EXHIBIT 10.1
MACHINED VALVE PRODUCTS SUPPLY AGREEMENT
THIS MACHINED VALVE PRODUCTS SUPPLY AGREEMENT ("Agreement") for the
purchase and sale of machined valve products is made this 31st day of
October, 1996, by and between MILFORD ACQUISITION, INC., a Michigan
corporation ("Milford") and XXXXXX-XXXXX COMPANY, A Delaware corporation
d/b/a Varity Xxxxxx-Xxxxx ("Kelsey").
WHEREAS, Milford desires to manufacture, sell and deliver to Kelsey 100% of
Kelsey's requirements of Machined Fluid Valve Products ("Products") as
listed on attached Schedule A for use in manufacturing fluid valve
bodies; and
WHEREAS, Kelsey desires to purchase 100% of its requirements of Products
from Milford.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. Purchase and Sale of Products.
1.1 During the term of this Agreement and subject to its terms and
conditions, Milford shall manufacture, sell and deliver to Kelsey and
Kelsey shall purchase and accept from Milford 100% of Kelsey's requirements
of Products. This Agreement applies to the current design level of the
Products described in Schedule A and any engineering changes made to the
Products through Kelsey's normal engineering change request system.
1.2 This Agreement provides the general terms and conditions applicable to
all purchases of Products by Kelsey from Milford and is intended to secure
the timely and adequate supply of Products to Kelsey from Milford.
1.3 In the event that a license is required for Milford to manufacture the
Products, and only in such event, during the term of this Agreement, Kelsey
shall xxxxx Xxxxxxx a non-exclusive, royalty free, license under any
patents, copyrights, trade secrets or other proprietary rights of Kelsey
which are necessary for Milford to manufacture, for sale to Kelsey only,
the Products.
2. Term.
2.1 This Agreement shall be for a term commencing on the date of execution
hereof and ending October 31, 2001, unless earlier terminated pursuant to
the terms and conditions herein.
3. Order and Delivery.
3.1 Except as otherwise attached hereto with respect to the Products, Kelsey
shall order all Products being purchased hereunder pursuant to a standard
Kelsey purchase order ("Purchase Order"), a copy of which is attached
hereto as Schedule B. The form of the Purchase Order may be amended from
time to time by Kelsey, in its sole discretion, provided notice of said
amendment is given to Milford at least (10) days prior to the effective date
of the amendment. Any such amendments to the Purchase Order shall become a
part hereof; provided, however, in the event of a conflict between the
terms of this Agreement and the Purchase Order, as it may be now or
hereafter amended, the terms of this Agreement shall control.
Notwithstanding the above, the terms of the Purchase Order, as it may be
amended, shall be construed, to the extent possible, as consistent with the
terms and conditions set forth in this Agreement and as cumulative;
provided however, that if such construction is unreasonable, the terms and
conditions of this Agreement shall control.
3.2 The Purchase Order shall include the reasonable terms of delivery and
acceptance including the date of order, description of Products,
specifications, place of delivery and terms of payment.
3.3 Milford shall timely deliver Products in accordance with Kelsey's
"Release Schedules" provided to Milford in conjunction with the Purchase
Orders and shall ship in accordance with Kelsey's shipping instructions;
provided normally accepted lead times are given.
3.4 Subject to the obligations set forth in Section 9.1, Kelsey's
obligation to purchase Products from Milford is conditioned on Kelsey's
continued use of the Products in manufacturing fluid valve bodies. If the
current design of any of the Products becomes obsolete to Kelsey during the
term of this Agreement or Kelsey terminates its production of fluid valve
bodies, Kelsey will have no further obligation to purchase such Products
under this Agreement.
4. Price.
4.1 All Products shall be sold by Milford to Kelsey at the price as set
forth on attached Schedule A, except as modified below.
4.2. The prices set forth on Schedule A were established using an aluminum
baseline price of $1.337 per pound for aluminum extrusion as of June 11, 1996.
The aluminum baseline price will be adjusted on November 1, 1996 and quarterly
thereafter based upon any changes in the price of extruded aluminum as
established on the first day of each quarter. Any adjustment to the aluminum
baseline price will cause a corresponding adjustment to the price of the
Products (based upon weight and purchased material costs).
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4.2a The ZWAL valve body was priced at $13.00 per unit in the Milford
Sales Prospectus. The pricing assumed a direct material cost of $6.50 per
unit. The pricing from Milford to Kelsey will be adjusted quarterly,
beginning November 1, 1996 based on the change in the price of casting
(direct material cost), currently sourced from Bone Aluminum. Any change
in the direct material cost shall cause a corresponding adjustment to the
price of the ZWAL products.
4.3 Notwithstanding Section 4.2, the price for the Twin Prop shall be
$5.75 per unit for the term of this Agreement.
4.4 Milford and Kelsey agree to jointly pursue cost savings and a
competitive price for the Products while maintaining a high quality
standard. Milford and Kelsey shall actively pursue development of new
technology and improvements to the design of the Products, the method of
manufacture (excluding bargaining unit contract modifications), materials,
packaging or transportation. Milford shall notify Kelsey of any cost savings
which result from such changes and provided Kelsey agrees to such changes,
the price of Products will be reduced so that each party shares equally in the
cost savings.
4.5 Kelsey shall be responsible for all increased costs occasioned by changes
in the design of the Products requested by Kelsey and the price of the
Products will be increased accordingly.
4.6 Any price adjustments made in accordance with this Section 4 shall be
evidenced by the issuance by Kelsey of a Purchase Order Change Notice
setting forth the adjusted price for Products, and the date upon which such
adjustment becomes effective.
4.7 Kelsey shall utilize its best efforts to arrange for the purchase of
aluminum by Milford through Kelsey's aluminum purchasing program, currently
with Xxxxxxxx Aluminum, upon the same terms as Kelsey purchases aluminum.
5. Payment Terms.
5.1 The terms of payment for Products will be net 30 prox.
6. Quality Commitment.
6.1 Milford will comply with Kelsey's General Quality Standards for
Suppliers (GQS) and have a pro-active quality assurance organization in
place which possesses the technical competence and testing equipment
necessary to properly control the manufacturing process.
6.2 The parties acknowledge that the Milford Plant is not currently
complying
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with GQS nor does it posses the appropriate testing equipment or adequately
apply statistical process control techniques in its operation. Milford
will use good faith efforts to promptly improve operations as it relates to
these various standards, processes and techniques.
6.3 Milford will use statistical process control techniques and actively
participate in Kelsey's T.O.P.S. and Error-Free Launch Programs.
6.4 Milford will obtain QS 9000 certification by December 31, 1997. Such
certification must be made by a third party certified registrar not
affiliated with Milford.
6.5 Capacity verification forms for each part number supplied must be on
file with Kelsey, and the forms must be updated on a yearly basis. All
capacity planning volumes (CPV) must be met on a two shift x 9.5 hours x 5
day x 48 week/year standard.
7. Inspection.
7.1 All Products shall be subject to inspection and if non-conforming may
be rejected by Kelsey within a reasonable time after receipt.
7.2 If Kelsey finds any shortage or excess in quantity of Products or
finds any Products to be non-conforming, Kelsey shall immediately advise
Milford thereof and the following shall occur:
a. If non-conforming Products are delivered, Kelsey shall be entitled:
(i) to charge Milford for storage and handling; (ii) to return the
Products to Milford at Milford's expense; or (iii) at Milford's
request, to dispose of the Products without liability of Kelsey to
Milford. Payment for non-conforming Products by Kelsey shall not
constitute an acceptance thereof, limit or impair Kelsey's right to
assert any legal or equitable remedy, or relieve Milford from
responsibility for latent defects.
b. If Products are delivered in excess of those set forth in the
applicable Purchase Order or Release Schedule, then Kelsey may, at its
option, receive only the quantity authorized and return the excess
Products to Milford at Milford's sole cost and expense or receive the
entire quantity of Products and charge Milford for any additional
expenses, losses or costs related thereto, including storage costs.
Kelsey shall provide to Milford reasonable documentation to support
any such costs and expenses.
c. If Products are delivered in quantities less than those set forth in
the applicable Purchase Order or Release Schedule, then, Milford shall
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immediately deliver the shortfall in quantity of Products at the time
and place designated by Kelsey.
d. If, as a direct result of a shortfall in quantity or the delivery of
non-conforming Products by Milford to Xxxxxx, Xxxxxx is unable to meet
its contractual or other obligations to its customers, Milford shall
be responsible for any and all costs, expenses, penalties or damages
which are imposed or assessed against Kelsey by said customer or
otherwise.
7.3 If non-conforming Products are rejected, Kelsey shall promptly notify
Milford of such condition and may request that replacement Products be
immediately shipped to Kelsey at Milford's expenses. At its option, Kelsey
may correct any defects in such Products and charge Milford for all
reasonable costs and expenses incurred in correcting such defects. All
non-conforming Products not otherwise accepted by Kelsey shall be handled
in accordance with Section 7.2a above.
8. Warranties.
8.1 Milford expressly warrants that all Products sold hereunder shall be
free from defects in materials and workmanship; that all Products will be
manufactured in accordance with applicable federal, state and local laws,
regulations and ordinances; and that the Products will be manufactured in
conformity with the specifications of Kelsey for use in the manufacture of
fluid valve bodies. The parties acknowledge that Milford shall have no
responsibility or liability related to the specifications or design of the
Products.
8.2 Milford shalt reimburse Kelsey for all damages and costs reasonably
incurred by Kelsey as a result of Milford's breach of any warranty set
forth herein, including: (a) costs incurred as a consequence of returning,
disposing of, repairing or replacing any Products which fail to comply with
Milford's warranty; (b) damages and costs arising, from claims of personal
injury or property damage caused by defective Products.
8.3 Milford shalt defend, indemnify and hold Kelsey harmless from and
against any and all claims howsoever arising, whether sounding in tort
contract, warranty, or otherwise, and all reasonable expenses, including
without limitation, attorney fees and court costs, arising after the date
hereof and resulting from any injury to or death to any person, or any
damage to property, caused by defects in Milford's manufacture of the
Products delivered hereunder. Milford shall further indemnify and hold
Kelsey harmless from the actual withdrawal and recall costs and expenses
incurred by Kelsey due directly to defects in Milford's manufacture of
Products.
8.4 Kelsey shall give Milford notice of all claims, including proposed
recalls, which will allow Milford to participate in all phases of the
investigation and handling of
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such claims or recalls. Milford and Kelsey shall consult with each other
on each claim to reach a mutually acceptable decision respecting liability.
9. Volume Commitment.
9.1 Subject to Section 9.2, Kelsey agrees to purchase from Milford products
and services totaling at least Ten Million ($10,000.000) Dollars during the
period from November 1, 1996 through October 31, 1997. The purchases to be
used to compute the above volume commitment will include the Products as well
as any other products and services purchased by Kelsey from Milford during
such year whether or not such products and services are of the type and nature
contemplated on the date hereof.
9.2 The above volume commitment (in the case of the purchase of "Products")
is based upon the prices of the Products established utilizing the metal
baseline price of $1.337 per pound for aluminum extrusion as of June 11, 1996,
and the unit price for the Twin Prop of $5.75; the unit price for the ZWAL of
$13.00 and the unit price for the EBC5-H of $28.57.
9.3 To determine whether or not the volume commitment described in Section
9.1 above has been met, the following calculation will be made for each
type of Product sold during the year:
Number of units sold the price per unit based
and shipped during the year x upon the prices in Schedule A
The product of each such calculation will then be added together and
combined with the total sales of other products purchased and shipped and
services received compared to the volume commitment for the year.
9.4 In the event that Kelsey fails to make sufficient purchases during the
first year of this Agreement, Kelsey shall, within (60) days following the
end of such year, pay to Milford twenty-five (25%) percent of any such
shortfall. There shall be no volume commitment by Kelsey after the first
year of the term of this Agreement as it may be adjusted under Section
9.5.
9.5 In the event of a strike by the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
("UAW"), or the Canadian Auto Workers ("CAW") in the Fall of 1996 against
Chrysler Corporation, Ford Motor Company, or General Motors Corporation,
which substantially affects the sale of Products by Milford to Kelsey, the
one (1) year period set forth in Section 9.1 shall be extended for the
purpose of determining whether the volume commitment has been met, by the
number of business days of the strike. The extension set forth herein
shall apply to the determination of the volume commitment only and shall
not otherwise extend the term of this Agreement.
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10. Termination.
10.1 If either party shall become bankrupt or insolvent, or if a receiver
or similar official is appointed for all or substantially all of its
assets, the other party may terminate this Agreement by giving ten (10) days
written notice to such party.
10.2 Except as provided in Sections 10.3 and 10.4 hereof,in the event that
Milford fails to comply with any material term of this Agreement or the
terms of the Purchase Orders, Kelsey shall give to Milford specific notice
with a thirty (30) day right to cure; thereafter, if Milford fails to cure
within the third (30) day period, Kelsey may immediately cancel this Agreement
in whole or in part.
10.3 In the event that Milford fails to meet the quality specifications
for the Products as described in Sections 6 and 8 hereof, then upon written
notice having been received from Xxxxxx, Xxxxxxx shall provide to Kelsey a
written proposal giving Kelsey adequate assurance that Milford will
eliminate the production of non-conforming Products within a reasonable
period of time and will meet all quality specifications for such Products
on future deliveries. In the event that Milford fails to deliver to Kelsey
an acceptable proposal, within thirty (30) days of notice having been received
from Kelsey or subsequently fails to conform to the requirements of its
written proposal, then Kelsey may by written notice to Milford, cancel
in whole or in part this Agreement or any Purchase Order or part thereof
issued pursuant hereto. Notwithstanding the above, no written proposal
shall be required under this Section 10.3 unless Milford delivers to Kelsey
non-conforming Products in excess of .5% of the total amount of Products
delivered in any thirty (30) day period during the term of this Agreement.
10.4 In the event that in excess of 1.5% of the Products delivered to
Kelsey during any thirty (30) day period are not timely delivered, then,
upon written notice having been received from Xxxxxx, Xxxxxxx shall provide
to Kelsey a written proposal giving Kelsey adequate assurance that Milford will
eliminate the delinquent deliveries within a reasonable period of time and will
meet all future deliveries on a timely basis. In the event that Milford fails
to deliver an acceptable proposal, within thirty (30) days of notice having
been received from Kelsey, or subsequently fails to conform to the requirements
of its written proposal, then Kelsey may, by written notice to Milford,
cancel in whole or in part this Agreement or any Purchase Order or part
thereof issued pursuant hereto.
11. Force Majeure.
11.1 If either party hereto is rendered unable, wholly or in part by
"force majeure" to carry out its obligations under this Agreement, it is
agreed that upon such party's giving written notice and full particulars of
such "force majeure" to the other party, then the obligations of the party
giving notice, so far as they are affected by such "force majeure," shall
be suspended during the continuance of any inability so caused, but for no
longer
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period, provided that such cause is, as far as possible, remedied with all
reasonable dispatch.
11.2 The term "force majeure" as employed herein shall mean any cause not
reasonably within the control of the party claiming suspension and which by
the exercise of due diligence such party is unable to prevent or overcome.
Such term shall include, but not be limited to: strike, lockout or other
industrial disturbance; natural disasters, such as storm, flood, fire,
lightning, explosion, or earthquake; war, riots, or insurrection; epidemics
or quarantine; and unavailability or delay in delivery of materials,
supplies or equipment.
11.3 Milford will notify Kelsey of each dispute with Milford's work force
and each dispute with a supplier that reasonably might affect Milford's
ability to manufacture and supply in accordance with this Agreement. Prior
to any labor disruption or the expiration of any labor contract, Milford,
at its expense, will fabricate and locate in an accessible area a finished
inventory of Products at the latest design level in quantities sufficient
to fulfill Milford's obligation to Kelsey for a minimum of thirty (30) days
after work stoppage.
12. Delivery.
12.1 Milford acknowledges that it has been informed that Kelsey intends to
use the Products purchased from Milford under this Agreement to manufacture
certain products which Kelsey is required to deliver to third parties at
specified intervals. Kelsey is relying upon Milford to timely deliver the
Products in strict compliance with the terms of this Agreement. In view of
the foregoing, Milford agrees to comply with all of the provisions hereof
regarding the time and quantities for the delivery of the Products to
Kelsey and shall be responsible for any failure under Section 7.2d.
12.2 THE OBLIGATION OF MILFORD TO DELIVER THE PRODUCTS UNDER THE TERMS OF
THIS AGREEMENT IS IMPORTANT TO KELSEY AND DISAGREEMENTS WITH RESPECT TO
PRICE ADJUSTMENTS SHALL NOT RELIEVE MILFORD OF THE OBLIGATION TO DELIVER
PRODUCTS TO KELSEY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. Milford
shall use its best efforts to continue to timely deliver the Products to Kelsey
in spite of any failure of the parties to agree upon any price adjustments
which may arise hereunder. Milford's sole remedy with regards to all such
disputes or disagreements shall be limited to the arbitration procedure as
provide in Section 16 hereof.
12.3 Pending any price adjustment and/or resolution of such price dispute
or disagreement, Kelsey shall continue to promptly pay to Milford all
amounts due to Milford for Products sold hereunder at the then current
price, in accordance with the provisions of Section 4 hereof, subject to
adjustment. The difference between the price paid by Kelsey and the
adjusted price shall be promptly paid by Kelsey or credited to Kelsey, as
the case may be, together with interest at the rate of ten (10%) percent
per annum, following a final
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determination of the adjusted price.
13. New Business.
13.1 Subject to any prior commitments or restrictions binding upon Kelsey,
in the event new products of the same basic manufacturing process are
required by Kelsey to replace the Products, or for new products, Milford
will be considered a preferred third party supplier and be given an
opportunity to quote those products in accordance with Kelsey's standard
bidding procedures.
13.2 Subject to the due diligence investigation and approval of Kelsey's
supply management and subject to any prior commitments or restrictions
binding on Kelsey: (i) Kelsey will designate "Form Flow" and "L & H Die,"
affiliated companies of Milford, as preferred third party suppliers, and
they will be given the opportunity to quote any non-direct sourced cold
heading tooling business required by Kelsey in accordance with Kelsey's
standard bidding procedures; and (ii) Kelsey will designate "Uniflow,"
an affiliated company of Milford, as a preferred third party supplier of
Kelsey and Uniflow will be given an opportunity to quote any new
non-direct sourced cold heading, extrusion and machining business required
by Kelsey in accordance with Kelsey's standard bidding procedures.
13.3 The status of Milford and its affiliates as preferred third party
suppliers of Kelsey and the right to bid granted hereunder shall not, nor
shall it be construed to, restrict Kelsey from manufacturing any products on
its own or give Milford a right of first refusal to manufacture any
products.
13.4 The decision to accept Milford, "Form Flow" or "L & H Die" as a third
party supplier of products shall be within the sole and absolute discretion
of Kelsey. In choosing a supplier or deciding whether to direct source the
supply of any products, Kelsey may consider a number of factors, including
but not limited to the ability of any such supplier to meet the price,
quality, delivery and other requirements of Kelsey. The past performance
of Milford and its affiliates as a supplier to Kelsey may also be
considered in any decision to award them future business.
14. Tooling.
14.1 Kelsey will be responsible, at it sole cost and expense, to purchase
any tooling required for the ZWAL and EBC5-H Projects. Such tooling will be
the sole and exclusive property of Kelsey. Milford shall be responsible,
at its sole cost and expense, to purchase any capital equipment required
for the ZWAL and EBC5-H Projects. The cost and scope of the ZWAL and
EBC5-H Projects will be mutually agreed upon by the parties.
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15. Management Fee.
15.1 Kelsey shall, upon execution of this Agreement, pay to Milford a
Management Fee of One Million ($1,000,000) Dollars. The Management fee,
among other things, is in lieu of a product price increase on current
product for the initial contract year.
16. Arbitration.
16.1 Any dispute between the parties shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association in the Detroit metropolitan area and judgement upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The parties acknowledge that time is of the essence
in connection with resolving any price adjustment dispute and that the
parties will cooperate with each other to promptly arbitrate any such
matters. The arbitrator shall award the prevailing party all costs,
attorneys' fees and other out of pocket expenses relating to the dispute
incurred by such party.
17. Confidentiality.
17.1 Kelsey and Milford agree to hold as strictly confidential between each
other the terms of this Agreement, to make no public disclosure thereof
except as required by law; and to limit private disclosure on a need to
know basis only to their employees, directors and consultants; provided,
however, that Kelsey and Milford further agree that should disclosure of
the terms hereof become legally required by court or administrative order
the disclosure may be made, but the party so disclosing must give the other
party reasonable notice prior to such disclosure.
18. Notice.
18.1 All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if mailed first class, postage prepaid, registered or
certified mail, or via confirmed telefacsimile, if available, as follows:
IF TO XXXXXXX XXXXXXX ACQUISITION, INC.
000 X. Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
WITH A COPY TO XXXXXXX VESPA
Xxxxx, Xxxxx and Page
000 X. Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
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IF TO XXXXXX Xxxxxx-Xxxxx Company
Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Director of Supply Management
WITH A COPY TO Xxxxxxx X. Xxxxx
Butzel Long
00000 Xxxxxxxxx Xxxx, #000
Xxxxxxxxxx, Xxxxxxxx 00000-0000
19. Miscellaneous.
19.1 This Agreement may not be assigned, either in whole or in part, by
either party without the prior written consent of the other party.
19.2 This Agreement contains the entire Agreement between the parties with
respect to the subject matter hereof, and the prior representations,
promises or conditions in connection with or in respect to the subject
hereof that are not incorporated herein are not binding upon either of the
parties.
19.3 The invalidity, illegality or unenforceability of any one or more of
the provisions of this Agreement shall in no way effect or impair the
validity, legality or enforceability of the remaining provisions hereof,
which shall remain in full force and effect.
19.4 Although Kelsey and Milford will work together to develop a strong,
mutually beneficial relationship, Kelsey and Milford will remain
independent contracting parties and this Agreement is not intended, nor
shall it create any partnership or joint venture between the parties, nor
make either party the agent or legal representative of the other for any
purpose whatsoever, nor does it grant either party any authority to assume or
to create any obligation on behalf of or in the name of the other party,
unless otherwise agreed upon by the parties and specified in any Purchase
Orders entered into by the parties.
19.5 The rights and remedies reserved to the parties in this Agreement
shall be cumulative, and additional to all other or further remedies
provided in law or equity.
19.6 This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan.
19.7 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed through their duly authorized representatives.
MILFORD ACQUISITION, INC.
By:/s/ Xxxxx X. Xxxxxxx
--------------------
Its:Chief Financial Officer
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XXXXXX-XXXXX COMPANY
By:/s/ Xxxxx Xxxxxx
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Its:VP Operational Audit
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