EXHIBIT 10.5
RECOVERY ENGINEERING, INC.
2229 Edgewood Avenue South
Minneapolis, MN 55426
Telephone (612) 541-1313 -- Fax (612) 541-1230
CONTRACT # THERMOTECH 1
Recovery Engineering, Inc. "REI", 2229 Edgewood Avenue South, Minneapolis, MN
55426 and
Thermotech
1202 South 5th Street
Hopkins, MN 55343
enter into this agreement dated November 25 for a period of 3 years, beginning
November, 1996 with an expiration date of November 1999, Thermotech is
hereinafter referred to as "Supplier." It is agreed that the following terms and
conditions shall apply to all orders placed by REI with Supplier during the term
of this agreement and shall supersede all other terms and conditions between the
parties that are contrary to these terms and conditions.
1. The following REI and/or supplier part numbers comprise the product(s)
covered by this agreement:
See attached addendum "A"
2. CONTRACT PRICE: as stated / see attached
PART NUMBER PRICE
See attached addendum "A" See attached addendum "A"
3. PAYMENT DISCOUNT TERMS: Net 57 days
The point in time used in qualifying for payment discounts is (initial one)
[ ] Scheduled delivery date
[ ] Invoice date
[ X ] Actual delivery date
4. FREIGHT TERMS: (initial one and complete)
[ ] Prepaid REI's dock St. Louis Park
[ ] FOB Origin Collect
[ ] Other: FOB Thermotech, Freight Prepaid
5. INVOICE OF FREIGHT: (initial one)
[ NA ] Separate invoice
[ NA ] Freight added to original invoice
6. DELIVERY:
REI has the right to cancel any goods not shipped on time. TIME IS OF THE
ESSENCE on all shipments. The supplier must notify REI of anticipated
delays. Early deliveries are subject to return at the supplier's expense
and liability. Premium freight costs incurred above the "standard routing"
transportation rate due to late deliveries, specified routing not used,
proper authorization or documentation and shipped to wrong location will be
assumed by the supplier. See attached addendum "B".
7. QUALITY INSPECTION:
REI has the right to inspect the goods for conformance to specifications,
merchanability, and fitness for purpose even though prior payments were
made for the goods. See attached addendum "B".
8. DEFECTIVE PRODUCT; HARMFUL INGREDIENTS: The Supplier hereby represents and
warrants that the Product is free of defects and harmful ingredients and
shall be liable for "latent" defects despite inspection and acceptance by
REI. The Supplier also represents and warrants that the Product complies
with the Consumer Product Safety Act and OSHA's Hazard Communication Rule.
9. RETURNS DUE TO QUALITY PROBLEMS: See attached QWR.
10. DELIVERY CHANGES:
REI has the right to hold up shipments because of strikes, accidents or
other causes of work stoppage at our plants.
11. DOCUMENTATION REQUIREMENTS:
REI purchase order number, line number, part number and quantity must
appear on all invoices, correspondence, shipping papers and packages. REI
reserves the right to charge back the supplier for non-compliance.
12. PROPERTY INSURANCE:
The supplier must have insurance for any of REI's property in the
supplier's possession and indemnify the buyer for any loss or damage.
13. PROPERTY PROTECTION:
Any tooling, dies, fixtures, artwork, photos, etc. "property" supplied by
REI or purchased by REI is REI's. Suppliers shall maintain REI's property
in good condition and must be returned to REI upon
request. Supplier acknowledges that title to such property is REI's and
shall return such property immediately upon request of REI.
14. PATENT OR COPYRIGHT INFRINGEMENT:
The Supplier represents and warrants that the Product does not infringe on
any patents, copyrights or other proprietary rights of third parties. The
Supplier agrees to indemnify and hold harmless REI from and against any
claims and expenses (including fees and expenses of counsel to REI) based
on the Product's infringement or alleged infringement of any patents,
copyrights or other proprietary rights of other parties.
15. OVERSHIPMENTS: (initial one)
[ ] Overshipments of quantities larger than ordered are allowed and
invoice at larger amount.
[ ] Overshipment of quantities larger than ordered are allowed but
invoice at order quantity.
[ X ] Overshipments are not allowed.
16. PURCHASE ORDER AND CONTRACT REVISIONS:
REI's purchase order is limited to the terms and conditions contained on
the face and reverse sides. Any additional or different terms proposed by
the supplier in any quotation, acceptance or other documentation previously
issued or issued hereafter are hereby deemed to be material alterations and
hereby objected to.
No revisions to the terms of this contract are permitted by anyone other
than the authorized buyer.
17. ORDER CANCELLATIONS:
REI has the right to cancel the contract and purchase order if the supplier
fails to comply with the terms of this agreement.
18. BUYER'S RIGHTS:
Payment for the goods will not end REI's rights under this contract, or the
representation on warranties of supplier concerning the goods.
19. PRODUCT WARRANTY: The Supplier hereby represents and warrants the Product
to be merchantable and fit for the purpose for which REI intends to use the
Product. The Supplier further represents and warrants that the Product
complies with all applicable federal, state and local laws.
20. WORKER SAFETY INSURANCE:
REI has a hold harmless clause for services performed on our premises. The
supplier must have a specified amount of Worker's Compensation,
Occupational Disease, and Public Liability Insurance and furnish the proof
of such insurance to REI.
21. PRODUCT DESIGN PROTECTION:
The supplier agrees not to use REI's drawings, designs or tooling to
produce goods for another customer.
22. PRODUCT TESTING:
Additional time may be needed to inspect or test material/machinery at
REI's facility. REI's right to reject goods or material shall extend
through the times of inspection.
23. TERMINATION:
REI shall have the right to terminate the contract at any time without
cause with 90 days written notice.
Supplier's claim is limited to reasonable cost the supplier has incurred.
REI is not liable for material, labor, etc. bought in unreasonable
anticipation of REI's needs or manufactured in advance of requirements.
24. ASSIGNMENT/SUBCONTRACTS:
Supplier is restricted from doing so with REI's written permission. REI
shall have the right to assign the contract.
25. PROPRIETARY INFORMATION:
The supplier shall keep REI's proprietary information in confidence.
Nondisclosure agreement attached.
26. SUBSTITUTIONS:
The supplier cannot make any substitutions without REI's written consent.
27. TAXES:
The supplier's price is to include all taxes.
28. ARBITRATION:
Disputes over the terms of this agreement shall be determined by
arbitration. Arbitration shall be held in the State of Minnesota, the laws
of the state of Minnesota shall apply.
29. TOOLING TERMS AND CONDITIONS:
See attached addendum "C"
These terms and conditions agreed upon this 25th day of November, 1996.
THERMOTECH RECOVERY ENGINEERING, INC.
/s/ Paul J. Stanton /s/ Brian F. Sullivan
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Authorized Signature Brian Sullivan, CEO
/s/ Sally S. Mainquist
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Sally Mainquist, V.P. Manufacturing
/s/ Neal Hiatt
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Neal Hiatt, Materials Manager
/s/ Debra Johnson
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Debra Johnson, Sr. Buyer
ADDENDUM "B"
Thermotech has agreed to the following:
1. No mark-up of resin material in the pricing of Addendum "A".
2. Thermotech and REI will establish a kanban system with three weekly
deliveries, REI will make an effort to maximize truck space efficiency.
3. Cost reduction target of 5% per year. Share cost reduction when provided by
supplier 50/50.
4. Quality will at 98% or better, quality improvement plan to be developed by
Thermotech for each part number; REI to hold a strategy meeting to
determine time frame for quality improvement for each part number.
5. On-time delivery performance of 95% or better.
6. Recyclable packaging will be implemented for each part as deemed; parts to
be requoted based on using recyclable packaging. Cost of containers
purchased for this will be 50% cost to Themotech and 50% cost to REI.
7. First article samples will provided to REI at no charge.
8. It is at the discretion of REI to amortize tooling charges as follows: 1/3
down with tooling order, balance with interest over one (1) years
production parts, unpaid balance due 12 months after mold approval.
9. Goal of Dock-to-Stock for all items is directly linked with quality
improvement plan meeting.
11. Weekly on-site support will be provided by Thermotech; on-site support to
include Thermotech becoming member of REI teams where parts provided by
Thermotech will be impacted.
12. For new parts quoted agreed pricing calculation will shared with REI:
i.e.: Overhead
Press Rate
Material
Cycle time
13. Future price increases proposed will be based on documented material
increases only.
14. Thermotech to accept excess raw material resulting from related tool
transfers; only sealed drums of virgin material is acceptable. (At
Thermotech's standard cost.)
15. Material Certification will be provided with each shipment as specified by
NSF standards.
RECOVERY ENGINEERING, INC.
QUALITY WORKING RELATIONSHIP AGREEMENT
1. INTRODUCTION
1.1 SUPPLIER QUALITY GOALS
Recovery Engineering, Inc. will work in harmony, mutual respect and
cooperation with its suppliers.
* Suppliers have the responsibility to deliver exactly the product
and/or service that they have promised to produce.
* We expect the standard of performance of our suppliers to be zero
defects.
* If problems exist, or if it is necessary to make corrections, we
expect our suppliers to satisfy all complaints fully and as
quickly as possible, then to correct the system that produced the
problem.
2. SUPPLIER QUALITY ASSURANCE REQUIREMENTS
2.1 QUALITY CONTROL SYSTEM
The supplier is responsible for the quality of the material and
processing provided to Recovery Engineering, Inc. The supplier shall
maintain an effective quality control system coordinated with
production activities. The system shall provide prompt detection of
discrepancies and immediate corrective actions to prevent defective
supplies from reaching Recovery Engineering, Inc. The supplier's
system should be documented and the records must be available for
audit and review as deemed necessary by Recovery Engineering, Inc.
2.2 ORGANIZATION
A responsible, authoritative representative of the supplier with
immediate access to top management must administer the quality control
system.
2.3 DESIGN AND PROCESS CHANGE CONTROL
No product, part number, or critical processing changes shall be made
on material supplied to Recovery Engineering, Inc. without prior
specific authorization by Recovery Engineering, Inc. Notification of
all such changes, and their effect on meeting commitments on
outstanding purchase orders, must be made to authorized persons in the
Recovery Engineering, Inc. Purchasing Department. In some cases,
sample approval will be required.
The supplier will maintain an effective drawing change control system
to ensure that only current drawings and specifications are used.
Obsolete information must be removed from all points of issue and use.
2.4 PROCEDURES
The supplier shall provide and maintain written work, inspection and
test instructions, as required, to supplement drawings and
specifications. These instructions shall be kept current and be
available at all locations where they are needed.
2.5 INSPECTION AND TESTING
Suppliers are expected to inspect and test products supplied to
Recovery Engineering, Inc. to assure conformance to specifications of
applicable drawings, standards, etc. Acceptance inspections or tests
performed by Recovery Engineering, Inc. do not relieve the supplier of
this responsibility.
2.6 MEASUREMENT AND TEST EQUIPMENT
The supplier must provide and maintain measuring and test equipment in
sufficient quantities necessary to ensure continued accuracy. This
equipment must be updated to reflect engineering changes. The supplier
should maintain and conform to a written schedule for maintenance and
calibration of such equipment.
2.7 CONTROL OF SUBCONTRACTED SUPPLIES
The supplier is responsible for ensuring that all supplies obtained
from outside sources for use in products supplied to Recovery
Engineering, Inc. conform to all specified requirements.
The supplier may use one or all of the following methods to ensure
receipt of conforming subcontracted materials:
* Quality assurance surveys at its supplier's location.
* Satisfactory inspection and test results, or certification of
compliance, provided by subsupplier.
* Performance of incoming inspections and tests at adequate
frequencies to ensure conformance to specifications.
2.8 QUALITY DOCUMENTATION
The supplier is required to be able to document its quality system and
quality performance experience. Adequate records must be maintained of
all inspections and tests performed. These records are to be available
for review by Recovery Engineering, Inc. representatives on request.
2.9 QUALITY STATUS IDENTIFICATION
The supplier must identify the inspection and test status (okay,
reject, sort, hold, rework, etc.) of all purchased materials, raw
materials, work in process, and finished materials by means of stamps,
tags, routing cards, color codes, or other normal means.
3. QUALITY ASSURANCE PROCESS
3.1 MATERIALS QUALIFICATION
Materials qualification is the process used by Recovery Engineering,
Inc. to assure that a given supplier's material or process will
conform to requirements in a given application.
The process consists of these steps:
* Review and approval of all new engineering drawings by Purchasing
and Design Engineering. Input from suppliers may also be
requested during this stage of drawing review.
* Inspection of all prototype and sample parts by Quality Control
Department.
* Reliability testing by Engineering Department.
3.2 RECEIVING INSPECTION
All materials received at Recovery Engineering, Inc. must pass through
Receiving Inspection. Inspection levels vary from simple physical
identification to complete dimensional and functional check, depending
on past performance.
3.3 NONCONFORMANCE REPORTING SYSTEM
All purchased part nonconformances are documented on a Nonconformance
Report (NMR). The information from each of these reports, along with
the associated costs of quality, is stored in a computer database and
used for reporting supplier quality performance. Purchased part costs
of quality include rework labor, factory overhead, scrap, and
paperwork and material handling costs. Should the NMR be written at
receiving inspection, the NMR, along with a marked drawing and past
history, is then forwarded to the Recovery Engineering, Inc.
appropriate buyer.
3.4 DISPOSITION OF DEFECTIVE MATERIAL
Nonconforming material is handled in one of the following ways:
* Return to supplier -- this is Recovery Engineering, Inc.'s
preferred disposition method. It will be used whenever possible.
* Scrap at Recovery Engineering, Inc. at supplier's expense --
supplier will be notified prior to disposition.
* Rework at Recovery Engineering, Inc. at supplier's expense --
supplier will be notified prior to reworking.
All NMRs are required to have corrective action prior to disposition.
All suppliers will negotiate in good faith the settlement of all cost
incurred associated with the nonconforming parts they ship to us.
3.5 RETURNING DEFECTIVE MATERIAL
* RETURN FOR REPAIR, REPLACEMENT OR CREDIT: Materials returned for
repair,
replacement, or credit will be accompanied by a copy of the
Return form, which serves as the packing slip.
The return order packing slip explains the reason for return,
quantity returned, new purchase order number, etc.
* WARRANTY RETURNS: A Return form also accompanies all warranty
materials returned to the supplier. The return order packing slip
explains that the materials were returned from the field under
warranty, reason for return, etc.
Any material which is repaired and returned to Recovery Engineering,
Inc. under the Return form must be in "as new" condition. This
includes appearance items (painting, plating, etc.), packaging, and
complete inspection and testing to new material specifications. No
reference to any defect shall be on the material or package, and all
required "loose" items (mounting hardware, clevis pin, keys, etc.)
must be included. Material marked "rebuilt" or "reconditioned" will
not be accepted.
3.6 SUPPLIER CORRECTIVE ACTION
A Corrective Action Request will be used by Recovery Engineering,
Inc.'s Quality Group to notify suppliers of nonconformance and to
obtain documentation as to the cause of the discrepancy and the
corrective action taken by the supplier.
If a score of 3 or less is received on the Quality Audit Survey, the
supplier must provide a corrective action plan for improvement.
Suppliers are responsible for detailing the reason for the
nonconformance, a statement of corrective action taken to prevent the
noncomformance from recurring, and the effective date. All requests
must be answered on or before the date specified. All answered
requests are reviewed by Recovery Engineering, Inc. Quality or
Purchasing. The form will be reissued if specific corrective action is
not specified.
Signed: Date: Signed: Date:
/s/ Robert O. Bishop 8/9/96 /s/ Neal Hiatt 8/21/96
- -------------------------- ----------- ------------------------ -----------
Q.A. Manager Materials Manager
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Title Title
Thermotech Recovery Engineering
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Company Name Company Name
ADDENDUM "C"
TOOLING TERMS AND CONDITIONS
RECOVERY ENGINEERING, INC.
INTRODUCTION
The following terms and conditions supplement those shown on the reverse side of
our Purchase Order and supersede any inconsistent provision on Purchase Orders
for the supplying of tooling by Seller to Recovery Engineering, Inc.
(REI/Buyer).
IDENTIFICATION AND MARKING
1.0 Supplier shall identify all new tooling as designated in the tooling
purchase order. This applies to REI owned tooling. A tool number shall
be assigned and affixed to the tooling indicating the funding and/or
controlling agency, i.e., Property of REI.
2.0 Marking shall be accomplished in the appropriate manner of those
methods listed below, unless otherwise stated on the purchase order.
Extreme caution must be exercised so as not to damage or distort tools
when placing identification markings on them.
2.1 Whenever practical, the required identification should be placed
on the tools by metal stamping. The size of the letters and
figures used for metal stamping should be in proportion to the
size of the tool and clearly legible.
2.2 On hardened parts and parts that may be distorted by stamping, or
where it is otherwise impractical to stamp, the required
identification may be applied by etching or other means of
permanent identification.
2.3 Metal identification tags should be used in identifying tools
where because of size and delicate construction, it is
impractical to mark them otherwise. When using metals tags,
identification data should be placed upon the metal tag and
securely attached to the tool with a wire lead.
2.4 When a tool consists of more than one part, individual parts
shall be marked in accordance with 2.1, 2.2, , of 2.3 above.
PAYMENT
Upon acceptance of tooling in accordance with the paragraph below, Seller shall
submit an invoice to Buyer for payment. To qualify for payment, the invoice must
be accompanied by the following:
1.0 A complete listing of all tools produced under the purchase order, and
breakdown of material, labor, etc. for each tool including a copy of
the quote and invoice from tool shop selected.
2.0 A tool drawing of each individual tool if specified. A photo is
optional.
EXCLUSIVE RIGHTS
Upon acceptance of tooling, in accordance with the paragraph below regarding
acceptance, and upon payment of Seller's invoice, all tooling produced under
this purchase order becomes the property of REI. Use of this tooling for any
purpose other than that authorized by Buyer is strictly prohibited.
MAINTENANCE AND INSPECTION
All tooling produced under this purchase order will be maintained by Seller in
usable condition, at no cost to Buyer, while tooling is in their possession.
Upon completion of all purchase orders for production usage of these tools,
Seller shall store the tooling in adequate protective storage at no charge to
the Buyer. Such tools will be subject to inspection by Buyer at Seller's plant
or Seller's subcontractor's plants at any time.
DISPOSITION
If no further requirements for usage of the tools arises, Seller shall request
disposition of such tooling. Disposition will be advised in writing by the
REI/Buyer. If Seller is to return tooling to the REI/Buyer, the cost of
transportation shall be paid by the REI/Buyer; however, preparation of tools for
shipment shall be responsibility of the Seller.
1.0 WHEN ANY TOOLING IS REVISED, THE REVISION LEVEL SHALL ALSO BE ADDED TO
THE TOOLING NUMBER.
OWNERSHIP AND TRANSFER
1.0 Ownership of all tooling remains with REI. This includes any tooling
which a supplier shall subcontract to his supplier.
2.0 Transfer of tooling directly from one supplier to another is not
permitted unless authorized in writing by REI.
ACCOUNTABILITY
Supplier shall maintain property control records. Such records will contain at a
minimum the following information for each item:
1.0 Identification number, revision level, and description of tool
2.0 Cost of tool, including any revision costs
3.0 Number of parts made, including revision level
4.0 Tooling purchase order number and contract number, if existent
5.0 Location
6.0 Final disposition action and dates
7.0 Drawings, sketches or photograph of tools
ACCEPTANCE
Acceptance of tooling produced under this Purchase Order will be based on
acceptance of a sample lot of parts (quantity shown on face of purchase order
for parts). This sample must meet all specifications, prints, and requirements
as shown on the producing parts that meet a process capability index (CPK)
greater than or equal to 1.33 on all parameters specified. NOTE: Acceptance of
tooling on the basis of sample parts does not constitute acceptance of
subsequent material, as each lot of material is subject to inspection and
acceptance upon receipt.
UTILIZATION
Supplier shall not use any tooling procured by REI except for REI approved uses.
MODIFICATION
Supplier shall not modify REI tooling without written authorization from REI via
a purchase order or a change order to the tooling order.
RECALL
REI tooling is subject to recall any time without additional expense by the
Buyer.
MASTER REFERENCE
1. Tool is to be a __________ cavity tool.
2. Tool base is to be made of high quality prehardened tool steel. All
cavities and cores are to be made with high quality hardened tool steel.
Tool is to be designed to standard quality mold practices.
3. Tool is to have sufficient cooling and venting to allow tool to run at
optimum performance. 4. Tool is to have sufficient part ejection system to
allow the tool to run at optimum performance with minimal part deformation.
5. Tool is to be manufactured to produce parts per Recovery Engineering,
Inc.'s Drawing Number _____ (at the most recent revision supplied) and to
meet all specifications on the drawing. Recovery Engineering, Inc. will
supply a CAD drawing disk file.
6. No steel for tool is to be cut prior to Recovery Engineering, Inc.'s review
of the tool design and written sign off. Supplier is responsible for
providing this as part of total tool cost. Responsibility for the tool
design capability remains with the supplier.
7. Supplier to supply Recovery Engineering, Inc. with complete tool drawings
prior to acceptance of the tool.
8. All tooling and designs are the sole property of Recovery Engineering, Inc.
9. Payment terms are as follows:
A. 1/3 at the time of order (vendor to supply invoice) Net 30
B. 1/3 with first samples (vendor to supply invoice) Net 30
C. 1/3 with final part approval (vendor to supply invoice) Net 30
10. On tools transferred to supplier that were not purchased from supplier,
responsibilty and tool life will be determined after assesment of the
condition of the tool (s). Tool will then be guaranteed for a remainder of
expected life of tool with determined mumber of shots and all maintenance
and repair being the responsibility of Thermotech.
11. Tool is to be guaranteed for a life of _____ million shots, with all
maintenance and repair being the responsibility of Thermotech.
12. Complete first article report and samples are required prior to production
from new or revised tooling. Thermotech to provide 1st article samples at
no charge to REI.
13. Supplier will assume ownership of all related fixtures to the piece parts
of tools at the Supplier.
SIGNED:
RECOVERY ENGINEERING, INC.
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Company Company
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Title Title
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Signature Signature
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Date Date