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EXHIBIT 10.3
COOPERATIVE PRODUCTION AGREEMENT
This agreement is effective as of the 10th day of March, 1997, by and between
Delta Steel, Inc., a Texas Corporation herein referred to as "Delta" or
"party", and FWT, Inc., a Texas corporation herein referred to as "FWT" or
"party". By this Agreement, the parties hereby adopt the terms and conditions
of the Memorandum of Understanding dated June 26, 1996 and attached as Addendum
A to this Agreement, except that the terms and conditions relating to the lease
are excluded and replaced by the Lease Agreement dated March 10, 1997 between
the parties.
Both parties understand the character of the services to be provided under this
Agreement and represents itself as competent to perform such services. Each
party also represents itself as having the authority and licenses to do
business and perform the services in the area and state in which the work is to
be performed.
TERM
1.1 This Agreement shall be for an initial term of five years and shall be
automatically renewable at the end of the initial five year period.
Terms and conditions for the renewal period will be negotiated at the
end of the third year of the initial period.
CONFIDENTIALITY
2.1 The terms of this Agreement and the aforementioned Lease Agreement
shall be maintained in confidence by the parties. A Confidentiality
Agreement dated March 10, 1997 is attached as Addendum B to this
Agreement.
INSURANCE
3.1 To the extent that work is done by Delta or FWT personnel under the
supervision or direction of an employee of the other company, for
purposes of liability and indemnification, that work will be deemed to
have been performed solely by the company responsible for performing
such work.
3.2 Each party, at its sole expense, shall provide, at all times during
the performance of this Agreement, the following minimum insurance
coverage.
A. WORKER'S COMPENSATION INSURANCE providing statutory benefits
under the law in the state where the work is to be performed.
EMPLOYER'S LIABILITY INSURANCE with limits of
1,000,000/$1,000,000/$1,000,000.
Each party's policy shall include an alternate employer
endorsement naming the other party as an alternate employer.
Each party shall file workers' compensation claims, for
workers on its payroll, under its respective insurance
policy.
B. COMMERCIAL GENERAL LIABILITY INSURANCE providing coverage for
premises - operations, and products/completed operations; to
include contractual liability coverage, personal injury, x, c,
and u, broad form property damage and independent contractors
working for the parties. Limits of liability shall not be
less than the following:
$1,000,000 each occurrence
$1,000,000 aggregate-products/completed operations
$1,000,000 aggregate-general
$1,000,000 personal injury/advertising injury liability
$1,000,000 legal liability
FWT's CGL policy shall contain a legal liability form
endorsement which shall include fire, explosion, smoke and
water damage.
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COOPERATIVE PRODUCTION AGREEMENT
C. BUSINESS-AUTOMOBILE LIABILITY AND PROPERTY DAMAGE INSURANCE
providing coverage for all owned, non-owned and hired
vehicles. Combined single limits of liability for bodily
injury/property damage of $1,000,000 each accident.
D. UMBRELLA INSURANCE providing excess liability over General
Liability, Auto Liability and Employer's Liability with
minimum limits of $10 million each occurrence and $10 million
aggregate.
3.3 UNDERWRITERS SHALL HAVE NO RIGHT OF RECOVERY OR SUBROGATION AGAINST
THE OTHER PARTY, as the parties to this Agreement intend that the
insurance each has in force shall protect both parties and be liable
for all losses covered. All of the above policies must include a
waiver of subrogation in favor of the other party. Policies specified
in 3.2.B, C and D must name the other party as an additional insured.
3.4 CERTIFICATES AND ACKNOWLEDGMENT - Each party must provide current
certificates of insurance and proof of acknowledgement by the
respective insurance carrier prior to beginning any work. Insurers
must give 30 days notice of any cancellations of policies identified
in the certificates of insurance.
INDEMNIFICATION
4.1 Each party agrees to protect, indemnify, defend and hold the other
party free and harmless from all losses, costs and expenses -
including the amount of judgments, penalties, interest, court costs
and legal fees - of legal liabilities (claims, demands, and causes of
action, etc.) imposed in favor of or asserted by governmental agencies
or third parties (including employees of the other party or of its
contractors or subcontractors) caused by or associated with its (or
its contractors or subcontractors) failure to pay any tax, wage, debt
or other sum incurred by the indemnifying party (or its contractors or
subcontractors).
4.2 It is the intention of each party to maintain the insurance coverage
and limits specified in paragraph 3.2 above and indemnify the other
for claims or other liabilities caused by its actions or inactions.
For liability and indemnification purposes, each party shall be
responsible for the operations and products from its normal work
activities under the Agreement. This includes work performed under
the supervision or direction of managers or foremen who supervise the
work of both parties.
Each party agrees to indemnify and hold the other party harmless from
all losses, costs and expenses - including the amount of judgments,
penalties, interest, court costs and legal fees - of alleged or actual
legal liabilities (including settlements) for personal injuries,
illnesses, deaths or property damage founded upon occurrences in the
course of, or incident to, services performed or products or equipment
provided under the Agreement due to its negligence or gross
negligence. This indemnification obligation includes, but is not
limited to, claims made by its employees or employees of its
contractors or subcontractors, if the injury, illness or death is
sustained while the employee is in, on, or about the premises of
Delta, or is otherwise associated with services performed for, or
products or equipment provided to, the other party.
4.3 DEFENSE - Each party to the Agreement agrees to investigate, handle,
respond to, provide defense of, and defend any claim or other
potential legal liability for which it is responsible under this
Agreement's indemnification provisions at its sole expense, and agrees
to bear all other related costs and expenses, even if such claim, etc.
is groundless, false or fraudulent. The indemnification provisions
are intended to survive the termination of this Agreement.
4.4 ENFORCEMENT OF INDEMNITY OBLIGATIONS - All indemnity obligations
assumed by the parties are in no way limited by the insurance
provisions of this Agreement, as the parties intend that each be fully
responsible for liabilities assumed under this Agreement. All
indemnity obligations in this Agreement shall be enforced in the
courts of Tarrant County, Texas, with all costs of enforcement and
attorneys' fees of the prevailing party to be paid by the other party.
Each party to this Agreement hereby waives all defenses to such
enforcement which do not turn on factual issues affecting the
applicability of indemnity obligations.
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COOPERATIVE PRODUCTION AGREEMENT
DISPUTE RESOLUTION
5.1 Both parties agree to work together to resolve any issues or disputes
that arise under the Agreement. If a dispute cannot be resolved
between the parties within thirty (30) days of written notice to the
other party, then the dispute will be submitted to mediation through
the procedures then in effect by a dispute resolution organization
selected by mutual agreement of both parties. Both parties agree that
the mediation will be scheduled to begin no later than sixty (60) days
after the initial written notice of a dispute. If mediation is not
successful, both parties agree that the dispute will be submitted to
binding arbitration through an organization selected by mutual
agreement of both parties and the arbitration is to begin no later
than 30 days after the mediation is concluded.
GENERAL TERMS AND GOVERNING LAWS
6.1 The Agreement shall bind the parties, their respective successors,
heirs and assigns; but this Agreement shall not be assignable without
the prior written consent of the other party.
6.2 In the case of a change in ownership, management or corporate
organization of FWT, the successor owner(s), et. al. shall continue
operations under this Agreement, for the remainder of the then-term of
the Agreement, with a minimum monthly purchase volume from Delta equal
to the previous 12 months average. All other terms and conditions of
the Agreement shall remain in force.
6.3 "Party" means Delta or FWT, as applicable. Reference in this
Agreement to Delta, FWT or party includes any subsidiary, affiliated
or parent companies, and employees, officers, directors, agents,
representatives and contractors of the respective companies provided,
however, that the use of the term 'party' shall not impose any
personal liability on any such employees, officers, directors, agents,
representatives or contractors of the parties.
6.4 Obligations of the parties are subject to all valid applicable
federal, state, and local laws, rules and regulations. Venue for any
dispute or controversy relating to or arising out of this Agreement
shall lie in Tarrant County, Texas.
6.5 No conduct by a party, including waiver of any single performance of
obligations of the other party, shall affect required subsequent
performance of the other party's obligations under this Agreement.
6.6 The Agreement and referenced addenda comprise the entire agreement of
the parties; no changes shall be effective unless made in writing and
executed by both parties. The terms of the Agreement and addenda
shall govern in case of conflict with any previous or subsequent
writing, except any subsequent addenda executed by both the parties.
6.7 This Agreement is not intended to and shall not create a joint venture
or partnership between Delta and FWT.
NOTICES
7.1 Every notice, request, statement or xxxx provided for in the Agreement
shall be in writing and mailed or delivered to the following
addresses):
ADDRESSES:
FWT, Inc.: DELTA STEEL, INC: (Corporate Office) FORT WORTH DIVISION:
Delta Steel, Inc. Delta Steel Inc.
X.X. Xxx 0000 X.X. Xxx 0000 0000 Xxxxx Xxxxxxx
Xxxx Xxxxx, XX 00000 Xxxxxxx, XX 00000 Xxxx Xxxxx, XX 00000
Executed in duplicate original on the 24th day of March, 1997.
FWT, Inc.: DELTA STEEL, INC.
By: /s/ X. X. XXXXX By: /s/ X. X. XXXXX
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Title: President Title: President
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[DELTA STEEL, INC. LETTERHEAD]
ADDENDUM A
MEMORANDUM OF UNDERSTANDING
LEASED DELTA FACILITY
TERM AND PAYMENT SCHEDULE
The initial lease shall be for a term of five years and shall be automatically
renewable at the end of the initial five year lease. Terms and conditions for
the renewal period will be negotiated at the end of the third year of the
initial lease period. Lease payments shall be made monthly in advance.
BASIS FOR LEASE RATE
The monthly lease rate for the initial lease term (5 years) will include
construction costs, property taxes, and property insurance as described below:
o Construction cost of FWT's lease space and equipment shall include
building, drive, crane, new gate, warehouse and manager's office but
excluding press-brake foundation costs and fencing. The construction cost
is based on the contractor's final invoice to Delta Steel which will
include such costs as contractor's overhead, permit costs, etc... The total
construction cost attributable to FWT shall be amortized over 60 months
plus interest at an annual rate of 8%. The resulting amount shall form the
construction cost component of the monthly lease payment. Additional
capital additions which both Delta Steel and FWT agree need to be made
during the lease term (e.g., more cranes, equipment, etc ... ) and for
which FWT is the direct beneficiary, shall be amortized over the remainder
of the lease term with interest at 8%.
o Property taxes shall be 1/12 of the actual annual property taxes assessed
on the leased space and equipment. The billable amount shall be based on
the previous year and then adjusted to the actual tax amount once the final
assessment is received; and
o Property insurance on the leased portion of the building and the crane in
the estimated amount of $125 per month. This does not include FWT contents.
After the initial lease term of five years, the lease rate will be set at a
mutually agreeable market rate for comparable space, equipment and terms but in
no case shall the new lease rate exceed 80% of the current lease rate unless
capital improvements are made or more equipment is added at the request of FWT.
The capital improvements will be amortized over the new lease period.
In no case shall payments on the initial five year lease begin until the new
building is completed and the inventory, burning table, press-brake, and cranes
are all available and fully operational.
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Moreover, the facilities provided by Delta Steel for FWT shall be complete and
fully operational. Delta Steel will diligently work with the contractors to be
fully operational by 2/1/97. Any cash penalties collected by Delta from the
contractors for delays to the project which postpone the operational date past
2/1/97 will be shared equally with FWT.
If FWT is unable to use its leased space due to Delta's inability to provide
broken plate for poles, there will be no lease payment for that "period."
Instead, this "period" shall be added to the end of the initial lease term with
the same terms and conditions, including lease rate, as for the initial lease
period. The "period" is to be mutually defined by Delta Steel and FWT.
UTILITIES
FWT will be responsible for its own electrical service. A separate meter for
electrical services shall be provided by Delta Steel for FWT's leased space. FWT
shall be billed directly by the Texas Utility.
ACCESS/EGRESS
FWT shall have full access and egress to its leased facility 24 hours per day
via a dedicated entrance to the property and leased production area.
PARKING
Delta Steel shall provide parking for 8 to 10 FWT employees at no charge.
MAINTENANCE
FWT shall be responsible for maintenance and repairs associated with normal wear
on the crane which is covered by FWT's lease. FWT shall also be responsible for
any damage to the crane due to misuse or abuse. FWT shall not be responsible for
items covered under the crane manufacturer's warranty. FWT shall follow Delta
Steel's inspection and maintenance procedures.
ADVERTISING
As part of FWT's lease, Delta Steel agrees to place an FWT logo (approximately
4' x 8') at the entrance to FWT's leased facility as well as paint an FWT logo
(approximately 15' x 25') on the top, northwest corner of the FWT-leased
building.
CAPACITY ALLOCATION
FWT MONOPOLE SOURCING
Delta Steel shall be the exclusive supplier of FWT's broken-shaft monopoles with
only the following exceptions:
o Union Metals shall continue to furnish monopoles to FWT for heights of 100'
or less with base shaft diameters that are less than 28.5 inches;
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o FWT shall have the right to purchase steel and/or monopoles from other
sources if Delta Steel is unable, for any reason, to meet FWT's demand for
broken steel shafts and base plates. Once Delta Steel is able to resume
meeting FWT's demand, FWT shall revert to purchasing from Delta on an
exclusive basis.
FWT CAPACITY ALLOCATION
FWT will have the right to schedule its orders first on the designated Delta
Steel burning and press-braking equipment. If FWT is not using the equipment to
capacity, Delta Steel has the right to schedule orders for other customers after
first giving FWT the "right of first refusal" to place orders on the equipment.
After orders for other customers are scheduled, new FWT orders will not displace
the other customers' orders.
DELTA SERVICES FOR OTHER CUSTOMERS
As a condition of the lease, Delta Steel agrees not to directly brake monopole
sections for firms competing with FWT. Current competitors include: Xxxxxx and
Xxxxx, Xxxxxxx Industries, XXXX Corporation, Comsat, Xxxxxx Corporation, Sabre,
Stellar, Summit Manufacturing, XxXxxxx and Royle, PiRod, Falcon Steel, North
American Pole, Engineered Endeavors, GEM Engineering, Allied Corporation, Union
Metals, or other companies that may compete or enter into the communications,
utility, lighting, or highway-safety broken-shaft markets. This does not,
however, preclude Delta Steel from providing other services for these companies.
MANAGEMENT
FWT shall provide a shop/floor manager that is acceptable to Delta Steel. This
employee shall be employed and insured by FWT. Delta Steel will contract with
FWT for 50% of the manager's salary and financial incentives. The fee shall be
deducted monthly from the lease payment due to Delta Steel. Both FWT and Delta
Steel shall designate one person in each organization to whom the manager shall
report. Both FWT and Delta Steel shall review the manager and agree on base
salary, salary adjustments and financial incentives.
POLICIES AND PROCEDURES
GENERAL
Those employed by FWT shall follow FWT'S normal policies and procedures (see
attached), while Delta Steel employees shall follow Delta Steel's normal
policies and procedures. The only modifications shall be regarding Holidays, and
that all employees of FWT at the Delta facility shall follow the Delta Steel
Safety Policy and Substance Abuse Policy.
SAFETY
FWT shall follow the Delta Steel Safety Policy and Delta Steel Substance Abuse
Policy.
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QUALITY CONTROL
FWT and Delta Steel shall develop a mutually agreeable quality control program.
WAGE RATES
FWT and Delta Steel shall mutually discuss all base wage rates and incentives
(if any) for employees who work in the burning, braking, and seaming areas of
the plant.
HOLIDAYS
Prior to beginning the pole plant operation, FWT and Delta Steel shall agree on
the Holidays which will be offered to the pole plant employees.
INVENTORY
INITIAL LEVELS
FWT is responsible for furnishing Delta Steel specific sizes, grades, and
quantities of steel to be held in inventory for FWT's exclusive use. The
inventory held on site at Delta Steel in Ft. Worth, Texas is estimated to be
valued at approximately $2,000,000 to $2,500,000. Once the operation has been in
operation for six to nine months, the dollar value of inventory may be changed
based on the mutual agreement of Delta Steel and FWT. The shared objective is to
develop an inventory turnover of at least four times per year.
RESTOCKING
Once a piece of steel is removed from inventory, the piece shall be
automatically re-ordered by Delta Steel unless an alternate size, grade, or
quantity of steel is requested by FWT.
FWT GUARANTEE
At the termination of this lease agreement, FWT agrees to buy the remaining
plate steel inventory held by Delta Steel for FWT's exclusive use during a
period not to exceed twelve months following the termination of the agreement.
The steel shall be provided at the steel cost (as defined in this agreement)
plus $.01 per pound.
ELECTRONIC INVENTORY MANAGEMENT
Delta Steel shall furnish FWT with at least daily access to inventory
information which includes but is not limited to: size, grade, quantity, and
steel cost. In addition, FWT in cooperation with Delta Steel shall develop a
means by which inventory can be reserved for quoting purposes and then purchased
electronically.
OPERATION PRICING
Delta Steel's participation in the fabrication process of FWT monopoles is as
follows: plate steel is drawn from Delta Steel's inventory according to the
plate selected by FWT engineers (referred
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to as Plate Inventory), the plate steel is burned by Delta Steel according to
drafting details supplied by FWT (referred to as Burning), the newly burned
steel is then placed in a press-brake and formed into a multi-sided shell or
round by Delta Steel according to FWT-supplied drafting details (referred to as
Braking).
In addition, the following price schedule shall also apply to items sold by FWT
for products other than monopoles.
STEEL COST DEFINITION
Delta Steel's "steel cost" shall be Delta's average cost determined for each
item using the invoice prices of the steel less any discounts or allowances plus
the inbound freight. This steel cost shall be reflected in an electronic
database in which FWT shall have access.
PRICING BY FABRICATION PROCESS
Delta Steel agrees to perform the previously described fabrication processes
according to the following price schedule:
o Inventory/Plate Provision: Steel cost plus $.045 per pound on the gross
weight
Scrap from burning and braking belongs to FWT.
o Burning: $.04 per pound on the net weight of the finished product
o Braking: $.115 per pound on the net weight of the finished product
(adjusted based on incentive pricing). The weight is determined based on
the plate weight actually broken. Thus, the weight will be less than the
weight logged at the burning stage.
PRESS-BRAKE INCENTIVE PRICING
To encourage FWT to build total steel volume, the below incentive schedule shall
apply only to the Braking process. The incentive discount is not available on
broken pole business for FWT competitors that Delta Steel cannot sell including
those previously named in this memorandum.
DISCOUNT PER TON
----------------
OFF BRAKING PRICE AVERAGE MONTHLY VOLUME
----------------- ----------------------
o 0 0 - 1,000 Tons
o $10 1,001 - 1,250 Tons
o $15 1,251 - 1,500 Tons
o $20 1,500 + Tons
The discount shall be calculated on a quarterly basis (i.e., at the end of
March, June, September and December) by taking the average tonnage broken during
the previous three months. A credit shall be issued for the incentive discount.
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For example, on March 31, assume that 4,800 Tons have been broken by Delta
Steel for FWT (excluding other Delta Steel customers and FWT competitors for
which there is no incentive discount). The incentive discount amount would be
calculated as follows:
o The average tonnage is 1,600 Tons per month (4,800 Tons divided by three
months).
o The respective incentive discount due per month for the braking operation
would equal $8,250 computed as (250 tons * $10) + (250 tons * $15) + (100
tons * $20).
PAYMENT TERMS
1% / 10 days, net forty days from date of invoice.
INDEMNIFICATION
This section is to be completed by FWT and Delta Steel. The intent is that each
company would be responsible for its actions and/or negligence.
INSURANCE
To be completed after discussion between FWT and Delta Steel.
Executed this 26 day of June, 1996
/s/ XXXXXX X. XXXXX /s/ XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx, President, FWT C.E.O. Xxxxxx X. Xxxxx, President Delta Steel
/s/ XXXXX XXXXX /s/ V. XXXXXX XXXX
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Xxxxx Xxxxx, Treasurer, FWT V. Xxxxxx Xxxx, VP-Finance
/s/ XXXX XXXXX /s/ XXXX XXXXXX
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Xxxx Xxxxx, Vice President, FWT Xxxx Xxxxxx, Division Manager
Ft. Worth Division
/s/ XXXX XXXXX
---------------------------------------
Xxxx Xxxxx, Vice President FWT
/s/ XXX XXXXX
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Xxx Xxxxx, Vice President, FWT
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ADDENDUM B
NON-DISCLOSURE/CONFIDENTIALITY AGREEMENT
This agreement is effective as of March 10, 1997 by and between Delta Steel,
Inc., a Texas corporation, hereafter referred to as "Delta" or "party", and FWT,
Inc., a Texas corporation, hereafter referred to as "FWT" or "party".
WITNESSETH:
1.0 Both parties understand the nature and character of this Agreement, and
intend for this to be a fully binding agreement. The parties may use all legal
means at their disposal to enforce this Agreement. Reference to Delta and FWT
includes any subsidiary, affiliated or parent companies, and the directors,
officers, employees, agents, representatives and contractors of the respective
companies.
1.1 "Period of Affiliation", as used below, refers to the period of the
business relationship between the parties under the Cooperative Production
Agreement dated March 10, 1997.
1.2 Consideration for compliance with this Agreement is the opportunity to
work under the aforementioned Cooperative Production Agreement and any
remuneration in any form agreed to by the parties. This Agreement is intended to
extend beyond the Period of Affiliation.
2.0 Both parties agree that its representatives and employees will not at any
time, either during or subsequent to the Period of Affiliation, either directly
or indirectly, disclose to others or use any secret, confidential or proprietary
information and know-how of the other party (whether or not developed by the
other party) without that party's written consent. The term "secret,
confidential or proprietary information and know-how" shall include, but shall
not be limited to, company plans, customers, costs, programs, prices, computer
programs and methods used, developed, investigated, made or sold, at any time,
either before or during the parties' Period of Affiliation.
2.1 Salary and compensation information is considered confidential and
proprietary information, and is fully subject to the disclosure restrictions of
this Agreement.
3.0 The rights and obligations of the parties hereto shall be construed under
the laws of the State of Texas and shall be binding upon the heirs, legal
representatives and assigns with respect to the subject matter thereof. No
changes to this Agreement shall be effective unless made in writing and executed
by both parties.
DELTA STEEL, INC. FWT, Inc.
X.X. Xxx 0000 X.X. Xxx 0000
Xxxxxxx, XX 00000 Xxxx Xxxxx, XX 00000
BY: /s/ X. X. XXXXX BY: /s/ X. X. XXXXX
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TITLE: PRESIDENT TITLE: PRESIDENT
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DATE: 3/10/97 DATE: 3/31/97
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