Caterpillar Cost of Poor Quality (CoPQ) Agreement

THIS AGREEMENT (this “Agreement”) is made as of the _____ day of ___________, 20__, (the
“Effective Date”) by and between __________________ (“Seller”) having its registered office at
_____________and principal place of business at ____________ and Caterpillar India Private Limited,
having its registered office at VII Floor, Ascendas IT Park, Taramani Road, Taramani, Chennai (“Buyer”,
and together with Seller, the “Parties”).

Whereas, Buyer has issued or is planning to issue a purchase order (“Purchase Order”) or has entered into
an Agreement dated __________ (Purchase Agreement) where under the Seller has agreed to sell
Seller’s products listed in Exhibit A attached hereto and incorporated herein by reference (each, a
“Product”, and collectively, “Products”);

Whereas, it is an essential condition of the Purchase Order/Purchase Agreement that the Seller sells
Products in full conformity with Buyer's instructions, specifications, drawings and data, free from defects
in design (to the extent that Seller furnishes the design), materials and workmanship and

To further the above mentioned condition stipulated in the Purchase Order/Purchase Agreement and with
the objective of ensuring that the Seller achieves a zero defect culture, the Buyer has implemented
“Caterpillar’s Cost of Poor Quality” (CoPQ) program to track the Seller’s performance with regard to
quality and establish a mechanism for recovery of direct costs that the Buyer incurs as a result of Seller’s
non conformance to the condition in the Purchase Order/Purchase Agreement.

Whereas, the Parties wish to set forth herein their agreement with respect to the administration of COPQ
program, as further described herein.

Now, therefore, the Parties agree as follows:

1. Scope. This Agreement covers the Parties’ understanding and responsibility with respect to the
administration of the COPQ program. COPQ program outlines the charge back types, the types
of losses that the Buyer incurs that should be charged back to the Seller, the monetary rate for
which the Seller should be charged. (all more fully detailed in Annexure to this Agreement).

2. Term. This Agreement shall commence on the Effective Date and shall continue for a period of
____ (__) year(s) (the “Term”), provided that in no event shall this Agreement expire or terminate
prior to the Purchase Order placed and accepted by the Seller in accordance with the terms and
conditions of the Purchase Order or the Purchase Agreement executed. This Agreement shall
automatically be extended for additional terms of _____ (__) year(s) each unless either Party
gives written notice to terminate at least three (3) months prior to the end of the initial term or any
additional term, or unless otherwise terminated pursuant to the provisions hereof.

3. COPQ Program Administration.

(i) Buyer shall provide to Seller a monthly report documenting COPQ charge back
amounts due and payable by the Seller in accordance with this Agreement. The
monthly report may include, where applicable part rejection details (Part no., qty,
rejection reason, Date of rejection), applicable charge back types, Charge back
amount; and

(ii) Buyer shall issue a monthly debit note to the Seller for the amount determined in
accordance with the COPQ program (the “COPQ Amount”) as displayed on the

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 monthly report. Where the COPQ Amount exceeds the total amount due and
payable by the Buyer to the Seller for the supplies undertaken for the Buyer, the
Buyer will raise a separate credit note and the Seller shall settle all such credit
notes within 30 days from the date of receipt of the same.

4. Genuine losses

The Seller acknowledges that the amounts that would be recovered by the Buyer in terms of this
Agreement is a genuine pre-estimated loss (and not penalty) that the Buyer suffers on account of
supply of Products that are not in conformity with the terms and conditions of the Purchase
Order/Purchase Agreement and agrees not to raise any dispute with regard to the veracity of the
COPQ Amount that the Buyer determines in accordance with the terms of this Agreement. The
Seller further acknowledges that the contents of this Agreement along with the Annexure has
been read and understood by the Seller.

5. Inconsistent Terms. In the event that any inconsistencies exist between the terms and conditions
set forth in the Purchase Order/Purchase Agreement and the terms and conditions of this
Agreement with regard to the COPQ program, the contents of this Agreement shall prevail.

6. Entire Agreement. The terms and conditions set forth in the Purchase Order/Purchase
Agreement and in this Agreement constitute the entire agreement and understanding between the
Parties with respect to the subject matters herein and therein, and such terms and conditions
supercede any and all prior agreements or understanding between the Parties with respect to such
matters.

7. Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of India, and courts in Chennai would have exclusive jurisdiction over this Agreement.

8. Counterparts. This Agreement may be executed in counterparts, each of which, when so

executed and delivered, shall be deemed an original, but all such counterparts shall constitute but
one and the same instrument.

In Witness Whereof, the Parties hereto have executed this Agreement as of the Effective Date:

Caterpillar India Private Limited (Buyer) ______________________(Seller)

By: _____________________________ By: ____________________________
Title: ____________________________ Title: ___________________________
Date: ____________________________ Date: ___________________________

Seller’s Mailing Address: Seller’s Shipping Address:

___________________________________ _____________________________________
___________________________________ _____________________________________
___________________________________ _____________________________________

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 Seller’s E-Mail Address
(for receipt of monthly FIR): ___________________________

Seller’s Supplier Code(s): See Exhibit A

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 Exhibit A

Product

All Products shipped from supplier code(s):

___________________________________

___________________________________

___________________________________

___________________________________

___________________________________

___________________________________

ANNEXURE

Standard COPQ Chargeback Types

When a disposition is made for Seller caused nonconforming Products, the Seller will be charged for
one or more of the following nine chargeback types as applicable. More than one type may be
charged on a single rejection.

Type
1 Rejection Created
- Some sites may call them a Material Rejection and Disposition Report/Non-
Conformance Management (MRDR/NCM).
- Charge is applied for each MRDR.
- All supplier caused MRDRs, regardless of part value, will be assessed the charge.

2 Parts Shipped Without Production Part Approval Process (PPAP) Approval

- This is for a new part or the first time delivery of a part and must have had a PPAP
requested.
- This is a charge for the time involved in follow-up of requirements and/or additional
inspections.
- If third party inspections this will include invoice amount plus 10% (the cost of
overseeing operations, logistics, cost of supplies, time to generate P.O., and
payment by Buyer personnel).

3 Investigation Charges
- Initial investigation charges are included in the Rejection Created Charge listed as
Type 1 above. Additional time will be recorded here.

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4 Sort, Rework, Retest, and/or Contain by CAT
- This is a charge for the time to sort, rework, and/or retest done to the
non conforming items.

5 Sort, Rework, Retest, and/or Contain By 3rd Party With Actual Invoice to CAT
From 3rd Party
- This is a charge for sort, rework, and/or retest done to the nonconforming items by
a 3rd party.
- The charge will be the Invoice amount plus 10% (the cost of overseeing operations,
logistics, cost of supplies, time to generate P.O. and payment by CAT personnel).

6 Cost of Value Added to Supplied Parts or Parts Other Than Supplier Parts That
Have Damage Due to the Nonconforming Part
- This is a charge for the variable costs of the value added through operations and
lost due to the nonconforming item.

7 Line Disruption
- When line is disrupted regardless of where the problem is found (line, receiving
inspection, etc.).
- The line disruption charge is based on the time, the number of people affected, and
the regional rate, as shown in the calculation: (regional rate) X (# of people affected
by the disruption) X (amount of time).
- The people affected are those within the receiving facility who cannot perform work
at their usual station due to a line disruption due to the defective part.

8 Prime Product Repair and Retest Labor

- This is a charge for the time involved to repair and/or retest a CAT product or
component that has been effected by nonconforming material.

9 Past Due Corrective Action Request/Quality Control Inspection Report

(Car/QCIR) Responses
- This is a charge for the time involved in follow-up of unanswered corrective actions.

Determination of COPQ Amount

The measurement of COPQ amount will be expressed in terms of hours of loss to the Buyer.

The COPQ Amount will be based on the charge table as hereunder.

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 Charge Table
Charge
Type Charge Type Charge
No.
1 Rejection Created - Some sites may call them a Material Fixed Fee
Rejection and Disposition Report/Nonconformance Management 2 Hours*Regional Hour Rate
(MRDR/NCM)
2 Parts Shipped w/o Production Part Approval Process (PPAP) Time Spent*Regional Hour Rate

3 Investigation Charges Time Spent*Regional Hour Rate

4 Sort, Rework, Retest, &/or Contain by Buyer Time Spent*Regional Hour Rate
5 Sort, Rework, Retest &/or Contain by 3rd Party with actual 3rd Party Invoice + 10%
invoice to Buyer from 3rd Party
6 Cost of Value Added to supplied parts or parts other than Value Added
Seller parts that have damage due to the nonconforming part
7 Line Disruption # People Affected*Line Down
Time *Regional Hour Rate
8 Prime Product Repair and Retest Labor Time Spent*Regional Hour Rate
9 Past Due Corrective Action Request/Quality Control Inspection Escalating Fixed Fee:
Report (CAR/QCIR) Responses 2 Hours*Regional Hour Rate at
60 Days Past Due
3 Hours*Regional Hour Rate at
90 Days Past Due

Definition of Regional Hour Rate

" Region Hour Rate = Variable Cost / Total hours "

Variable Cost = Variable Labor + Variable Overheads

Total Hours = Machine Hours + Assembly Hours

Variable costs

Variable Labor shall include but is not limited to salary related expenses of employees involved either directly
or indirectly towards the production of equipments with the Buyer.

Variable Overheads shall include but is not limited to all expenses incurred by the Buyer towards machining or
Assembly and maintenance costs of the machine & Assembly shop of the Buyer.

Total Hours

Machine Hours (Total Machining Hours for the production volume during a normal production period)
Assembly Hours (Total Assembly Hours for all production volume during a normal production period)

A production period will be considered as normal [Nov of current year to October of next year]

The regional rate determined on the basis of the above will be communicated to the Seller from time to
time.