Exhibit 10.7
MANUFACTURING SUPPLY AGREEMENT
(SHILOH AUTOMOTIVE, INC.)
This Manufacturing Supply Agreement ("Agreement") is made and entered into
effective as of the 10th day of May, 2002, by and between MTD PRODUCTS INC, an
Ohio corporation ("MTD") and SHILOH AUTOMOTIVE, INC., an Ohio corporation
("Shiloh").
W I T N E S S E T H:
WHEREAS, MTD is in the business of the development, manufacture, sale and
distribution of lawn and garden products and associated attachments and
accessories; and
WHEREAS, Shiloh is primarily in the business of the development,
manufacture and sale of automotive parts and is also involved in the manufacture
and sale to MTD of components parts for outdoor power equipment; and
WHEREAS, MTD concurrently with the execution of this Agreement has
purchased certain assets utilized by Shiloh to manufacture certain parts for
MTD; and
WHEREAS, the parties desire to define a certain manufacturing supply
agreement whereby MTD will purchase from Shiloh and Shiloh will sell to MTD
certain parts on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
1. Manufacturing Equipment. Concurrently with the execution of this
Agreement, MTD and Shiloh have executed a Purchase Agreement pursuant to which
MTD purchased from Shiloh two (2) lawn mower blade lines and related equipment
as further identified in Schedule One attached to the Purchase Agreement ("Blade
Lines"). The Blade Lines are located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
(the "Facility"). The parties acknowledge and agree that the Blade Lines will be
utilized exclusively by Shiloh for the manufacture of lawn mower blades for MTD
and its subsidiaries and affiliates.
2. Shiloh Service Fee. Upon execution of this Agreement, MTD shall pay to
Shiloh, via wire transfer, the amount of Five Hundred Thousand Dollars
($500,000.00). Such payment will compensate Shiloh during the term of this
Agreement for the following: (a) provision of manufacturing space for MTD
without charging rent; (b) subject to Section 18 of this Agreement, normal,
customary and routine maintenance of the Blade Lines and the MTD owned tooling
and dies and related equipment; (c) assistance with protection of MTD's
intellectual property rights; (d) provision of cross functional team assistance
to MTD to implement standardization, product substitution, part re-engineering
and new product
development; (e) compliance with and maintenance of records for the Blade Lines
regarding environmental matters; and (f) other obligations of Shiloh under this
Agreement.
3. MTD Component Parts. Shiloh will continue as provided herein to
manufacture for MTD the lawn mower blades, as further identified and set forth
on Exhibit A attached hereto. Additional parts not listed on Exhibit A may be
ordered by mutual agreement of MTD and Shiloh (the parts listed on Exhibit A and
any such additional parts, collectively referred to as the "Parts").
4. Non-Exclusive Purchase. Subject to Section 6 hereof, Shiloh acknowledges
and agrees that MTD is not obligated to purchase any specific volume of Parts,
and that MTD may, during and/or after the initial term of this Agreement, source
the Parts with other vendors or internally. Notwithstanding the above, MTD shall
give Shiloh sixty (60) days prior notice should MTD desire to source the Parts
to another vendor or have the Parts produced internally at MTD and will
coordinate any such re-sourcing consistent with current practices between the
parties. If MTD determines to re-source certain Parts, the related amount of raw
material (steel) inventory held by Shiloh consistent with relevant lead-times
which cannot be used for production of other Parts, will be purchased by MTD at
Shiloh's cost.
5. Planning. During the term of the Agreement, MTD and Shiloh will
coordinate capacity planning for supply of the Parts. Based on capacity
limitations during the relevant peak season for Parts, Shiloh will "pre-build"
based upon the Forecasts hereinafter set forth and ship Parts to MTD to cover
MTD's peak demand. During such peak seasons, capacity planning will be based on
two shifts five (5) days per week. Shiloh will not increase the purchase prices
for the Parts if Shiloh requires use of overtime and/or third shifts in order to
deliver the Parts consistent with the Forecasts and capacity planning
thereunder.
6. Forecasts. MTD will provide to Shiloh a twelve (12) month rolling
forecast of its requirements (830 Reports) (the "Forecasts"). MTD will meet with
Shiloh to periodically review these forecasts.
7. Order Forms. MTD shall use its standard-form purchase order to order
Parts hereunder. The provisions of this Agreement shall be deemed part of each
Purchase Order and/or written quantity release, and in the event of conflict
between the Purchase Order and/or written quantity release as currently written
or amended in the future and this Agreement, the terms of this Agreement shall
control. The arbitration provision of any Purchase Order from MTD will not be
applicable.
8. Purchase Prices. The initial purchase prices for each of the Parts
will be the prices set forth on Exhibit A attached hereto. Pricing during the
term of this Agreement will change as a result of:
(a) Annual five percent (5%) price reduction each year, on the anniversary
date of this Agreement, applied to Shiloh's "value-added component" of
the purchase prices as set forth on Exhibit A attached hereto; and
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(b) Periodic cost changes for raw materials (steel) used to manufacture
the Parts resulting from material (individually or in the aggregate)
increases or decreases based on prices charged to Shiloh by MTD's
designated vendors. Such adjustments may be implemented on the
initiation of either party and will be determined by the mutual
agreement of the parties. Such agreement shall be based on the prices
charged to Shiloh by the MTD designated vendor and such agreement will
be subject to commercially reasonable review by both parties. MTD and
Shiloh will not unreasonably withhold their consent to such
adjustments.
In addition to the above, MTD may conduct market-based price surveys to
assure that all prices are competitive and if necessary, will review the results
with Shiloh to assure that prices remain competitive.
9. Payment. Unless otherwise mutually agreed, MTD will pay to Shiloh the
amount shown in the Shiloh invoices for the Parts as follows: within
seventy-five (75) days for Parts delivered in November - April; within
forty-five (45) days for Parts delivered in May - July; and within ninety (90)
days for Parts delivered in August - October. Nevertheless, if MTD, in good
faith, disputes some amount shown therein and gives Shiloh prompt written notice
of such dispute, MTD will pay any portion thereof not in dispute within the time
herein specified, and the parties will as soon as reasonably practical
thereafter, attempt in good faith to resolve the disputed portion of such
invoice.
10. Sourcing of Steel. In the production and manufacture of the Parts,
Shiloh will purchase and have shipped directly to Shiloh's Facility, steel to
produce the Parts. Shiloh will not change the source of the steel without MTD's
prior written consent.
11. Tooling. MTD owns and has provided to Shiloh all current relevant
tooling, dies and certain related items utilized for the production of the
Parts. Shiloh will take all appropriate actions to maintain the tooling, dies
and other related items utilized to produce the Parts consistent with good
business practices, ordinary wear and tear excepted. Upon the termination of
this Agreement and/or production of a specific Part hereunder and as provided
hereunder, Shiloh shall permit MTD to remove the applicable tooling, dies and
related items no longer needed for production of the applicable Part provided
that MTD has paid to Shiloh all invoices issued hereunder except to reasonably
disputed amounts set forth in Section 9.
12. Delivery. Shiloh will ship Parts in accordance with MTD's releases for
delivery of its requirements (862 Reports). Without limiting the provisions of
MTD's Purchase Order terms and conditions, if Shiloh does not timely deliver the
Parts set forth in MTD's Forecasts and as a result MTD cannot timely deliver
such applicable end products to its customers, MTD may assess Shiloh charge
backs in amounts equal to the verified amounts which the customers of MTD charge
back to MTD due to late delivery of the applicable end products sold by MTD to
its customers. MTD and Shiloh will review any such matters prior to MTD
assessing any charge backs and MTD will submit proper documentation and
verification of such charge backs.
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13. Customer Support and Communications. Shiloh will provide a single point
of contact to manage the Parts supply with MTD. This single point of contact
will monitor day-to-day customer satisfaction (at each of MTD's plants) in the
areas of delivery, quality and operations support. Where appropriate, Shiloh
will provide on-site support at MTD's location at no additional cost.
14. Location of Blade Lines. The Blade Lines are currently located at the
Facility. During the initial term or any renewal term of this Agreement, Shiloh
agrees that Buyer shall not be required to remove the Blade Lines from the
Facility. Shiloh will continue to reserve the exclusive areas utilized for the
operation of the Blade Lines consistent with past practices during the initial
term of this Agreement or any renewal term of this Agreement as applicable.
Subject to Section 2 hereof, MTD shall not be required to pay any rent or rental
related charges with regard to the placement of the Blade Lines at the Facility.
Shiloh will maintain insurance on the Facility.
15. Term of Agreement. Subject to earlier termination as set forth in
Section 19 of this Agreement, the term of this Agreement shall be three (3)
years. Unless a party hereto provides written notice to the other party at least
thirty (30) days prior to the end of the initial term of this Agreement or any
renewal term, the term of this Agreement shall automatically renew for an
additional term of one (1) year.
16. Indemnification and Insurance. Shiloh will maintain casualty and
general liability coverage for the Facility. Shiloh will maintain workers'
compensation insurance coverage and will be responsible for any employee-related
claims with regard to the Blade Lines. MTD will maintain casualty insurance with
regard to the Blade Lines. In addition, MTD will indemnify Shiloh and will
maintain product liability insurance with regard to the Parts manufactured with
the Blade Lines provided however MTD's obligation to provide indemnification
shall not extend to or include claims allegedly resulting from unauthorized
modifications or alteration of the Parts by Shiloh or claims alleging an act of
independent negligence by Shiloh in manufacturing or furnishing the Parts.
17. Intellectual Property. MTD shall own all existing and any intellectual
property developments with regard to the manufacture of the Parts. Shiloh will
assist, at no additional cost to MTD, with the filing of any patent or other
intellectual property rights with regard thereto.
18. Physical Improvements and Repairs to the Blade Lines.
(a) Pursuant to Section 2(b) of this Agreement, Shiloh will be responsible
for the normal, customary and routine maintenance of the Blade Lines
and MTD owned tooling and dies and related equipment. If the Blade
Lines require an accession, a "major overhaul", repair or other
non-routine maintenance expenditure other than such matters resulting
directly from the failure of Shiloh to follow proper maintenance
and/or operational guidelines, Shiloh shall notify MTD of such
requirements and MTD (with the cooperation of Shiloh) shall pay for
such
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accession, overhaul or repair. If there should be a failure of the
Blade Lines other than such matters resulting directly from the
failure of Shiloh to follow proper maintenance and/or operational
guidelines, and if MTD should determine not to make the expenditures
necessary to repair the Blade Lines, Shiloh shall not be in default of
its obligations under this Agreement and the provisions of Section 22
shall not apply.
(b) In addition, if MTD determines that it is appropriate to make capital
expenditures (as defined by generally accepted accounting principles)
with regard to the Blade Lines, such shall be coordinated between MTD
and Shiloh, but MTD shall pay the same. MTD shall own any such
improvements to the Blade Lines. In addition, as part of the
implementation of any such improvements, MTD and Shiloh shall mutually
determine appropriate adjustments to the purchase prices set forth in
Section 8, if any, in order to allocate between Shiloh and MTD the
cost savings resulting from such process improvements.
19. Default and Termination. Notwithstanding the above term of this
Agreement, this Agreement may be terminated by a party upon the occurrence of
any of the following as it relates to the other party and at the election of the
terminating party as follows:
(a) if any proceeding in bankruptcy or in reorganization or for the
appointment of a receiver or trustee or any other proceedings under
any law for the relief of debtors shall be instituted by or against a
party or if a party shall make an assignment for the benefit of
creditors;
(b) if there is a material breach by a party of any of the terms of this
Agreement, which breach is not remedied or substantial remedial steps
completed by the breaching party to the non-breaching party's
satisfaction within thirty (30) days of the breaching party's receipt
of notice;
(c) MTD may terminate this Agreement if MTD reasonably determines that
Shiloh is not properly managing costs or if prices, quality,
deliveries and/or services are at an unacceptable level; provided MTD
will provide written notice to Shiloh of such matters and Shiloh will
have a period of thirty (30) days to correct such problems;
(d) If the other party shall cease to carry on its business or a
substantial part thereof;
(e) Upon written agreement of the parties; or
(f) By MTD, upon either (i) the sale of a controlling interest in the
stock of Shiloh Industries, Inc. or (ii) the sale of all or
substantially all of the assets of Shiloh Industries, Inc., to an
unrelated third party.
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20. Effect of Termination.
(a) Upon termination of this Agreement as provided in Section 19 above,
the terminating or non-breaching party shall have no further
obligations under this Agreement, except for the payment of money due
or to become due from either party to the other as a result of the
purchase and sale of Parts hereunder. In the event this Agreement is
terminated by MTD, MTD shall have the option to require Shiloh to
complete manufacture of any Parts which are subject to an accepted
Purchase Order prior to the effective date of termination or MTD may
remove the Blade Lines as set forth in Section 21 of this Agreement.
Termination of this Agreement shall not affect the rights of the
parties or remedies for breaches of this Agreement.
(b) Upon termination of this Agreement, MTD will purchase from Shiloh at
Shiloh's cost the remaining raw material (steel) and finished goods
inventory of the Parts as long as such raw material and Parts meet
quality specifications, show demand on MTD's material planning report
in the next thirty (30) days, and cannot be used for other Shiloh
customers.
21. Removal of Blade Lines. Upon termination of the Agreement, MTD may
notify Shiloh that MTD will remove either or both of the Blade Lines. Shiloh
will allow MTD access to the Facility for Shiloh to remove either or both of the
Blade Lines, and any related equipment at MTD's expense provided MTD has paid
all invoices issued hereunder to Shiloh except those subject to reasonable
dispute as set forth in Section 9 of this Agreement. MTD will cause the relevant
portions of the Facility to be left in a "broom clean" condition (without
removal of any foundations or filling of any pits). MTD shall take reasonable
efforts during the removal of the Blade Lines so as to minimize the interruption
of the operations of Shiloh. Shiloh will cooperate with such removal at no
additional cost to MTD. If MTD does not remove one or both of the Blade Lines
within one hundred eighty (180) days after termination due to expiration of the
term without default by Shiloh, MTD will be deemed to have abandoned the Blade
Lines which were not removed. If the Agreement terminates due to default by
Shiloh, MTD shall have three hundred sixty (360) after the date of termination
days to remove the Blade Lines or MTD will be deemed to have abandoned the Blade
Lines which were not removed.
22. Early Termination Removal Expense Reimbursement. In the event MTD,
during the initial term of this Agreement, removes the Blade Lines after a
default by Shiloh as set forth in Section 19 of this Agreement, Shiloh will on
or after May 1, 2004, reimburse to MTD the verified cost of removal (actual
verified out-of-pocket expense to third parties plus reasonable verified expense
of MTD employees) of the Blade Lines up to the amount of Five Hundred Thousand
Dollars ($500,000.00).
23. Notices. Any notices, requests or other communications hereunder shall
be in writing and shall be deemed to have been duly given when made upon a party
by personal service at any place where they may be found or by mailing such
notices, requests, or
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communications by certified mail, postage prepaid and return receipt requested,
or by internationally recognized courier, or by transmitting such notice by
facsimile, in each case to the following addresses or facsimile numbers, as the
case may be:
As to MTD:
▇▇. ▇▇▇▇▇▇▇▇ Cashier
Vice President of Purchasing & Materials
MTD Products Inc
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
As to Shiloh:
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Financial Officer
Shiloh Corporation
c/o Shiloh Industries, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other addresses or telecopy numbers as such party may specify in a
notice given to the other party as provided in this Section 23.
24. Independent Contractors. The relationship established between the
parties by this Agreement is that of vendor to vendee and nothing herein
contained shall be deemed to establish or otherwise create a relationship of
principal and agent between the parties. Each party is an independent contractor
and shall not be deemed an agent of the other party for any purpose whatsoever.
Neither party, nor any of its agents or employees shall have any right or
authority to assume or create any obligation of any kind, whether express or
implied, on behalf of the other party. Neither party shall make warranties or
representations on behalf of the other party to customers or to the trade with
respect to any of the Parts described herein, except such as may be expressly
approved in writing by the other party.
25. Force Majeure. Except for the payment of money, performance under this
Agreement by either party may be postponed or extended automatically to the
extent that a party is prevented from performing its obligations by any cause
beyond its reasonable control, such as acts of God, strikes, labor disputes,
supply disruptions, governmental regulations superimposed after the fact, fire,
acts of war, riots, or other force majeure events, provided such cause does not
arise from the non-performing party's negligent or intentional action, and
provided further that the party unable to perform promptly notifies the other of
the event and
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the estimated period of delay and provided further that during any such period
of delay, MTD may source with another supplier any of the Parts which were being
made by Shiloh and Shiloh will assist with the transfer of raw materials
(steel), tooling and related items. In the event of such delay, the time for
performance by the non-performing party will be extended for a period equal to
the number of days during which such performance is delayed. Except for the
negligent or intentional actions attributable to a particular party, neither
party shall be liable for losses, damages, lost profits or consequential damages
due to any delay, in shipment or in delivery or default resulting from a force
majeure event set forth in this Agreement.
26. Amendment of Agreement. This Agreement may be amended only upon the
written approval of both parties to this Agreement or their permitted assigns,
if applicable.
27. Headings and Recitals. The headings in this Agreement are for
convenience only and shall not be used to interpret or construe the provisions
of this Agreement. The recitals set forth herein are a material provision of
this Agreement and are to be relied upon by the parties.
28. Waiver. Any failure on the part of either party to enforce at any time,
or for any period of time, any of the provisions of this Agreement shall not be
deemed or construed to be a waiver of such provisions or of the right of such
party thereafter to enforce each and every such provision.
29. Severability. If any provision of this Agreement shall be determined by
any court of competent jurisdiction to be in whole or in part invalid or
unenforceable, the Agreement in its entirety shall be automatically modified to
exclude the offending provision and the remaining provisions shall remain in
full force and effect.
30. Counterparts. This Agreement has been executed in separate
counterparts, each of which will be deemed an original copy hereof without
production of the other counterparts, but all such counterparts constitute only
one and the same agreement.
31. Binding Effect. This Agreement has been duly authorized, executed and
delivered by both parties and is the legal and binding obligation of the parties
enforceable in accordance with its terms. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereto. Shiloh acknowledges that MTD may assign this Agreement to its
affiliates.
32. Entire Agreement. This Agreement and the attached Exhibits contain the
entire agreement between the parties hereto with respect to subject matter
herein. This Agreement supersedes all prior negotiations, agreements and oral or
written understandings and agreements between the parties related to the subject
matter herein.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
MTD PRODUCTS INC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: EXECUTIVE VICE PRESIDENT AND
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CHIEF FINANCIAL OFFICER
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SHILOH AUTOMOTIVE, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: CHIEF FINANCIAL OFFICER
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GUARANTEE OF SHILOH INDUSTRIES, INC.
As the sole shareholder of Shiloh Automotive, Inc., Shiloh Industries, Inc.
acknowledges the receipt of benefits pursuant to the Agreement and guarantees
the obligations of Shiloh Automotive, Inc. as set forth in this Agreement.
SHILOH INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: CHIEF FINANCIAL OFFICER
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