Exhibit 10.4
PURCHASE AGREEMENT
This Agreement is made as of the 26th day of October, 1999, by and between
wCaterpillar Inc., a Delaware corporation ("Buyer"), and Galaxy Industries
Corporation, a privately held Michigan Corporation, ("Seller"), 41150 Joy Road,
Plymouth, Michigan 48170, for purchase and sale of 3406C and 3406E cylinder
block assemblies. Buyer and Seller hereby agree as follows:
1. PRODUCTS COVERED BY AGREEMENT
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This Agreement concerns the purchase and sale of 3406C and 3406E cylinder block
assemblies for the Caterpillar model 3406C and 3406E engines (such cylinder
block assemblies are hereinafter called "Product" and are more particularly
identified by the Caterpillar Part numbers specified in Exhibit A), manufactured
to Buyer's specifications.
2. PURCHASE AND SALE OF PRODUCT
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Seller will maintain adequate capacity to manufacture not less than 13,750
units of Product annually based on a five day per week work schedule
calculated at an eighty (80) percent efficiency factor. Buyer commits to
purchase a minimum of 7,500 units of Product annually. Notwithstanding the
foregoing purchase requirements obligation, nothing in this Agreement shall
preclude Buyer from sourcing Product from suppliers other than Seller in
order to enable Buyer to meet governmentally determined local country
sourcing or minimum content requirements, whether mandated or established by
other means such as quotas, duties or fiscal incentives or penalties.
3. PRODUCT PRICES
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Prices are effective February 23, 2000 and are as shown in Exhibit A and
subsequently adjusted as provided in Section 9. Exhibit A may be modified from
time to time by the signed written agreement of both parties.
4. TOOLING
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From time to time, Buyer will issue to Seller durable tooling, fixture and/or
gauging purchase orders authorizing Seller to purchase, and to charge back to
Buyer, certain durable tooling, fixtures and/or gauging. Such durable tooling,
fixtures and/or gauging will not exceed $1,700,000 in cost and is identified in
Exhibit B hereto. Buyer shall retain ownership of all such items listed in
Exhibit B, and Seller agrees to properly maintain such items at its own expense.
5. TERM
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Buyer shall commence its purchases under this Agreement February 23, 2000.
Unless terminated pursuant to other provisions herein, this Agreement shall
continue until terminated by either party at any time upon not less than twelve
(12) months prior written notice to the other party specifying the effective
date of termination; provided, however, that in no event shall the effective
date of termination be prior to February 23, 2006.
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6. TERMINATION
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Buyer may terminate this Agreement at any time, either totally or partially, in
the event of the following defaults by the Seller which are not cured within
thirty (30) days of written notice to the Seller.
(a) QUALITY - Products do not consistently meet Buyer's technical,
quality, reliability, and other specifications as they exist today and are
communicated to Seller from time to time. Buyer will not be liable for any
expenses, material, tooling, labor, or burden due to substandard quality.
(b) DELIVERY - Seller does not meet all Buyer schedules with timely
shipments and daily shipments, if required. Buyer should not have to expedite
normal deliveries. It is the obligations of the Seller to maintain an up to
schedule condition after a reasonably time period. That time period will be
agreed upon by Seller and Buyer for each part number listed in Exhibit A. Upon
cases of nondelivery, in addition to any other rights hereunder or provided by
law, Buyer has the right to purchase the needed Product on the open market in a
commercially reasonable manner, and Buyer and Seller agree to negotiate "cost to
cover" charges as well as mitigate Buyer damages.
(c) COMPETITIVENESS - Seller fails to be responsive to the market place
or fails to remain competitive with other manufacturers of comparable parts in
terms of price, quality, quantity, availability, engineering, services,
technology, reliability, and timely delivery. For purposes of this contract,
prices shown in Exhibit A are deemed to be competitive.
(d) SELLER INSOLVENCY - Seller shall become insolvent or otherwise
generally be unable to pay debts as they come due, or make a general assignment
for the benefit of creditors.
(e) SELLER BANKRUPTCY - A petition under any bankruptcy act or similar
statute is filed by a creditor or Seller and is not vacated with ten (10) days
through court order.
(f) DEFAULT GENERALLY - Default by Seller in any obligation owed by
Seller to Buyer.
Buyer's decision on termination shall be final. Seller has (30) days from
postmarked date of written notice to rectify defaults. Buyer will be reasonably
in making the final decision.
7. USE OF OTHER SUPPLY SOURCES
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Nothing in this Agreement shall prevent Buyer from seeking other sources for
Product if Seller's production capacity is insufficient to meet Buyer's needs.
Seller will be provided the opportunity to quote additional volumes.
8. SHIPPING INSTRUCTIONS, TERMS AND CONDITIONS
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Buyer requires 100% on time shipments of the delivery plan to meet production
and service requirements.
Orders will be placed using Buyer's standard purchase order and shipping
instruction forms. Any special freight charges will be Seller's responsibility
if necessary to meet not more than one hundred fifteen percent (115%) of Buyer's
then current requirements, provided Seller is given not less than twenty (20)
days notice of such requirements. The terms and conditions of Buyer's purchase
order will govern these purchases to the extent that they are not inconsistent
with this Agreement.
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9. PRICE CONTAINMENT
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Both Seller and Buyer are committed to controlling and reducing costs, and both
recognize that effective cost control is of the essence to this Agreement. While
this Agreement is in effect, Seller will maintain a cost control and reduction
program with respect to Product, and will review costs on a regular basis for
progress toward the objective of maintaining or reducing Seller's prices to
Buyer. A constant interaction between Buyer's and Seller's engineering personnel
is essential. All documented cost savings on Seller's machining of the cylinder
block, whether through the efforts of Seller or Buyer, will be shared on a 50/50
basis.
10. ASSIGNMENT; APPLICABLE LAW
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This Agreement is not assignable by Seller without the written consent of Buyer
and will be governed by and construed in accordance with the laws of the State
of Illinois, without regard to the conflict of laws provisions thereof.
11. CHANGE IN OWNERSHIP AND CONTROL
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During this Agreement, if there is a change in the ownership and control of
either party, the other party shall have the option of terminating this
Agreement immediately by giving written notice thereof. For the purposes of this
Section 11, a change in the ownership and control of either Buyer or Seller or a
parent company of either party, if appropriate, shall be deemed to have occurred
if and when any one or more persons acting individually or jointly hereafter
becomes a beneficial owner, directly or indirectly, of securities representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of Seller or Buyer or the parent company of either party.
12. QUALITY
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The Quality System Standard QS-9000 Section 1 shall be the fundamental quality
system standard applied to the processes required to produce Caterpillar
products. In addition, there are Buyer specific quality system and process
control elements that shall be included as stated in the Supplier Guideline for
preparing Quality Plans and the Engine Division Supplier Certification
Guidelines (the "Buyer Standards"). The seller shall develop quality systems and
process control programs that are documented in adequate detail that fulfill
both the QS-9000 standard and Buyer standards. There may be additional data
required based on the type of product being produced and supplied to
Caterpillar. The supplier shall provide copies of the Quality Manual, quality
systems and process control support documentation upon request by Buyer
representatives. Buyer may request the supplier provide periodic statistical
data on critical process and product characteristics.
Changes to the manufacturing processes and/or product shall be communicated to
Buyer prior to implementing the change by completing the Production Part
Approval Process (PPAP) and utilizing the Process Change Management process.
This will include changes required by Buyer's design changes or changes by the
seller to improve the process throughput, cost, quality and/or capability. The
Global 8D Problem Solving process shall be the preferred method for documenting
problems and corrective actions.
Seller shall validate and report metallurgical, dimensional, and soundness data
to ensure Buyer's specification are fulfilled. Seller shall retain all records
for a minimum of 2 years from the date of the last shipment. Copies of these
records shall be provided to Buyer upon request.
The seller shall obtain registration to QS-9000 by an accredited registrar by
December 31, 2000.
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13. INDEMNIFICATION
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Seller agrees to indemnify, defend, and hold buyer harmless against and from all
claims, demands, liabilities, loss, damage, cost, and expense, of whatsoever
nature, arising from or in any way connected with the injury or death of any
person or loss or damage to property as a consequence of, or attributable to,
any defect of design, material, or workmanship of Product or failure of Product
to conform with Seller's and Buyer's specifications, drawings, and data.
14. FORCE MAJEURE
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Neither Buyer nor Seller shall be liable for any delay in or failure of
performance of their respective obligations hereunder if such performance is
rendered impossible by reason of fire, explosion, earthquake, accident,
breakdown, strike, drought, embargo, war, riot, act of God or of public enemy,
an act of governmental authority, agency or entity, shortage of raw materials,
or any other contingency, delay, failure or cause, beyond the reasonable control
of the party whose performance is affected, irrespective of whether such
contingency is specified herein or is presently occurring or anticipated by
either party. Upon the occurrence of any event covered by this provision, Seller
and Buyer shall make every effort to continue to maintain as much as possible
the supplier-customer relationship established under this Agreement. However, in
the event Buyer and Seller is unable to meet its obligations hereunder because
of the conditions described above and such inability continues for a period of
two (2) months, the other party shall have the right to terminate this Agreement
upon thirty (30) days prior written notice.
15. WARRANTY PARTICIPATION
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Seller warrants that each Product shall be in full conformity with Seller's and
Buyer's specifications, drawings, and data. Seller agrees to credit Caterpillar
for any Product covered under the standard warranty provided by Caterpillar to
its customers and sold by Seller, which is deemed defective through a joint
review process performed by Buyer and Seller, in the amount of Dealer Net Price,
limited to three (3) times the purchase order price, plus any reasonable and
customary charges for labor performed during normal working hours caused by
failure of the Product or its replacement.
For any ancillary damage caused by Product failure, where Product was the causal
part, as identified through a joint review process, Seller shall credit Buyer
for the cost of any and all parts damaged because of the Product failure in the
amount of dealer net price, not to exceed a total amount for ancillary damage of
$100,000 per calendar year.
These costs shall be identified by Caterpillar through its Field Incident
Reports and Service Information System. Caterpillar agrees to make available
appropriate engineering personnel for review of defective Product as requested
by Seller, at Caterpillar's facility.
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16. MISCELLANEOUS
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This Agreement and the terms and conditions referenced in any purchase order
issued by Buyer in connection with this Agreement (to the extent not
inconsistent with this Agreement) constitute the entire agreement and
understanding between the parties with respect to the subject matters herein and
therein, and supersede and replace any prior agreements and understandings,
whether oral or written, between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of all parties to this Agreement.
The waiver by either party of any breach of this Agreement shall not be deemed
or construed as a waiver of any other breach, whether prior, subsequent or
contemporaneous of this Agreement. Invalidation of any of the provisions
contained herein, or the application of such invalidation thereof to any person,
by legislation, judgment or court order shall in no way affect any of the other
provisions hereof or the application thereof to any other person, and the same
shall remain in full force and effect unless enforcement as so modified would be
unreasonable or grossly inequitable under all the circumstances or would
frustrate the purposes hereof. Section headings contained herein are for ease of
reference only and shall not be given substantive effect. This Agreement may be
signed in one or more counterparts each to be effective as an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives as of the date first set forth above.
CATERPILLAR INC. GALAXY INDUSTRIES CORPORATION
("BUYER") ("SELLER")
By: /s/ W. M. McCowan By: /s/ BUD GOLDSMITH
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Title: GESM Title: PRESIDENT/CEO
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Date: November 9, 1999 Date: OCTOBER 26, 1999
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By: /s/ C.P. Elwyn
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Title: Manufacturing Manager
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Date: December 15, 1999
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By:
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Title:
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Date:
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EXHIBIT A
PRODUCTS:
Caterpillar part numbers:
3406C 152-7646
3406E 137-8467
ANNUALIZED VOLUME PRICING:
FOB Galaxy's Canton, Michigan plant.
3406C
Value Added Material & Mark-Up Containers Packaging Total
7,500/yr $739.18 $823.14 $2.25 $5.43 $1570.00
10,000/yr $676.59 $823.14 $2.25 $5.43 $1507.41
12,500/yr $622.13 $823.14 $2.25 $5.43 $1452.95
3406E
Value Added Material & Mark-Up Containers Packaging Total
7,500/yr $662.95 $815.06 $2.25 $5.43 $1485.69
10,000/yr $611.84 $815.06 $2.25 $5.43 $1434.58
12,500/yr $555.90 $815.06 $2.25 $5.43 $1378.64
Any combination requirements of 3406C, 3406E or replacement part numbers as
defined in note one below may be added together in order to achieve
annualized volume prices.
NOTES:
1. Products include the current part numbers and any new or replacement part
numbers issued by the Buyer and agreed upon by Buyer and Seller.
2. Prices are based on specifications and engineering change levels as of the
commencement date of this agreement.
3. Prices are firm except for changes resulting from volume pricing as noted
above, material & mark-up price changes. Price Containment provisions of
Section 9, and changes in Buyer's specifications.
4. Price adjustments will be made as of the first of each month based upon
annualizing the coming month's forecasted volume as provided by Buyer.
Partial weeks or months will be prorated as nearly as possible to the
exact monthly amount.
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EXHIBIT B
Durable tooling, fixtures and/or gauging owned by the Buyer:
At the completion of this project Seller will provide complete documentation for
the durable tooling, fixtures and/or gauging purchased on the Buyer's behalf.
Documentation will include a complete description of the durable tooling,
fixtures and/or gauging purchased and the price paid by Seller. Seller further
commits to label all durable tooling, fixtures and/or gauging so that it is
easily identifiable as the property of Buyer and to provide a complete list of
all durable tooling, fixture and/or gauging to Buyer. Exhibit B will then be
revised to reflect the additional detail.
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