MANUFACTURING AGREEMENT

between

Winland Electronics, Inc.

and

Nortech Systems Incorporated

Dated as of December 27, 2011

 
 

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MANUFACTURING AGREEMENT
 
This Manufacturing Agreement (the “Agreement”) is entered into by and between
Winland Electronics, Inc. (“Winland”), a Minnesota corporation, and Nortech
Systems Incorporated (“Nortech”), a Minnesota corporation, as of December 27,
2011.
 
BACKGROUND
 
 Winland and Nortech are parties to that certain Manufacturing Agreement dated
January 1, 2011, whereby the parties agreed that, pursuant to the terms thereof,
that Nortech would manufacture certain products for Winland related to Winland’s
proprietary monitoring devices (the “Products”).
 
Now, then, for good and valuable consideration, receipt of which is hereby
acknowledged, the parties do hereby agree as follows:
 
1. Term.  The term begins on the date hereof and continues in effect until
December 31, 2013 (the “Term”).  Winland’s Manufacturing Commitment.  During the
Term of this Agreement:
 
(a)           Nortech shall exclusively manufacture all of Winland’s
requirements relating to the Products that are set forth on Exhibit A attached
hereto pursuant to Winland’s forecasts as provided in Section 3 to this
Agreement;
 
(b)           Nortech shall handle all manufacturing responsibilities for the
Products which it manufacturers for Winland, including ordering raw materials,
production and packaging.  Winland and Nortech shall work together during the
Term of this Agreement to determine what type of packaging the Products will
have.  Winland shall assume responsibility for marketing, invoicing its
customers and collections; and
 
(c)           Nortech shall warehouse, at its expense and pursuant to that Lease
Agreement dated January 1, 2011, all Products purchased by Winland to be shipped
at a later date.
 
(d)           Nortech shall provide, as a service to Winland without charge
during the Term, order fulfillment services for Winland’s customer’s orders.
 
2. Purchase of Raw Materials and Finished Goods.
 
(a)           Upon termination of this Agreement, Winland or any successor to
Winland’s business by merger or acquisition or by divestiture or spin-off (the
“Winland’s Successor”) shall be required to purchase all unused raw materials
intended by Nortech to be used or consumed in the production of the Products and
owned by Nortech at such time, provided that such raw materials meet applicable
specifications and represents raw materials consistent with current Bills of
Material for the Products.  The purchase price for such raw materials shall be
Nortech’s standard cost, and shall be fully explained and documented to
Winland’s or Winland’s Successor’s satisfaction.
 
 
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(b)           Upon termination of this Agreement, Winland or Winland’s Successor
shall be required to purchase all or some of Nortech’s finished goods or work in
progress inventory of Products at the applicable Transfer Prices (as defined
below).
 
3. Forecast and Ordering Procedures.  Each month Winland shall provide a
forecast, setting forth its good faith estimate of the quantities of each
Product for which it will place orders in the following thirty (30) days.  Such
forecast is for the convenience of the parties and shall not be considered a
binding obligation to purchase Products.
 
Winland shall place orders by submitting a binding purchase order.  Upon
acceptance of such purchase order, Nortech shall be committed to sell the
Product set forth in such purchase order to Winland.  Nortech agrees to accept
such purchase order, subject to the terms of this Agreement, when submitted by
Winland.  To the extent any terms set forth in the purchase order or the
acceptance are inconsistent with the terms of this Agreement, the terms of this
Agreement shall control.  The completion date specified in the purchase order
shall be applicable, provided, however, that (a) such date shall be no earlier
than thirty (30) days after submission of the purchase order, provided that
Nortech shall use commercially reasonable efforts to deliver Products earlier
than thirty (30) days after submission of the applicable purchase order if
requested by Winland, and (b) Winland shall use its commercially reasonable
efforts to aggregate purchases for maximum manufacturing efficiency.
 
4. Transfer Price.  The transfer price for the Products (the “Transfer Price”)
during the Term of this Agreement shall be as is set forth on Exhibit A of this
Agreement.
 
5. Payment Terms.  Payment shall be net thirty (30) days from the date of
invoice, which invoice shall be dated the date of shipment.
 
6. Specifications.  Winland shall submit, as part of its purchase order, the
specifications for the applicable Products, which shall be the same as the
historical specifications for the Products previously manufactured by Nortech.
 
7. Insurance Certificate.  Nortech will procure and maintain, at its own
expense, for the Term of the Agreement, and for five (5) years thereafter if
written on a claims made or occurrence reported form, the types of insurance
specified below:  (a) Workers’ Compensation accordance with applicable statutory
requirements; (b) Employer’s Liability with a limit of liability in an amount of
not less than $500,000; (c) Commercial General Liability including premises
operations, products & completed operations, blanket contractual liability,
personal injury and advertising injury including fire legal liability for bodily
injury and property damage in an amount not less than $1,000,000 per occurrence
and  $2,000,000 in the aggregate; and (d) Excess Liability including products
liability with a combined single limit in an amount of not less than $10,000,000
per occurrence and in the aggregate.
 
                 Nortech shall include Winland and its subsidiaries, affiliates,
directors, officers, employees and agents as additional insureds with respect to
Commercial General Liability, Commercial Automobile Liability and Excess
Liability but only as their interest may appear in this Agreement.  Prior to
commencement of services, Nortech shall furnish to Winland certificates of
insurance evidencing the insurance coverages stated above and shall require at
least thirty (30) days written notice to Winland prior to any cancellation,
non-renewal or material change in said coverage.  In the case of cancellation,
non-renewal or material change in said coverage, Winland shall promptly provide
to Nortech with a new certificate of insurance evidencing that the coverage
meets the requirements in this Section 7.  Nortech agrees that its insurance
shall act as primary and noncontributory from any other valid and collectible
insurance maintained by Winland.  Nortech may, at its option, satisfy, in whole
or in part, its obligation under this Section 7 through its self- insurance
program.
 
 
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8. Confidential Information.  The parties acknowledge that during the Term
hereof each party may provide confidential information to the other related to
such party and to the Products, including trade secrets, manufacturing
information, marketing information or financial information.  Each party shall
take commercially reasonable steps to maintain the confidentiality of such
information.  Information shall not be deemed confidential if it is in the
public domain through no fault of either party, the information is required to
be disclosed pursuant to a court order or other compulsory process or the
information is in the hands of a third party who is under no obligation to
either party to maintain the confidentiality of such information.  Each party
will use the same degree of care with respect to its obligations hereunder as it
employs with its own information of a confidential nature.
 
9. Force Majeure.  If either party is unable to perform its obligations, either
in whole or in part, under this Agreement as a result of acts of God; acts of
public enemy; civil strife; wars declared or undeclared; embargoes; fires;
explosions; floods; shortages of energy; orders by any governmental entity or by
any other supervening authority, the affected party will use its commercially
reasonable effort to find an alternative in order to alleviate the force majeure
condition and meet its obligations under this Agreement, and if such
commercially reasonable efforts do not result in the elimination of the force
majeure condition, be excused from its performance during the event to the
extent that the party is prevented or delayed hereunder.  If such event lasts
for more than one hundred twenty (120) days, the party whose performance is not
affected by the force majeure condition shall have the option of being excused,
without further obligation from the performance of the Agreement or any
obligation hereunder.  This clause shall not apply to the payment obligations of
Winland.
 
11.           Termination.  Either party shall be entitled to terminate its
obligations hereunder, without liability, upon material breach of the
obligations by the other party or the bankruptcy or insolvency of the other
party provided that the terminating party shall provide sixty (60) days’ written
notice and opportunity to cure to the other party.
 
                      12.           Purchase Order Terms.  Nortech warrants for
a period of one (1) year from the date of shipment, that the Products
manufactured by Nortech pursuant to this Agreement shall conform to the
applicable specifications.  During the warranty period, Winland at its option
may reject and return at Nortech’s expense any Products that fail to conform to
the requirements hereof.  Upon such rejection, Nortech shall replace such
Products, or if no such replacement Products are available, credit Winland’s
account for such rejected Products.  Nortech shall indemnify and hold Winland
harmless from any costs, expenses, damages and the like incurred by Winland or
any third party arising from (i) any breach of Nortech’s obligations hereunder,
or (ii) any negligent or willful misconduct of Nortech.  Winland shall indemnify
and hold Nortech harmless from any costs, expenses, damages and the like arising
from (i) any breach of Winland’s obligations hereunder, or (ii) any negligent or
willful misconduct of Winland.
 
 
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           NOTWITHSTANDING THE FOREGOING, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, EXCEPT TO THE
EXTENT THAT SUCH INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES HAVE
BEEN REQUIRED TO BE PAID TO THIRD PARTIES.
 
                      13.           Assignment; No Third Party
Beneficiaries.  Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other party.  This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns, and
no other person shall have any right, benefit or obligation under this
Agreement, as a third party beneficiary or otherwise.
 
           14.           Notices.  All notices and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given: (i) when received if personally delivered;
(ii) the day after being sent, if sent for next-day delivery within the United
States by recognized overnight delivery service (e.g., Federal Express); and
(iii) upon receipt, if sent by certified or registered mail, return receipt
requested.  In each case notice shall be sent to the following address or to
such other place and with such other copies as either party may designate as to
itself by notice to the other:
 
If to Winland, addressed to:
 
If to Nortech, addressed to:
Winland Electronics, Inc.
1950 Excel Drive
Mankato, MN 56001
Attention:  Chief Financial Officer
 
Nortech Systems Incorporated
1950 Excel Drive
Mankato, MN 56001
Attention:  General Manager

                      15.           Choice of Law.  This Agreement shall be
construed and interpreted in accordance with the internal laws of the State of
Minnesota, except with respect to matters of law concerning the internal affairs
of any business entity which is a party to this Agreement, and as to those
matters the law of the jurisdiction under which the relevant business entity
derives its powers shall govern.
 
                      16.           Entire Agreement; Amendments and
Waivers.  This Agreement, together with all exhibits and schedules hereto and
thereto constitute the entire agreement between the parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties with
respect to such subject matter.  No amendment, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby.  No waiver of any of the provisions of this Agreement shall be deemed a
waiver of any other provision hereof, nor shall any such waiver constitute a
continuing waiver unless expressly provided in such waiver.
 
                      17.           Counterparts; Deemed Originals.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.  A facsimile or emailed .pdf file signature page shall be deemed an
original.
 
                      18.           Expenses.  Each party hereto shall pay its
own legal, accounting, out-of-pocket and other expenses incident to the
negotiation and execution of this Agreement.
 
                      19.           Invalidity.  In the event that any of the
provisions contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, then, to the maximum extent permitted by law, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement.
 
                      20.           Cumulative Remedies.  Except as otherwise
specifically provided in this Agreement, all rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, so that the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
 
                      21.           Captions.  The captions contained in this
Agreement in no way define, limit or extend any provision of this Agreement.
 
                      22.           Further Assurances.  The parties shall
cooperate reasonably with each other and with their respective representatives
in connection with any steps required to be taken as part of their respective
obligations under this Agreement, and shall each (a) furnish upon request such
further information; (b) execute and deliver such documents; and (c) do such
other acts and things, in each case as the other party may reasonably request
for the purpose of carrying out the intent of this Agreement and the
transactions contemplated herein.
 
                      23.           Relationship.  This Agreement does not make
either party the employee or agent of the other for any purpose
whatsoever.  Neither party is granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or in
the name of the other party.  In fulfilling its obligations pursuant to this
Agreement, each party shall be acting as an independent contractor.
 
                      24.           No Strict Construction.  The language used
in this Agreement shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction shall
be applied against any Person.
 

 
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 Dated this 27th day of December, 2011. WINLAND ELECTRONICS, INC.          
 
By:
/s/ Brian D. Lawrence       Brian D. Lawrence          Chief Financial Officer
and Senior Vice President          

 
 

  NORTECH SYSTEMS INCORPORATED          
 
By:
/s/ Curt Steichen       Curt Steichen       Senior Vice President Commercial
Business           

(Signature Page to Manufacturing Agreement)
 
 

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