consumption Issues


5.1 Optimum Yield Ratios. Manufacturer shall manufacturer Product in accordance with yields included in the 1995 Ciba budgeted standard product costs, attached hereto as Exhibit 5.1. Any changes to the standard products costs by Manufacturer must be preapproved in writing by Ciba.


5.2 Material Usage Variances. The Manufacturer shall credit Ciba for favorable material usage variances to a maximum of two percent (2%) of standard material costs. Manufacturer shall charge Ciba with unfavorable variances up to a maximum of two percent (2%) of standard material costs. Variances, whether favorable or unfavorable, in excess of two (2) percent shall be credited or charged to Manufacturer, as the case may be.


Manufacturer shall report to Ciba on a monthly basis, material usage variances by Product. Such variances shall be reported to Ciba within three (3) days after the end of each monthly accounting period and credited or charged to Ciba within thirty (30) days after the end of each monthly accounting period.


6. Inventory Control. The parties recognize sound inventory management is an important aspect of Manufacturer's performance under this Agreement. Manufacturer agrees to utilize Ciba's existing inventory management system. Manufacturer agrees to prepare and submit to Ciba, no later than three (3) months before the expiration of the Operation Services Agreement, an inventory management system suitable for the negotiation of inventory targets for the Supplied Materials to be met during the then remaining Term of this Agreement. Such system shall be agreeable to both parties.


Manufacturer will maintain a safety stock of Supplied Materials as set forth in Exhibit 6. The parties will communicate on an ongoing basis as to amended stock levels based on Ciba's needs and the pricing and availability of supplies of Supplied Materials. If inventories exceed 2.8 months coverage, as that level may be changed by agreement of the parties in writing, based on the average monthly cost of goods to be shipped over the next three (3) months, in any month, or any future month, Manufacturer will pay Ciba an excess inventory charge calculated as follows: The value of inventory, in excess of 2.8 months coverage, times the Prime Rate, divided by twelve (12). The Prime Rate shall be the


-6- 7 prime rate as published in the Wall Street Journal, as of the last business day of the month for the inclusion of excess inventory.


7. Manufacturing Fees: Additional Costs: Disposal Costs:
Invoicing: Payment.


7.1 Manufacturing Fees. Ciba shall pay to the Manufacturer, for Products produced and supplied to Ciba during the Term, a fixed price based on the 1995 full absorption Product costs based on the applicable rate set forth in Exhibit 4.5. The labor escalation clause for the Term is set forth in Exhibit 7.1.


7.1.1 The first billing of Manufacturing Costs (material, labor and overhead) shall be adjusted to give Ciba a credit for these costs in Work In Process Inventory as at the Closing Date. The Cost value of E204 Nomex Paper (item number 0109) as at the Closing Date will be paid to Ciba. Finished Goods and Work In Process Inventory of Engelhard/ICC products (material, labor, and overheads) as at the Closing Date will be paid to Ciba. The process for determining the number of each of the units of the foregoing items shall be to have a joint physical inventory conducted by the parties within five (5) working days of the Closing Date. The cost of each unit shall be the cost as determined in accordance with Exhibit 5.1 or the open order report currently used by Ciba, as appropriate. Ciba shall provide a full summary of these calculations to Manufacturer, and the amounts due Ciba shall be deducted from Manufacturer's first invoice to Ciba.


7.2 Certain Disposal and Return Costs. Manufacturer shall be responsible for the cost of Waste disposal. In the event that Waste arises solely from Ciba developmental activities, Ciba shall be responsible for the cost of Waste disposal.


7.3 Governmental Regulations. Prior to making any investments to comply with new environmental regulations, Manufacturer shall confer with Ciba as to the appropriateness of any such investment, and shall obtain Ciba's consent to any such investment for which Manufacturer will be allowed to such reimbursement from Ciba pursuant to this provision. Such consent shall not be unreasonably withheld. Any increased capital expenditures for the Facility due to new environmental regulations shall be paid for by the party whose particular processes necessitated the capital expenditure. In the event that both parties processes necessitate any such capital expenditures, the Manufacturer shall pay the cost for such capital expenditure. Ciba shall reimburse Manufacturer for its share of operation and/or maintenance required by capital expenditure paid for by the Manufacturer through the overhead charges paid by Ciba to Manufacturer for the production of Product. Depreciation on capital expenditures paid for by Manufacturer shall be calculated on a straight line basis over a ten (10) year period and reimbursed by Ciba to Manufacturer. Ciba shall have the option


-7- 8 at its sole cost and expense, to remove any improvements or equipment for which it has paid hereunder.


7.4 Invoices. Manufacturer shall invoice Ciba for the Products at the end of every month. Payment will be made by Ciba net thirty (30) days after receipt of invoice. Each invoice shall set forth the quantity of Product shipped, unit price and the applicable manufacturing fee therefor. The original and one copy of all invoices shall be mailed to Ciba to the attention of Controller (Stuart Wolf).


7.5 Taxes. Ciba shall be liable only for those new taxes imposed on a buyer by operation of law and shall include sales and use taxes. Ciba may require Manufacturer to provide Ciba with documentation reasonably satisfactory to Ciba establishing Ciba's liability for such taxes; provided, however, that Manufacturer shall not be required to provide such documentation in connection with sales or use tax ...