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Exhibit 10.8
SUPPLY AGREEMENT
This Agreement, made this 1st day of October, 1989, between XXXXX
INTERNATIONAL, INC., a Delaware corporation ("Buyer") and AMFORGE-XXXXX FORGE
COMPANY, a Delaware corporation ("Seller").
Buyer is currently engaged in the manufacture and marketing of, among other
things, rock bits and down hole tools which are machined from forgings. Some
of these forgings are manufactured at Buyer's forge plant in Irvine,
California. Seller is engaged in the manufacture of, among other things,
forgings. Upon acquiring certain assets of Buyer's Irvine forge plant and in
return for establishing manufacturing capacity, commitment to quality, timely
deliveries and certain price arrangements, Seller wishes to become a major
supplier of forgings to Buyer.
Therefore, Buyer and Seller agree as follows:
(1) Term. The term of this Agreement shall commence on October 1, 1989, and,
except as otherwise provided by Paragraph 5 hereof, shall continue for a term
of seven and one half (7-1/2) years.
(2) Quantity. Buyer agrees to buy from Seller 80% of its future requirements
for rock bit forgings of the type currently supplied out of the Irvine forge
plant. Forgings not being manufactured in the Irvine forge plant at the date
hereof are excluded from this Agreement. This exclusion includes forgings
already being purchased from other outside vendors, Italian forgings and small
mining bits. Buyer may ask Seller to quote these excluded forgings at a later
date on an individual basis to determine competitiveness. Vendor selection
shall be determined by Buyer at that time.
(3) Prices. (a) The price to be paid by Buyer for forgings shall be
determined by adding the conversion costs (i.e., labor, burden, overhead,
material yield loss and xxxx up) to the net competitive market cost for raw
material.
(b) The conversion cost shall be fixed from the date hereof
until the date seller ceases production at the Irvine forge plant at $0.62 per
pound, and, thereafter, until the second anniversary of the date hereof at
$0.59 per lb. This cost shall be reviewed annually thereafter with any
subsequent adjustments negotiated between Buyer and Seller and must be mutually
acceptable and competitive.
(c) The net competitive market cost for raw material shall be
the actual cost by finish forging weight of the alloy required. The raw
material costs shall be determined by competitive actual market prices (based
upon normal purchase quantities and conditions) and subject to periodic review
by Buyer not more than once every six months.
(d) There shall be a minimum charge per order as follows:
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Legs and TCI Cones
Minimum Charge Sizes
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$1000 Less than or equal to 7-7/8" bit size
$2000 Greater than 7-7/8" and less than or equal to 9-7/8"bit size
$3000 Greater than 9-7/8" bit size
Mill Tooth Cone Sets (i.e., #1, #2, #3 cones equal 1 set)
Minimum Charge Sizes
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$1000 Less than or equal to 7-7/8" bit size
$2000 Greater than 7-7/8" and less than or equal to 9-7/8" bit size
$3000 Greater than 9-7/8" bit size
(e) The payment terms shall be net forty-five (45) days from
receipt by Buyer of Seller's invoice.
(f) Forgings shall be shipped FOB, Azusa, California or
Irvine, California.
(4) Forging Dies. All forging dies to produce rock bit and down hole tool
forgings shall become the property of Seller, except as stated in Paragraph 5.
Dies shall be stored and maintained in working order at Seller's facility at
Seller's expense. Buyer shall pay for resinking of dies due to Engineering
revision or new dies for new products. All charges are subject to negotiation.
(5) Quality, Cost, and Delivery Considerations. Seller agrees to provide
Buyer with a quality product, delivered on time, at a competitive price, within
reasonable and agreed to lead times. Buyer shall provide Seller with as much
forecasting information as possible to assist Seller in planning for raw
material purchases and shop scheduling.
- A quality product is defined as being manufactured to the Buyer's
requirement and determined by Buyer to require no "in-house"
inspection upon receipt at Buyer's facility.
- Seller shall initially commit to 90% minimum on time delivery of
forgings to Buyer during first year transition period. Seller commits
to 95% minimum on time delivery, thereafter.
- Seller shall provide lead times to Buyer consistent with current lead
times provided by Irvine forge plant.
The 80% purchase commitment as stated in Paragraph 2 may be waived if Seller's
performance falls below above stated levels for a period of time that is
reasonably determined unacceptable by Buyer or if future price negotiations
between Buyer and Seller are unsuccessful. In such event, Buyer may relocate
dies, at no cost except freight and
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without cost to Seller, to another supplier to ensure necessary production
levels are maintained.
(6) Benefit of Parties. All of the terms and provisions of this Supply
Agreement shall be binding upon and inure to the benefit of Buyer and Seller
and their respective successors and assigns. In the event Buyer sells all or
substantially all of its business for which the forgings covered by this
Agreement are supplied, Buyer will have its obligations under this Agreement
assumed by the Buyer of such business.
(7) Notice. All notices provided for by this Agreement shall be considered to
have been received if sent by courier or by certified mail, return receipt
requested, post prepaid, bearing the following addresses:
(i) Buyer:
XXXXX INTERNATIONAL, INC.
00000 Xxxxx Xxxxxx
X.X. Xxx 00000
Xxxxxxx, XX 00000
(ii) Seller:
AMFORGE-XXXXX FORGE COMPANY
0000 Xxxxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
or such other addresses as Buyer or Seller may designate in writing as herein
provided.
IN WITNESS WHEREOF, the parties have executed this Supply Agreement.
XXXXX INTERNATIONAL, INC.
By /s/ X. X. XXXXXX
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X. X. Xxxxxx
Title Vice President & Chief Financial Officer
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AMFORGE-XXXXX FORGE COMPANY
By /s/ XXXXXX X. XXXXXXXX
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Xxxxxx X. Xxxxxxxx
Title Chairman
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