Manufacturing And Sales Agreement

Exhibit 10.34


MANUFACTURING AND SALES AGREEMENT


THIS MANUFACTURING AND SALES AGREEMENT dated as of January 1, 1996, is by and between GRANT PRIDECO, S.A., a corporation organized under the laws of Switzerland ("Grant"), and Oil Country Tubular Limited, a company organized under the Companies Act of India ("OCTL").


W I T N E S S E T H :


WHEREAS, Grant and its affiliates is engaged in the business
of manufacturing and selling drill pipe, premium tubing and other
tubulars;


WHEREAS, OCTL owns and operates a tubular manufacturing
facility at Narketpally, India, as more fully described in Annex A
hereto (the "OCTL Facility");


WHEREAS, Grant and OCTL wish to set forth the terms and
conditions pursuant to which OCTL will utilize the manufacturing
capacity of the OCTL Facility to manufacture tubular goods and related
products ordered by Grant and its Affiliates; and


WHEREAS, Grant and its Affiliates will purchase from OCTL, and
OCTL will sell to Grant and its Affiliates, all of the tubular goods
and related products to be manufactured at the OCTL Facility;


Initial ___________ ___________
OCTL Grant


-1- 2
NOW, THEREFORE, the parties hereto covenant and agree as follows:


1. PRODUCTION.


(a) OCTL agrees for the term of this Agreement to manufacture tubular goods and related products of the types described in Annex B hereto (the "Products") and for the provision of coating, inspection and other services (the "Services") for Grant and its Affiliates at the OCTL Facility as may be requested by Grant from time to time. This provision shall not provide Grant with any interest in the OCTL Facility except as provided herein.


(b) OCTL shall for its own account and not as agent manufacture and provide Products and Services on a timely basis in such quantities and type as may be requested by Grant from time to time, and for delivery at such locations, in accordance with purchase orders submitted to it by Grant. The Products and Services shall be manufactured or provided in accordance with the specifications and requirements set forth in the applicable purchase order or otherwise fixed by Grant and shall be delivered in accordance with the time frame established by Grant.


(c) Subject to the provisions of Section 4(c), OCTL agrees that in consideration for the agreements made hereunder and Grant or its Affiliates licensing technology to OCTL to manufacture products for Grant it will not manufacture or provide goods or services of any kind at the OCTL Facility for any


Initial ___________ ___________
OCTL Grant


- 2 - 3 Person other than Grant and its Affiliates during the term of this Agreement without the prior consent of Grant.


(d) OCTL shall for its own account and not as agent maintain a fully qualified, properly trained and experienced administrative and technical staff, sufficient to perform its obligations hereunder. All persons employed by OCTL to carry out any of its obligations hereunder shall be and remain OCTL's employees and not thereby be or become employees of Grant. Grant shall not be obligated to pay increased costs due to changes in labor contracts or other employment arrangements unless specifically agreed to by Grant.


(e) OCTL shall establish and maintain quality control and audit procedures, programs and standards for the manufacture of the Products and Services to assure the timely manufacture of Products and Services in compliance with specifications and requirements of Grant and for the inspection of the Products and Services manufactured by it designed to detect defects in materials or workmanship thereof prior to delivery of the same to Grant. OCTL's manufacturing processes and procedures shall be in accordance with the quality assurance programs issued by Grant from time to time to assure quality, efficiency and timeliness in the manufacture of the Products and Services to at least API and ISO standards.


(f) Grant and OCTL shall at least 90 days prior to each calendar year agree on an annual budget for the following year for all fixed and variable costs and expenses relating to the manufacture of Products and the provision of


Initial ___________ ____________
OCTL Grant


-3- 4 Services. This budget shall be reviewed on a quarterly basis. OCTL shall implement such policies and procedures relating to costs and budget efficiency as may be suggested by Grant from time to time. Modifications to budgeted items may be made by Grant through purchase orders specifying costs parameters and vendor requirements for such orders.


(g) OCTL shall not agree to or commit to any expenditures that would be required to be reimbursed by Grant not contemplated by the current agreed budget without the prior approval of Grant.


(h) In view of the technical requirements for the manufacture of Products and Services in accordance with required specifications, OCTL shall select outside vendors only from a list of vendors duly approved by Grant from time to time.


(i) OCTL shall establish production schedules for all Products and Services to be provided for it in order to meet its desired timetable for delivery as set forth in its purchase orders or otherwise communicated to OCTL.


(j) In view of the technical requirements for the manufacture of Products and Services in accordance with required specifications, Grant shall be entitled to require the implementation of manufacturing efficiency programs and policies with respect to the manufacture and provision of Products and Services by OCTL to Grant.


Initial ___________ ____________
OCTL Grant


-4- 5
(k) Grant shall have the right at any time and from time to time to inspect all Products and Services at any stage of the manufacturing process as well as all machinery and equipment used in the manufacture of Products and the provision of Services.


(l) OCTL shall provide Grant and its Affiliates with full access to the OCTL Facility, its officers and employees and all information relating to the operation of the OCTL Facility. OCTL shall, and shall cause its officers and employees to, cooperate fully with Grant to enable Grant to assure that all Products and Services provided by OCTL meet Grant's requirements for quality, efficiency and timeliness.


(m) In view of the technical requirements for the manufacture of Products and Services in accordance with required specifications, all raw materials used for the manufacture and the provision of the Products and Services shall be sourced by OCTL from a list of vendors duly approved by Grant from time to time.


(n) The parties hereby acknowledge that their objective is to achieve a utilization of the OCTL Facility with the following annual goals; (i) 15,000 metric tons of drill pipe; (ii) 10,000 metric tons of heat treated premium tubing; (iii) 25,000 metric tons of heat treated casing; (iv) 18,000 metric tons of casing and tubing threaded without heat treating; (v) 1,000 threaded joints of large diameter casing; and (vi) 4,500 weld-on connectors. The above goals shall only be considered objectives and Grant shall have no obligation to place any minimum orders for any specific Products or Services during any period.


Initial ___________ ____________
OCTL Grant


-5- 6
2. OPERATIONS.


The operations of the OCTL Facility will at all times during the term of this Agreement be managed and operated by OCTL and its personnel.
3. PAYMENTS AND COSTS.


(a) In exchange for the provision of Services hereunder, Grant shall pay to OCTL the sum of US$8,000,000 on the Effective Date. These funds shall be applied toward the payment of future Services provided to Grant based on prices to be agreed by OCTL and Grant.


(b) Until termination of this Agreement, Grant shall pay to OCTL for Products and Services to be provided a fee of $500,000 monthly in advance, beginning on the April 1, 1996, it being understood that not such fee shall be payable for the months of January, February and March 1996.


(c) In addition to the payments and fees described hereinabove for Products and Services to be provided, Grant will pay to OCTL for the Products a production fee (the "Production Charge") based on certain levels of production and determined as follows:


(i) $300 (US) per metric ton ("MT") of unitized drill pipe produced.


Initial ___________ ____________
OCTL Grant


-6- 7
(ii) $105 (US) per MT of heat treated premium tubing produced.


(iii) $50 (US) per MT of API heat treated tubing produced.


(iv) $40 (US) per MT of heat treated casing produced.


(v) $25 (US) per MT of tubing and casing that is threaded each year without heat treating.


(vi) $100 (US) per joint of large diameter casing (over 13 3/8" O.D.) that is threaded at the OCTL Facility without heat treatment.


(vii) $100 (US) per weld-on connector 18 5/8" and above.


For products not set forth above or in Section 3(d), the Production Charge will be determined mutually. The Production Charge shall be payable quarterly within thirty (30) days after receipt of OCTL's invoice therefor. The quarterly invoice for the Production Charge shall be accompanied by a statement of production and a written calculation of the Production Charge.


(d) Pricing for the Services rendered by OCTL for Grant shall be agreed upon by Grant and OCTL from time to time.


Initial ___________ ____________
OCTL Grant


-7- 8
(e) As part of the purchase price for Products and Services to be purchased by Grant, Grant will pay to OCTL amounts equal to all actual direct cash operating costs of the OCTL Facility and the actual direct cash production cost for goods and services provided at the OCTL Facility after March 31, 1996 (collectively, "Section 3(e) Expenses"). The Section 3(e) Expenses shall include (i) wages, salaries and benefits for employees of OCTL (other than general and administrative employees not directly associated with the operations of the OCTL Facility) working at the OCTL Facility, (ii) all raw materials, consumables, spare parts, tools and other similar items necessary to manufacture the Products, (iii) all utilities charges, (iv) insurance for the OCTL Facility and its operations, (v) maintenance, (vi) freight, (vii) custom duties and other import and export charges net of credits received on export or otherwise and (viii) property taxes. Depreciation, amortization and any other non-cash expenses shall not be considered direct operating costs and shall be the sole responsibility of OCTL. Costs estimates for all such items shall be budgeted as provided in Section 1 and be subject to Grant's approval as provided therein. OCTL shall be responsible for its own income taxes, general and administrative expenses, wages, salaries and benefits for employees who are not involved in the manufacture of goods at the OCTL Facility, and any other expense not directly related to the operation of the OCTL Facility. OCTL shall invoice Grant quarterly for the actual amounts of all Section 3(e) Expenses without any mark-up. All goods and services provided to the OCTL Facility by OCTL or any of its Affiliates shall be provided at cost without mark-up. Grant will be entitled to a credit against the Section 3(e) Expenses for the allocable costs associated with any sales by OCTL for its own account pursuant to Section 4(c).


Initial ___________ ____________
OCTL Grant


-8- 9
(f) In view of the technical requirements for the manufacture of Products and Services in accordance with required specifications, the raw materials, consumables, spare parts, tools and similar items necessary for OCTL to manufacture the Products and render the Services shall be selected by Grant or one or more of its Affiliates. All such items acquired outside India shall be imported by OCTL from vendors selected or approved by Grant.


(g) Grant and OCTL shall agree as to all capital expenditures and improvements to be made on the OCTL Facility to achieve desired levels of production and quality of the Products and Services to be sold to Grant. Unless otherwise agreed, all mutually agreed upon capital expenditures with respect to the OCTL Facility relating to the Products and Services to be sold to Grant shall be financed by Grant.


(h) OCTL shall retain all accounts receivable arising from sales of products of the OCTL Facility made prior to March 31, 1996. All inventory and raw materials on hand at the OCTL Facility on March 31, 1996, will be made available for the manufacture of Products. Grant shall reimburse OCTL as a Section 3(e) Expense the actual direct cost (excluding interest and administrative expenses) incurred by OCTL for such inventory and raw materials on hand within 30 days of the actual use thereof.


(i) In consideration of the commitment of OCTL to utilize the OCTL Facility to manufacture Products and Services for Grant pursuant to the terms


Initial ___________ ____________
OCTL Grant


-9- 10 hereof, unless this Agreement is earlier terminated, Grant agrees to make the following additional payments to OCTL:


(x) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1997 are less than (US) $3.0
million, Grant shall pay to OCTL the amount by which the
Production Charges paid in respect of 1997 are less than (US)
$3.0 million;


(y) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1998 and 1997 and the amount paid
pursuant to clause (x) above are less than (US) $7 million,
Grant shall pay to OCTL the amount by which the aggregate
Production Charges in respect of 1998 and 1997 and any amount
paid pursuant to clause (x) above are less than (US) $7
million; and


(z) if, as a result of Grant's failure
to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1999, 1998 and 1997 and


Initial ___________ ____________
OCTL Grant


-10- 11
any amounts paid pursuant to clauses (x) and (y) above are less than
(US) $12 million, Grant shall pay to OCTL the amount by which the
aggregate Production Charges in respect of 1999, 1998 and 1997 and any
amounts paid pursuant to clauses (x) and (y) above are less than (US)
$12 million.


For purposes of this Section 3(i), OCTL shall be deemed to have received a Production Charge for all sales made pursuant to Section 4(c) equal to the Production Charge that would have been paid in respect of such sales had such sales been made to Grant hereunder. Payments under this Section 3(i) shall be payable only if this Agreement shall not have been terminated prior to the date on which the payments are due. Payments under this Section 3(i) shall be due on the date on which the Production Charge for the last quarter of the last year included in the applicable calculation is payable.


(j) The fees and payments provided for in this Section 3 are intended in part to compensate OCTL for the loss opportunity of sales that it would have been able to receive absent its commitment to utilize the OCTL Facility to manufacture Products and Services for sale to Grant. Further, although it is contemplated that substantially all of the production from the OCTL Facility will be sold to Grant, it is also contemplated that some products and services will continue to be provided by OCTL to Persons other than Grant from time to time with the prior consent of Grant. To the extent OCTL does make sales of products and services from the OCTL Facility to any Person other than Grant, the payments required to be paid by Grant to OCTL under Sections 3(b) and (c) shall be reduced by an amount equal to


Initial ___________ ____________
OCTL Grant


-11- 12 the Gross Profit (as defined below) realized by OCTL on such sales. For purpose of this Section 3(i), Gross Profit shall mean the actual sales price (net of any discounts) charged by OCTL for such sales less the sum of (i) the actual Section 3(e) Expenses for the products and services sold and credited under Section 3(e) and (ii) the Production Charge that would have been paid on such sale had such sale been made to Grant.


4. PROVISION OF INFORMATION; PROTECTION OF PURCHASE; THIRD PARTY SALES.


During the term of this Agreement:


(a) The manager of the OCTL Facility shall cooperate and coordinate with Grant on an ongoing basis with respect to the status of all operations at the OCTL Facility affecting the Products and Services to be sold to Grant and the implementation of Grant's policies, guidelines and requirements for the manufacture of Products and Services for it under this Agreement, including the status of all purchase orders, the expenses of the OCTL Facility and OCTL's compliance with the terms of this Agreement.


(b) In order to protect the purchase rights of Grant under this Agreement, except for those charges existing on the OCTL Facility currently existing, OCTL shall not grant any charge, lien or security interest in the OCTL Facility or on any of the assets used in connection therewith. No charge, lien or security interest shall be granted by OCTL in any of the raw materials used for the manufacture of the


Initial ___________ ____________
OCTL Grant


-12- 13 Products or Services to be sold to Grant or on the finished Products and Services. OCTL shall not transfer, assign or otherwise convey the OCTL Facility to any Person without the prior consent of Grant. OCTL shall not transfer the operations of the OCTL Facility to any Person without the prior consent of Grant.


(c) Grant and OCTL agree that it is contemplated that OCTL may from time to time with the prior consent of Grant effect sales of products and services from the OCTL Facility to Persons other than Grant, primarily in India ("Third Party Sales"). Any Third Party Sales must be previously approved and consented to by Grant so as not to impair the exclusivity and other benefits contemplated for Grant hereunder. To the extent a Third Party Sale is effected, the payments required to be made by Grant hereunder shall be reduced as provided in Sections 3(e) and 3(j) hereunder. No Production Charge or fee under Section 3(d) shall be payable for Third Party Sales. Orders existing and not completed by OCTL as of the Effective Date shall be considered approved Third Party Sales. Outstanding tenders as of the Effective Date which are accepted shall also be considered approved Third Party Sales. For any sales outside India by OCTL, Grant shall act as OCTL's exclusive distributor.


(d) OCTL shall (i) maintain all necessary licenses, permits and other governmental approvals or authorizations to allow it to carry out its obligations hereunder, and to own and operate the OCTL Facility, (ii) comply in all material respects with all applicable laws relating to the manufacture of the Products and the provision of the Services, and (iii) obtain all export/import licenses and/or permits and


Initial ___________ ____________
OCTL Grant


-13- 14 complete other registration requirements as may be necessary for the export of the Products and Services and import of all raw materials used in the manufacture thereof.


(e) OCTL shall not take any action, directly or indirectly, that could reasonably be expected to impair its ability to perform its obligation ...