EXHIBIT 10.22
MEMORANDUM OF UNDERSTANDING
A. NU-TEC Incorporated (NU-TEC) has designed, manufactures and sells
Townsend, Amity, Brendan and Upland wood-burning stoves. NU-TEC
represents that it owns the unencumbered right, title and interest in
and to the cast-iron body designs that it sells. The design of the
Amity cast-iron stove and the Hepplewhite cast-iron stove are the sole
property of NU-TEC. NU-TEC will indemnify and defend DESA from any
claims or cost arising from breach of these warranties that would
prevent DESA from marketing these designs.
B. DESA desires to procure and market under the DESA Brands, such as
VANGUARD, the Amity (Federal) Gas Stove Body and Hepplewhite Gas stove
Body designs developed by NU-TEC. DESA promises not to procure any
cast-iron designs from other suppliers that are so similar to the
NU-TEC designs as to be construed by the consumer to possibly be NU-TEC
designs.
C. DESA will design and manufacture the log set or firebox to be inserted
into the cast-iron body. DESA accepts the responsibility for the safe
design, testing, and manufacture of the finished product - a ventless
heater. NU-TEC grants DESA the exclusive right and license to market
the Amity (Federal) Gas Stove Body and Hepplewhite Gas stove Body
designs in the United States.
D. NU-TEC will manage the acquisition of the Amity (Federal) Gas Stove
Body and Hepplewhite Gas stove Body designs from China on behalf of
DESA. NU-TEC will have personnel living in China to help fulfill this
function. NU-TEC will negotiate prices and other contractual terms with
the Chinese manufacturers, will do quality control inspections, and
will generally coordinate the activities relating to acquisition of
high quality, reasonably priced cast-iron stoves from China.
E. NU-TEC will be paid a management fee which will be calculated based on
DESA unit purchases of AMITY Gas Stove Bodies. The fee becomes owed
when a container clears customs. (Any subsequent rejects or claims do
not effect the management fee.) The fee for each painted stove body
will be $60.00 and for each enameled stove body $70.00. The management
fee is due 30 days from the time containers clear customs.
F. DESA will be responsible for all non-China purchases through their own
purchasing department. NU-TEC will continue to forward information that
may be helpful. NU-TEC may purchase items at DESA's request with the
understanding that DESA will reimburse NU-TEC immediately. NU-TEC will
not mark-up such purchases. (For example, DESA is responsible for the
Forest Paint to be shipped to China for the AMITY stoves.) NU-TEC will
purchase the paint per DESA's mix of color designation and invoice DESA
for the total cost, without mark-up.
G. The AMITY cast-iron body assembly will be shipped completely assembled,
except for legs and grill (packaged to avoid damage inside), and
palletized and boxed. The
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cardboard outer box will be imprinted with the DESA name and VANGUARD
logo, if desired. The cardboard box and plastic bag will be designed to
be lifted off and the gas insert assembly will be inserted either at
the DESA factory or by the installer. A discreet line will be printed
on the carton that notes: "Body by NU-TEC". DESA will provide either
the camera ready artwork or labels containing bar codes, etc.
H. DESA promises not to do anything intentionally to hurt the NU-TEC name
or the brand recognition. NU-TEC will place its name 'discreetly on
each stove and it will appear on the gold foil (1/2" x 2") inspection
sticker that also serves to announce "Made in China". NU-TEC promises
not to do anything intentionally to hurt DESA's reputation or
distribution program.
I. DESA will immediately retain exclusive marketing license of the Amity
(Federal) Gas Stove Body and Hepplewhite Gas stove Body designs for
1997 and thereafter for so long as DESA's annual management fee payment
exceeds $120,000.00 for each unit. DESA may retain the exclusive
license, but take less stoves provided the fee is paid.
J. If DESA is unwilling or unable to fulfill the above requirements or
otherwise wishes to terminate this Agreement, DESA will be responsible
for payment for Amity (Federal) Gas Stove Bodies and Hepplewhite Gas
stove bodies on the orders that are completed within 30 days of written
notice. The remaining prepayment portion of the agreement will be
forfeited to the China manufacturers. DESA' s termination of this
Agreement must not leave NU-TEC with any financial obligations from
DESA authorized purchases (such as paint incurred on DESA's behalf.
Components or subassemblies that have been paid for but not taken to
completion will be turned over to NU-TEC at no charge.
K. NU-TEC will be able to purchase up to twenty of the AMITY Gas Stoves
from DESA at a price equal to DESA's lowest selling price to date
within the current recording year. NU-TEC may purchase at this price in
any quantity up to the twenty and will be afforded the standard payment
terms of a DESA distributor. NU-TEC will not resell these stoves as to
jeopardize DESA's current distribution.
L. Neither NU-TEC or any of its employees, including Peter S. Albertsen,
are to be held liable for problems with deliveries, prices, or quality
of items purchased from third parties. While DESA monies will be
directed through the NU-TEC banking account, it is understood that all
purchases are third party.
M. NU-TEC will use any funds that DESA provides only for the express
purpose of purchasing goods and services on behalf of DESA. Only the
Management Fee may be applied to NU-TEC's own expenditures and income.
N. DESA may send a representative at any time to review the operation in
China and inspect product. This is encouraged especially when we begin
shipping finished product. During these visits, the DESA representative
will be accompanied by a Rhode Island - based NU-TEC staff member and a
China based NU-TEC staff member to interpret. During these visits DESA
will be responsible for inland travel,
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food and lodging expenses for the DESA representative and NU-TEC
personnel accompanying him. DESA will not be responsible for NU-TEC's
airfare to China unless a special unscheduled trip is requested by
DESA.
O. This Agreement is intended to obey the laws of Kentucky, Rhode Island,
the United States of America and the Peoples Republic of China. It will
be interpreted pursuant to Rhode Island law.
P. Any dispute that cannot be resolved by the parties to this Agreement is
agreed to be resolved by independent arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
("AAA"). It will be the obligation of the plaintiff to take his case to
the State of the other party. (DESA must take its complaint to the AAA
in Rhode Island and NU-TEC must take its complaint to the AAA located
in Kentucky.)
Q. This Agreement is not transferable without the written consent of both
parties, which consent will not be unreasonably withheld..
R. The terms and conditions of the Chinese Factories will be discussed
with DESA. Payment terms must be agreed upon by both the China
Factories and DESA. For the initial order of 2,000 Amity (Federal) Gas
Stove Body and 1,000 Hepplewhite Gas stove Body designs the following
payment schedule applies:
$25.00 Per Stove Prepayment - Deposit with order locks in your costs
for one year or as many stoves prepaid, whichever comes first. All of
these funds are wired to China and are applied towards the purchase of
materials. For 2000 stoves the prepayment is $50,000. NU-TEC will make
this prepayment on behalf of DESA in return for $6.00 added to the
Management Fee. $60.00 goes to $66.00. DESA is responsible to NU-TEC
for repayment of the prepayment if they cancel their order. DESA has
the option taking over the prepayment responsibility and thus
eliminating the $6.00 fee to NU-TEC by reimbursing NU-TEC for any
outstanding prepayment funds.
China Costs - Due upon clearance of the containers through U.S.
Customs. NU-TEC will invoice DESA for all of the China costs without
any mark-up. Generally the $25.00 prepayment would be deducted for each
stove. NU-TEC will take this credit if it makes the prepayment for
DESA. The terms are net. Payment should be sent via 2 day mail to
NU-TEC within a week from receiving the invoice. NU-TEC wires these
funds to China.
At the time of this writing, the cost for the painted Amity Stove Body
as detailed below. The Forrest Paint must be supplied to the China
factory. The current estimated landed cost per gallon is $24.00. The
estimated usage is 4 to 5 stoves per gallon. The screen and back panel,
if painted will push this number towards the 4 units per gallon. The
back panel is currently intended to be enameled to enhance the flame
view. If we need to cut back on costs we could settle on a painted back
panel.
The estimated cost for the enameled Amity Stove Body is $196.00, but
price and 1997 availability has not been firmed up yet.
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Ocean freight charges are currently running $2,620.00 (Savannah) or
$2,070 (San Francisco) plus $224.00 insurance. This equates to $13.50
to $16.73 per stove, assuming 170 stoves per container. We do not have
the inland freight costs yet, but we know H-N-G pays $1,200 total for a
container delivery to Savage, MN from Seattle. This equates to $7.05
per stove.
Revised Costs as of 2/20/97 Annuity
Summary $110.00 Painted Stove with drop floor, swing out bottom
door, expanded metal black painted steel screen,
black enameled 1.5mm thick back panel, on pallets
and in a cardboard box. (We used up the $10.00
contingency cushion we have used for preliminary
discussions.)
$ 6.00 Forrest Paint (assumes 4 stoves per gallon average)
$ 16.73 Ocean Freight (highest to East Coast)
$ 60.00 Management Fee (+ $6.00 Fin. Chg. not included)
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$192.73 Landed Stove Cost
$ 7.05 clearance and inland freight to DESA (should be less,
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600 miles Savannah to Bowling Green vs. +1,200
miles from Seattle to Savage, MN
$199.78 TOTAL LANDED
Estimated Maximum Landed Cost = $202.00.
Estimated Minimum Landed Cost = $197.00.
The largest variables are the freight.
Management Fee - The Management Fee is invoiced Net 30 at the same time
as the "China Costs" are invoiced. The Management Fee may not be
debited. Rejects are handled as credit memos applied to subsequent
"China Costs" Invoices or parts replacements as defined below.
The China factories have agreed that rejected units or components will be
replaced on subsequent full container shipments. There is no allowance for
freight or labor, only replacement of parts or the complete unit in an extreme
case. Enamel or cosmetic damage or rejects must be identified and documented at
the time that the stove body is received at DESA - otherwise it is assumed that
the damage happened in the United States. Cast-iron that fails in the field will
be replaced for up to three years. The enamel is not warranted against chips -
it is glass. If it delaminates or peels it will be replaced for up to three
years.
With the small number of rejected units we have had - approx. 20 in 4000, a
partial value (50%) credit memo was issued and the units were turned into spare
parts. Several units received full credit. China did not request that they be
shipped back.
S. The AMITY Gas Stove bodies will be the same basic components and of the
same typical quality as the sample units provided to DESA up to this
time. NU-TEC will continue to make refinements for the betterment of
the product.
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Several product refinements will be made before initial shipment of the
Amity stove, including lowering the floor and adding a hinged door to
conceal the controls. A black paint screen will be installed behind the
front window. The ash lip will be removable for improved visual and
manual access to the controls.
T. This agreement runs by the calender year and will automatically be
renewed each year on November 30th unless written notice is provided by
certified mail before this date. In the event that DESA has not taken
all of the initial order 2000 Amity stoves, plus 1000 Hepplewhite by
the end of December 1997, the remaining balance may be applied to the
1998 agreement. In 1998 and thereafter, DESA agrees to order at least
2000 pieces of each model.
U. DESA will provide to American Credit Indemnity any financial
information necessary for NU-TEC to obtain Receivables Insurance.
NU-TEC Incorporated
Dated: February __, 1997 By_________________________
Peter S. Albertsen
President
DESA International
Dated: February __, 1997 By_________________________
John M. Kelly
President