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CONFIDENTIAL TREATMENT REQUESTED
OEM ENGINE SUPPLY AGREEMENT
THIS EXCLUSIVE SUPPLY AGREEMENT (the "Agreement") is made and entered into
on the 9th day of July, 1998, by and between GENERAC CORPORATION, a Wisconsin
corporation with its principal office and place of business in Waukesha,
Wisconsin ("Seller") and GENERAC PORTABLE PRODUCTS, INC. (F/K/A GPPC, INC.), a
Delaware corporation ("Buyer"). This Agreement shall be binding as of the date
written above but for purposes of computing time periods and anniversary dates,
the effective date shall be considered to be July 9, 1998.
RECITALS
A. As a result of its purchase from Seller of Seller's portable products
division, Buyer is now engaged in the marketing, manufacture and sale of
welders, pressure washers, Consumer Portable Generators and other similar
portable equipment. For the purpose of this Agreement "Consumer Portable
Generators" are defined as; air-cooled generators currently of the type in
production at the portable products division at time of signing the Agreement.
B. Seller is engaged in the business of manufacturing its GN series single
cylinder engines, in particular, models GN-191, GN-220, GN-360 and GN-410 which
are suitable for powering such equipment (the "Engines").
C. In connection with Buyer's purchase of Seller's portable products
division, Buyer desires that Seller manufacture the Engines requested by Buyer
from time to time according to Seller's established specifications for the
Engines (the "Specifications") and Seller has adequate facilities, expertise and
personnel to manufacture the Engines according to the Specifications.
D. Buyer desires to purchase the Engines from Seller, and Seller desires
to manufacture and sell the Engines to Buyer on the terms and subject to the
conditions set forth below.
AGREEMENTS
In consideration of the above recitals and the mutual covenants and
valuable consideration contained herein, the parties agree as follows:
1. SUPPLY OF PRODUCTS.
(a) SALE AND PURCHASE OF ENGINES. Seller shall manufacture and sell
to Buyer and Buyer shall purchase from Seller the Engines during the term
of this Agreement pursuant to the terms and conditions set forth herein.
Buyer shall purchase a minimum of * * * Engines during each annual period
of this Agreement (the "Minimum Purchase Obligation"). In addition to the
Minimum Purchase Obligation, in each annual period following the fifth
annual period of this Agreement, Buyer shall purchase from Seller an
aggregate number of Engines at least equal to 25% of the total number of
engines purchased by Buyer during such period (the "25% Requirement"),
provided, however that during such annual periods Buyer shall nevertheless
not purchase less than the Minimum Purchase Obligation. For purposes of
determining whether Buyer has satisfied the 25% Requirement in any annual
period following the fifth annual period of this Agreement, Seller shall
have the right to select an independent accounting firm (the "Accounting
Firm"), reasonably accept-
*** = Omitted and filed separately with request for confidential treatment.
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able to Buyer, to perform an audit of Buyer's total engine purchases for
the period in question. If Seller and Buyer cannot agree upon an
independent accounting firm to act as the Accounting Firm, each of Buyer
and Seller shall select an independent accounting firm and the two firms so
selected shall select a third independent accounting firm which shall be
the Accounting Firm. The Accounting Firm shall conduct an audit of Buyer's
total engine purchases for the annual period in question and shall
determine whether the 25% Requirement has been satisfied for the applicable
period. The conclusion of the Accounting Firm shall be final and binding
upon Buyer and Seller. Buyer agrees to cooperate fully with the Accounting
Firm in connection with conducting any audits pursuant to this section,
including, without limitation, making available to the Accounting Firm such
books and records of Buyer as the Accounting Firm may reasonably request in
connection with its audit. If Buyer desires to purchase more than the
Minimum Purchase Obligation, or, after the fifth annual period hereof, more
than the 25% Requirement (if greater than the Minimum Purchase Requirement)
during any annual period of this Agreement, Seller shall, subject to
section 3(c) of this Agreement, use its reasonable efforts to manufacture
and sell to Buyer such additional quantity of the Engines as Buyer may
request.
(b) EXCLUSIVE SUPPLY REQUIREMENT. As long as Buyer satisfies the
Minimum Purchase Obligation and, after the fifth annual period, the 25%
Requirement (if greater than the Minimum Purchase Obligation), Seller
agrees not to sell Engines to any other original equipment manufacturer
("OEM") for purposes of incorporation into welders, pressure washers,
Consumer Portable Generators or other products approved by Seller (the
"Exclusive Supply Requirement"). If Buyer does not comply with the Minimum
Purchase Obligation or, after the fifth annual period, the 25% Requirement
(if greater than the Minimum Purchase Obligation), the Exclusive Supply
Requirement shall be void for the remainder of the term of the Agreement
unless (i) the Buyer purchased at least 80% of the Minimum Purchase
Obligation or, after the fifth annual period, the 25% Requirement (if
greater than the Minimum Purchase Obligation) during the period in question
and (ii) during the immediately following annual period Buyer purchases the
Minimum Purchase Obligation or, after the fifth annual period, the 25%
Requirement (if greater than the Minimum Purchase Obligation) plus the
number of Engines by which it failed to meet the Minimum Purchase
Obligation or, after the fifth annual period, the 25% Requirement (if
greater than the Minimum Purchase Obligation) during the preceding annual
period. If Buyer fails to meet the Minimum Purchase Obligation or, after
the fifth annual period, the 25% Requirement (if greater than the Minimum
Purchase Obligation) during any annual period and, if applicable, fails to
correct the shortfall during the immediately following annual period,
Seller's sole remedy shall be voidance of the Exclusive Supply Requirement
as provided in this section 1(b), provided, this sentence shall not be
interpreted to restrict Seller's ability to increase gross margin pursuant
to section 4(a)(i).
(c) ADDITIONAL REQUIREMENTS FOR WELDERS. Seller and Buyer recognize
that, heretofore, sales of welders by Seller have been nominal and that
Buyer will undertake to substantially increase the sale of welders. Seller
and Buyer also recognize that in the event Buyer is unable to do so, Seller
should be availed of the opportunity to sell Engines to other manufacturers
of welders. Commencing on the first anniversary of this Agreement and
within thirty (30) days following the end of each calendar quarter after
such first anniversary, Buyer shall provide to Seller a written report as
to the number of Engines shipped with welders during such calendar quarter.
If during any
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consecutive four (4) calendar quarters covered by such reports, Buyer ships
fewer than * * * welders equipped with one of the Engines, Seller may sell
Engines to any other OEM of welders.
(d) RETAINED RIGHTS OF SELLER. Notwithstanding the exclusivity
requirements in section 1(b) above, Seller shall have the right to sell
engines through its own Service Distributor and Dealer Network for any
application based on repower and service promulgated prices. Buyer
acknowledges that the provisions of this paragraph may or will benefit
Buyer in that Seller's service network, which services Buyer's customers,
is thereby further supported. Nothing in this Agreement will be construed
to prevent Seller from selling its engines, including the Engines, to any
other purchaser, original equipment manufacturer or otherwise, and at any
price it elects, so long as such engines and Engines are not for use with
welders, pressure washers or Consumer Portable Generators. Seller retains
the right to use and sell GN engines to other air-cooled generator
applications, including, but not limited to, R.V., Industrial Mobile,
Telecom, Home Stand-By or any other type of residential, commercial or
industrial application.
2. TERM OF AGREEMENT. Subject to the provisions for termination set forth
elsewhere in this Agreement, this Agreement shall commence on the date first
written above and continue for 95 years (the "Initial Term"). After completion
of the Initial Term, this Agreement shall automatically renew for consecutive 3
year periods ("Renewal Term") unless either party gives written notice of its
intent to terminate this Agreement to the other party at least 6 months prior to
the expiration of the Initial Term or any Renewal Term. Notwithstanding the
foregoing, in the event of a sale of Seller's assets or Seller's stock as
described in section 12 below (whether during the Initial Term or any Renewal
Term), upon the closing date of such sale the remaining term of this Agreement
shall be the longer of 5 years or the remainder of the Initial Term 5 years
subject to 3 year renewal terms as described in the second sentence of this
section.
3. PRODUCT ORDERS.
(a) PURCHASE ORDERS. Purchase orders will be issued by Buyer on the
first business day of each month specifying Buyer's requirements for the
fourth month following the month in which the purchase order is issued. In
the event Buyer desires to issue a purchase order for a quantity of Engines
20% greater than Buyer's average monthly orders for the previous twelve
(12) months, Buyer must provide Seller with written notice of such order no
less than six months prior to the start of shipment. All purchase orders
for Engines to be manufactured and delivered shall be firm and may not be
canceled or modified by Buyer without the written permission of Seller;
provided, however, that Purchase orders may be modified by Buyer to provide
for a later delivery date (not in excess of 60 days) upon notice to Seller
at least 60 days prior to the requested delivery date.
Purchase orders issued by the Buyer to the Seller shall specify the
Engines being ordered in some minimum package quantity as specified by
Seller, the required delivery dates, and the address to which Seller's
invoice shall be sent. Any provision, term or condition set forth on
Buyer's purchase order or on any acknowledgment, invoice or other document
or communication provided by Buyer which is inconsistent with the terms of
this Agreement, or is not addressed herein, is void and of no effect.
(b) SELLER'S PURCHASE ORDER ACKNOWLEDGMENT. Seller's purchase order
acknowledgment shall reflect the Buyer's purchase order number. A separate
purchase order
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*** = Omitted and filed separately with request for confidential treatment.
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acknowledgment shall be rendered for each purchase order and shall be
transmitted by Seller to the address specified on the purchase order. Each
purchase order acknowledgment rendered by Seller shall separately identify
the Engines by model number, quantities thereof, unit prices, and total
amount due for such Engines. Applicable sales or use taxes shall also be
reflected.
(c) FORECASTS. Prior to the beginning of each calendar quarter, Buyer
shall provide seller with a rolling written forecast of its estimated
requirements for the Engines in each of the next four (4) calendar quarters
(the "Quarterly Forecast"). Each Quarterly Forecast shall contain an update
of the immediately preceding Quarterly Forecast with respect to the
quarters referred to in such preceding Quarterly Forecast.
In addition to the Quarterly Forecasts, if Buyer intends to purchase
in any future four (4) calendar quarter period (the "Expansion Period")
more than 120% of the number of Engines actually purchased in the four (4)
calendar quarters just ended, Buyer shall provide Seller with Buyer's
estimated requirements for the Engines in the Expansion Period a minimum of
six months prior to the start of the Expansion Period (the "Expansion
Forecast").
Notwithstanding anything to the contrary in this Agreement, Seller
shall have no obligation during the applicable period to manufacture and
sell to Buyer any number of Engines greater than the Quarterly Forecast or
the Expansion Forecast as applicable. Buyer shall use its best efforts to
ensure that firm orders under section 3(a) of this Agreement conform to the
estimates in the latest forecast.
4. PRICES AND PAYMENT TERMS.
(a) ENGINE PRICES.
(i) Buyer shall pay Seller for the Engines in accordance with the
prices set forth in Schedule A which are subject to modification from
time to time in accordance with the terms of this Agreement. At least 30
days prior to each annual anniversary of this Agreement, the parties
shall negotiate in good faith to determine the price for Engines for the
upcoming year based on the expected cost of raw materials, freight,
insurance, direct labor, appropriate indirect manufacturing operating
expenses and overhead (the "Costs of Production"), plus a gross margin
of 20%. Following the fifth annual period of this Agreement, Seller
shall have the continuing right to increase the gross margin up to a
total of 23%. The Seller shall not have the right to increase the gross
margin pursuant to the immediately preceding sentence if Seller is in
violation of the Exclusive Supply Requirement at the time of such
increase unless the Exclusive Supply Requirement has been voided in
accordance with section 1(b) in which case Seller may exercise its right
under the immediately preceding sentence. Any agreed upon change to the
price for the Engines shall be applied to Engines purchased during the
following twelve-month period.
The Costs of Production shall be determined by Seller in its sole
discretion. Buyer shall be entitled, at the time of each regularly
scheduled price renegotiation, to review (subject to the confidentiality
provisions of this Agreement) Seller's records that directly pertain to
Seller's calculation of the Costs of Production. If Buyer does not agree
with Seller's calculation of the Costs of Production, Buyer's sole
remedy shall be to purchase engines from
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another supplier. All prices for Engines supplied under this Agreement
are F.O.B. Seller's plant in Whitewater, Wisconsin.
(ii) On February 15 and August 15 of each year during the term of
this Agreement, if Seller's Costs of Production have increased or
decreased during the previous July through December or January through
June period, respectively (the "Production Period") due to (a) changes
in the price of aluminum and/or (b) changes in the price of foreign
components for the Engines caused by changes in currency rates, Seller
shall pay to Buyer (in the case of a decrease in such Costs of
Production) or Buyer shall pay to Seller (in the case of an increase in
such Costs of Production) an amount calculated in accordance with the
formula set forth in Schedule C.
(iii) Seller agrees to use commercially reasonable efforts to work
with the lowest cost suppliers of the materials and services used
directly in connection with manufacturing the Engines in order to keep
the Costs of Production at reasonable levels. Seller agrees to
investigate any potential suppliers suggested by Buyer. Seller retains
the right to reject suppliers that do not provide materials and/or
services, as applicable, of the quality and performance level which, by
Seller's sole determination, is at least at the same level of quality
and performance provided by Seller's existing suppliers of such
materials and/or services.
(b) NON-RECURRING ENGINEERING CHARGE. Buyer agrees to pay Seller a
non-recurring engineering fee with respect to Seller's preparation for
manufacture of the specific engine components exclusive to Buyer and for
the acquisition of certain tooling, equipment and fixtures in connection
with the manufacturing of such components. Upon Buyer's request, Seller
shall provide Buyer with the amount of such fee, reasonable detail of the
fee and the payment terms of such fee (the "Engineering Proposal"). Buyer
shall own title to certain tooling, equipment and fixtures detailed in the
Engineering Proposal and for which the payment of associated non-recurring
engineering fees has been received.
(c) PAYMENT TERMS. The terms of payment of Seller's invoices shall be
net 30 days from Seller's invoice date. If Buyer disputes any invoice in
good faith, in whole or in part, Buyer shall promptly notify the Seller in
writing and shall set forth the basis for such dispute. The parties will
then use their best efforts to resolve the dispute expeditiously. Any such
dispute not resolved within 30 days may be submitted to binding arbitration
in accordance with section 13 of this Agreement. Any invoice balance which
remains unpaid after 30 days shall bear interest at the rate of 1.5% per
month until paid.
(d) SUSPENSION OR TERMINATION FOR FAILURE TO PAY INVOICES WHEN
DUE. In the event that Buyer fails to pay any invoice, other than amounts
which are in good faith dispute, when due, Seller may, at its option,
immediately suspend its performance under the Agreement five days after
providing written notice to Buyer of the overdue amount if such amounts are
not paid within the five day period. Seller shall be under no obligation to
resume performance until all overdue amounts, other than amounts in good
faith dispute, are paid. Seller may, at its option, immediately terminate
this contract if Buyer fails to pay any such amounts due which are not in
good faith dispute within 15 days of the written notice of the overdue
amount.
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5. TESTING, DELIVERY, USE, PRIVATE LABELS AND SERVICE AND PARTS.
(a) SELLER TESTING. All Engines shall be inspected and tested by
Seller for conformity to the Specifications prior to shipment to the Buyer.
(b) DELIVERY. All Engines manufactured by Seller under this Agreement
shall be delivered F.O.B. Seller's plant, Whitewater, Wisconsin, and upon
such delivery to carrier, title and risk of loss shall pass to Buyer.
(c) RISK OF RESALE AND NO INDEPENDENT RIGHT TO RESELL. Risk of resale
of the Engines shall be with the Buyer. Under no circumstances shall Seller
assume any liability whatever in the event that Buyer is unable to resell
the Engines, and Buyer shall have no right to return the Engines to Seller
under such circumstances. Buyer shall resell Engines solely as components
in its welders, pressure washers, Consumer Portable Generators and other
products approved by Seller. Buyer shall not, and shall not have the right
to, resell Engines independently of its welders, pressure washers, Consumer
Portable Generators or other products approved by Seller.
(d) APPROVAL OF APPLICATIONS. Seller shall have the right to approve
all applications and uses of the Engines and Buyer shall request and
receive such approval in writing prior to any application or use of the
Engines not already approved hereby. Seller hereby approves the application
and use of the Engines as components in Buyer's existing product lines of
welders, pressure washers and Consumer Portable Generators to the extent
the Engines are used therein as of the date hereof.
(e) PRIVATE LABELS. Buyer may not use any private label on the
Engines without the written consent of Seller. Seller hereby consents to
the private label "Craftsman." Approved private labels may only be used in
connection with the incorporation of Engines as components in Buyer's
welders, pressure washers, Consumer Portable Generators and other products
approved by Seller.
(f) SERVICE AND PARTS. Seller shall, to the extent required by this
Agreement and to the extent requested by Buyer and agreed to by Seller,
provide repair services for the Engines and Buyer shall utilize Seller for
the performance of such repair services. Additionally, Seller shall sell to
Buyer and Buyer shall purchase from Seller spare and replacement parts for
the Engines, in the quantities which Buyer may request and which Seller may
agree to sell, at the price at which Seller sells such spare and
replacement parts to its master parts distributors, which may be modified
by Seller from time to time.
6. WARRANTIES.
(a) LIMITED WARRANTY. The Engines will be subject to Seller's
standard limited warranty for the Engines which is set forth on Schedule B
(the "Limited Warranty"). Seller retains the right to modify the Limited
Warranty at any time and from time to time. SELLER MAKES NO OTHER
WARRANTIES OR REPRESENTATIONS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO
THE ENGINES, INCLUDING THEIR DESIGN, QUALITY, PERFORMANCE, MERCHANTABILITY,
OR FITNESS FOR A PARTICULAR PURPOSE.
(b) WARRANTY EXCLUSIONS. Seller makes no warranty of any kind with
respect to:
(i) Repairs for Engines necessitated by normal wear and tear,
damage in transit or accident, through abuse, misuse or negligence of
Buyer or its
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customers, or by failure of any of those persons to maintain or use the
Engines in accordance with Seller's written instructions; or
(ii) Engines that have been modified in any manner after shipment
by Seller.
(c) RETURN AUTHORIZATION. Engines warranted by Seller shall be
repaired or replaced at Seller's option and expense upon presentation of
evidence that demonstrates to Seller's reasonable satisfaction a breach of
the Limited Warranty. Prior to return of any Engine to Seller, Buyer shall
obtain a return authorization from Seller and comply with Seller's return
authorization procedures in force at the time of the return. Seller shall
have no obligation to repair or replace Engines returned without a return
authorization.
(d) LIMITATION OF REMEDIES. Buyer's exclusive remedy for any defect
in the Engines or breach of Seller's warranty under section 6(a) of this
Agreement is, at Seller's option, either refund of the price paid by Buyer
for the defective Engines, repair of the defective Engines sufficient to
cause them to meet the Specifications or replacement of the defective
Engines with equivalent Engines that meet the appropriate Specifications.
IN NO EVENT SHALL SELLER BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES, INCLUDING ANY LOST PROFITS OF
BUYER, IN CONNECTION WITH SELLER'S BREACH OF THIS AGREEMENT IN ANY WAY,
INCLUDING, BUT NOT LIMITED TO, THE FAILURE OF THE ENGINES TO MEET THE
SPECIFICATIONS OR SELLER'S FAILURE TO DELIVER THE ENGINES WHEN DUE OR AT
ALL.
The parties acknowledge that the limitation of damages contained in
this paragraph is a separate item of their agreement. The parties
acknowledge their intent that this limitation of damages shall be severable
from the limited warranty and shall be enforceable even if the limitations
in the limited warranty are held to be unenforceable.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION.
(a) OWNERSHIP OF INFORMATION. Buyer acknowledges that all information
disclosed to it by Seller pursuant to this Agreement, including all
information pertaining to the design of and the manufacturing process for
the Engines and all information pertaining to the conduct of Seller's
business and affairs, shall, at all times, both during and after the
termination of this Agreement, however occurring, remain the exclusive
property of Seller and that Buyer shall not acquire any proprietary
interest in such information.
Seller acknowledges that all information disclosed to it by Buyer
pursuant to this Agreement, including all information pertaining to the
conduct of Buyer's business and affairs, shall, at all times, both during
and after the termination of this Agreement, however occurring, remain the
exclusive property of Buyer and that Seller shall not acquire any
proprietary interest in such information.
(b) ACCESS TO CONFIDENTIAL INFORMATION. Neither party shall, directly
or indirectly, disclose, or permit anyone to disclose, any Confidential
Information disclosed or made available by the other party, and shall
carefully guard and keep secret all such Confidential Information. Neither
party shall, at any time, allow anyone other
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than the other party hereto, or those authorized by the other party, to
have access to or use any Confidential Information disclosed or made
available by the other party. Each party shall use all reasonable efforts
to protect the proprietary nature of any and all Confidential Information
of the other.
Except as expressly provided otherwise in this Agreement, neither
party shall copy, modify, transcribe, store, sell, lease or otherwise
transfer or distribute any Confidential Information of the other in whole
or in part without prior authorization in writing from the other party.
Both parties shall use the Confidential Information only during the term of
this Agreement and solely for the purpose of carrying out the intent of
this Agreement.
For purposes of this Agreement, the term "Confidential Information"
includes, without limitation, a party's techniques, processes, procedures,
operations and other proprietary information relating to research and
development, design, manufacturing, operations, marketing and finances.
Upon termination of this Agreement, however occurring, both parties shall
surrender to the other party all documents including, but not limited to,
plans, specifications, literature, samples, documents and other tangible
things, relating to Confidential Information disclosed or made available by
the other party and all supplies which are the property of the other party.
(c) LIABILITY FOR DISCLOSURE. Neither party shall be liable for
disclosure to others of Confidential Information disclosed or made
available to it by the other party if the information: (i) can be
demonstrated by contemporaneous written records to have been in the other
party's possession or available to the other party prior to the receipt of
same from Buyer or Seller as the case may be; (ii) can be demonstrated by
clear and convincing evidence to have been received from a third party
having no obligation to hold the same in confidence; (iii) can be
demonstrated by clear and convincing evidence to have been generally known
or generally available to the public prior to the date of the disclosure;
(iv) becomes generally known or generally available to the public through
no act or failure to act on the part of either party or its affiliates; or
(v) is required by a valid order of a court of law to be disclosed.
If any Confidential Information of a party is required by law to be
disclosed by the other party hereto (as contemplated by section 7(c)(iv)),
the disclosing party shall provide the nondisclosing party with prompt
notice of such disclosure and take such legally available steps as may be
necessary to resist or narrow such request and/or to procure a court order
stipulating that the Confidential Information required to be disclosed
shall be used solely for the purposes for which the court order was issued.
(d) NO GRANT OF LICENSE. No rights or obligations other than those
expressly stated shall be implied from this Agreement. In particular, no
license or other right is hereby granted, either express or implied, to one
party by the other party (i) with respect to the other party's Confidential
Information or (ii) under any patent, patent application, copyright,
trademark, or other proprietary right or intellectual property right now or
hereafter controlled by the other party.
(e) Buyer understands and agrees that the Engines embody design and
manufacture information including, but not limited to, design or production
concepts, methods, materials, structures, assemblies or similar information
which is proprietary to Seller (the "Design Information"). Buyer shall not
reverse engineer or disassemble the Engines and shall not use, nor permit
any third party to use, the Design
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Information for any purpose other than those necessary to further the
transactions contemplated by this Agreement. Under no circumstances shall
the Buyer have the right to use the Design Information to design or
manufacture any product, or assist any third party in manufacturing any
product, which competes with the Engines.
(f) SPECIFIC PERFORMANCE. The Parties agree that breach of this
section 7 by either party would cause irreparable damage to the other party
and that monetary damages alone would not provide the injured party with an
adequate remedy for such breach. Therefore, if any controversy arises
concerning the rights or obligations of either party under this section 7,
such rights or obligations may be specifically enforced by an injunction
order issued by a court of competent jurisdiction. Such remedy, however,
shall be in addition to any other remedy to which the injured party may be
entitled.
8. INDEMNIFICATION.
(a) BREACH OF THIS AGREEMENT. Subject to the limitations set forth in
section 6(d) of this Agreement, each party agrees to indemnify and hold the
other party, its affiliates, shareholders, directors, officers, employees,
customers, successors and assigns harmless against all liabilities, claims,
costs, damages, losses and expenses, including reasonable legal fees and
related costs, which the indemnified party incurs by reason of the
defaulting party's failure to perform its obligations under this Agreement.
If a claim, demand or suit is presented or filed against the
nondefaulting party and indemnification by the nondefaulting party is
sought pursuant to this provision, the nondefaulting party shall give
prompt notice to the defaulting party and provide reasonable assistance to
and cooperation with the defaulting party, at the defaulting party's cost,
in the settlement or defense of the claim, demand or suit. The right of
indemnification shall be extinguished if the nondefaulting party fails to
give notice of the claim, demand or suit, or settles the same without the
written consent of the defaulting party.
(b) INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold
harmless Seller, its officers, employees and agents, from and against all
loss, damages, liability and expense incurred by reason of any claims,
actions, suits or governmental investigations or proceedings including, but
not limited to, product liability claims, brought against or involving them
or any of them, which relate to or arise out of the manufacture of the
Engines by Seller for the Buyer. Provided, however, that Buyer shall not be
obligated to indemnify Seller for any claim which arises out of Seller's
failure to comply with the limited warranty for the Engines described in
section 6 above or failure to manufacture the Engines in compliance with
the Specifications.
(c) PRODUCT LIABILITY.
(i) INSURANCE. During the term of this Agreement, and for a period
of three years thereafter, each party will at its own expense purchase
(if it has not already purchased) and maintain general product liability
insurance, naming the other party as an additional insured. The coverage
shall have limits of liability of no less than $5 million and shall be
placed with an insurance carrier having a Best's rating of no less than
"A". Each party shall provide a copy of the insurance policy to the
other party upon the other party's request.
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9. TERMINATION. In addition to any other provision of this Agreement
which grants a right of termination, the following shall also constitute bases
for termination:
(a) A material default in the performance of an obligation under this
Agreement, provided such default continues for more than [60][120] days
after written notice is provided by the nondefaulting party.
(b) If either party becomes the subject of a voluntary bankruptcy or
insolvency proceeding; if such proceeding is involuntary, then the right of
termination shall exist only if such proceeding has continued unstayed for
a period of 60 consecutive days after filing.
Upon the expiration or termination of this Agreement as set forth
above, Seller will complete Engines on order at the date of termination,
and Buyer shall purchase such Engines from Seller. Expiration or
termination of this Agreement for any reason shall not affect any
liabilities or obligations of either party which have accrued at the date
of expiration or termination or which by their nature survive expiration or
termination (including, without limitation, the obligations under sections
6, 7, 8, 9 and 13).
10. FORCE MAJEURE. Neither party (nor any successor to either party,
including, without limitation the Purchasing Party (as defined in section 12))
to this Agreement shall be liable for delay or failure to perform under this
Agreement which results from any occurrence or event which could not have been
reasonably avoided including, without limitation, accident, action of the
elements, act of God, civil unrest, enemy action, epidemic, explosion, fire,
flood, insurrection, strike, lockout or other labor trouble or shortage, natural
catastrophe, riot, unavailability or shortage of material, equipment or
transportation, war, act, demand or requirement of law or of the Government of
the United States or any other competent governmental authority, or any other
similar cause beyond such party's control, if the party in default makes
reasonable efforts to remove or overcome the effects of such occurrence or
event. If a party believes that any one or more of the above occurrences or
events shall cause a delay or prevent its performance hereunder, it shall
promptly notify the other party in writing of such fact.
11. RELATIONSHIP OF THE PARTIES. The relationship established between the
parties by this Agreement during its term shall be solely that of vendor and
vendee. Under no circumstances shall the contractual relationship between the
parties be deemed or construed as one of agency, joint venture, employment or
otherwise. This Agreement does not give either party any right to act as a
representative or agent of the other party or any authority to incur or create
any obligation in the name of or on behalf of the other party.
12. ASSIGNMENT, SUCCESSORS AND ASSIGNS AND SALE OF SELLER'S
BUSINESS. Neither party may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party; provided,
however, Seller or Buyer, as applicable, may assign, upon written notice to the
other party Buyer and without the other party Buyer's consent, this Agreement or
its interest herein to any affiliate or to any third party succeeding to its
Seller's business. Subject to the foregoing, this Agreement shall bind and inure
to the benefit of Buyer, Seller, and their respective representatives, heirs,
successors and assigns. If Seller desires to sell or transfer more than 50% of
its stock (except for transfers among existing shareholders of Seller or any
trusts for the benefit thereof and among existing shareholders of Seller and
their spouses, siblings and lineal descendants or any trusts for the benefit
thereof) or sell or transfer substantially all of its assets used in connection
with manufacturing of the Engines (a "Change of Control"), Seller agrees to
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have the party purchasing or receiving the stock or assets (the "Purchasing
Party") accept assignment of this Agreement subject to the term adjustment
provision contained in section 2, above and the terms of this section 12. After
a Change in Control, and only after a Change in Control, Buyer shall have the
right to have the Costs of Production for any annual period ending subsequent to
such Change of Control audited by an accounting firm (which shall be mutually
acceptable to Buyer and the Purchasing Party or selected in accordance with the
procedure set forth for selecting the Accounting Firm pursuant to section 1(a)
of this Agreement). The sole purpose of the audit conducted pursuant to the
immediately preceding sentence shall be to confirm that Costs of Production for
the Engines reflect a reasonable allocation of Costs of Production between the
Engines and the Purchasing Party's other (non-Engine) products. After a Change
of Control, and only after a Change of Control, Buyer and the Purchasing Party
shall negotiate in good faith and establish mutually agreeable delivery
schedules for Engines to be purchased by Buyer from the Purchasing Party
pursuant to this Agreement (the "Schedules"). The Schedules shall contain terms
for delivery that are in all material respects consistent with the manner in
which Engines are delivered to Buyer by Seller prior to the Change of Control.
Following a Change of Control, subject to the provisions of section 10, if the
Purchasing Party fails to deliver Engines in accordance with the Schedules,
Buyer shall be entitled to indemnification pursuant to and in accordance with
section 8(a) of this Agreement.
13. ARBITRATION OF DISPUTES. All disputes or claims arising out of,
resulting from or related to this Agreement shall be finally settled under the
Rules of the American Arbitration Association (the "Rules") by an arbitrator
appointed in accordance with the Rules. If the parties fail to so nominate a
sole arbitrator within 30 days from the date when the claimant's request for
arbitration has been communicated to the other party, the sole arbitrator shall
be appointed in accordance with the Rules. Any decision made by such an
arbitrator within the scope of his or her authority shall be binding upon the
parties. The cost for such arbitrator shall be borne equally between the
parties, but all other costs involved in the arbitration shall be borne
separately by the parties. Each party shall enter into an arbitration agreement
providing reasonable protection to the arbitrator. The place of arbitration
shall be in Milwaukee County, Wisconsin, USA. Judgment on any award rendered by
the arbitrator may be entered by any court of competent jurisdiction. The
parties irrevocably consent and submit to the jurisdiction of any local, state
or federal court in Milwaukee County, Wisconsin, USA.
14. NOTICES. Notices permitted or required to be given under this
Agreement shall be deemed sufficient if sent by mail or other delivery service,
facsimile, or, if promptly confirmed in writing, by telephone, addressed to the
parties as set forth below. Notices so given shall be effective upon (a) receipt
by the party to which notice is given or (b) on the fifth day following the date
such notice was posted or transmitted, whichever occurs first. Notices shall be
addressed as follows:
If to Seller: Generac Corporation
P.O. Box 8
Highway 59 at Hillside Road
Waukesha, WI 53187
Attn: Chief Executive Officer
If to Buyer:
Attn:
or to such other address as the parties may designate in writing.
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15. ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
constitute the entire understanding between the parties with reference to the
subject matter hereof and no statements or agreements, oral or written made
prior to the signing of this Agreement shall vary or modify the written terms
hereof. No amendment or modification of this Agreement or release form any of
the provisions hereof shall be valid unless made in writing and signed by the
parties.
16. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof will in no way affect the
right to require such performance at any time thereafter, nor will the waiver by
either party of a breach of any provision hereof constitute a waiver of any
succeeding breach of the same or any other provision, or constitute a waiver of
the provision itself.
17. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, the parties agree that such invalidity
or unenforceability shall not affect any other provision of this Agreement, the
remaining terms, covenants and provisions hereof shall remain in full force and
effect.
18. GOVERNING LAW. This Agreement and any disputes hereunder shall be
governed and construed in accordance with the internal laws of the state of
Wisconsin.
19. HEADINGS. The headings used in this Agreement are for convenience and
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
The parties intending to be bound hereby have caused this Agreement to be
signed by their duly authorized representatives on the day and year first
written above.
GENERAC CORPORATION
BY /s/ ROBERT D. KERN
-----------------------------------
Robert D. Kern
Chairman of the Board
BUYER GENERAC PORTABLE
PRODUCTS, INC.
(F/K/A GPPC, INC.)
BY /s/ ERIC R. WILKINSON
-----------------------------------
Eric R. Wilkinson
President
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LIST OF SCHEDULES
Schedule A: Prices
Schedule B: Limited Warranty
Schedule C: Formula for Calculation of Changes in Certain Costs of
Production
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SCHEDULE A
OEM ENGINE SUPPLY AGREEMENT -- ENGINE SELL PRICE SCHEDULE
MODEL # DESCRIPTION SELL
- ------- ----------- ----
EHB 00946 0 19HT3N6N01NN000N02R * * *
EHB 00947 0 19HT3Y5N01NN000N02R * * *
EHB 00948 0 19HT3YN505NN000N02R * * *
EHB 00949 0 19HT3YN601NN000N02R * * *
EHC 00950 0 22HS4NAN02YY000N03R * * *
EHC 00951 0 22HT3N6N02NN000N03R * * *
EHC 00952 0 22HT3Y6N02NN000N03R * * *
EHC 00953 0 22HT3Y6N02NN000N03R * * *
EHC 00954 0 22HT3Y502NN000N03R * * *
EHC 00955 0 22HT3YN602NN000N03R * * *
EHC 00956 0 22HT3YN608YN000N03R * * *
EHC 00983 0 22HT3YNS02NN000N03R * * *
EHE 00931 0 36HT5Y6N04NN000N05R * * *
EHE 00932 0 36HT5Y6N04NN000N11R * * *
EHE 00933 0 36HS6YN604YY000N05R * * *
EHE 00961 0 36HT5Y6N11NN000N05R * * *
EHE 00962 0 36HT5Y6N11NN000N11R * * *
EHF 00934 0 41HT5Y6N06NN000N06R * * *
EHF 00935 0 41HT5Y6N06NN000N12R * * *
EHF 00945 0 41HT5Y6N09NN000N06R * * *
EHF 00957 0 41HT5Y6N09NN000N12R * * *
EHF 00958 0 41HT5Y6N10NN000N06R * * *
EHF 00959 0 41HT5Y6N10NN000N12R * * *
EHF 00960 0 41HS4Y6N10NN000N06R * * *
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*** = Omitted and filed separately with request for confidential treatment.
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SCHEDULE B
TWO YEAR LIMITED WARRANTY FOR "GN" ENGINES
Generac warrants to the original purchaser that the "GN" engine will be
free from defects in materials or workmanship for the items and period set forth
below from the date of original purchase. This warranty is not transferable and
applies only to GN-Series Generac warranted engines.
CONSUMER* COMMERCIAL*
----------------------------- -----------
Engine 2 years (2nd year parts only) 1 year
With the exception of European Community Countries, all units bound for
export shall be warranted for one (1) year in consumer applications, and 90 days
in commercial applications as defined below.
*NOTE: FOR THE PURPOSE OF THIS WARRANTY, "CONSUMER USE" MEANS PERSONAL
RESIDENTIAL HOUSEHOLD USE BY ORIGINAL PURCHASER. THIS DOES NOT APPLY TO UNITS
USED FOR PRIME POWER IN PLACE OF UTILITY. "COMMERCIAL USE" MEANS ALL OTHER USES,
INCLUDING PRIME POWER, RENTAL, CONSTRUCTION, COMMERCIAL, AND INCOME PRODUCING
PURPOSES. ONCE AN ENGINE HAS EXPERIENCED COMMERCIAL USE, IT SHALL THEREAFTER BE
CONSIDERED A COMMERCIAL USE ENGINE FOR THE PURPOSES OF THIS WARRANTY.
During said warranty period, Generac will, at its option, repair or replace
any part which, upon examination by Generac is found to be defective under
normal use and service. All transportation costs under warranty, including
return to the factory if necessary, are to be borne by the purchaser and prepaid
by him. This warranty does not include nominal maintenance and service and does
not apply to an engine which has been subjected to improper or unauthorized
installation, misuse, negligence, accident, overloading, overspeeding, improper
maintenance, repair or storage so as, in Generac's judgment, to adversely affect
its performance and reliability.
**NORMAL WEAR: AS WITH ALL MECHANICAL DEVICES, THE GN-SERIES ENGINES NEED
PERIODIC PARTS SERVICE AND REPLACEMENT TO PERFORM WELL. THIS WARRANTY WILL NOT
COVER REPAIR WHEN NORMAL USE HAS EXHAUSTED THE LIFE OF A PART OR AN ENGINE.
There is no other express warranty. Generac hereby disclaims any and all
implied warranties, including but not limited to those of merchantability and
fitness for a particular purpose to the extent permitted by law. The duration of
any implied warranties which cannot be disclaimed is limited to the time period
(one year) as specified in the express warranty. Liability for consequential,
incidental, or special damages under any and all warranties is excluded to the
extent permitted by law. Some states do not allow limitations on how long an
implied warranty lasts, or the exclusions or limitations of incidental or
consequential damages, so the above limitations or exclusions may not apply to
you. This warranty gives you specific legal rights and you may also have other
rights, which vary from state to state.
For service, see your nearest Generac authorized warranty service facility
or call 1-800-333-1322. Warranty service can be performed only by a Generac
authorized service facility. This warranty will not apply to service at any
other facility. At the time of requesting warranty service, evidence of original
purchase date must be presented.
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SCHEDULE C
GN ENGINE COMPONENT PRICE ADJUSTMENTS
(CRANKCASE, CYL HEAD, GEAR COVER, CRANK, CAM)
ADJUSTMENT FOR EXCHANGE RATE FLUCTUATIONS
AND
ALUMINUM INGOT MARKET PRICE FLUCTUATIONS
Component costs are adjusted for fluctuations in aluminum ingot price every six
months based on the following formula.
Monthly Al. Rate Deviation = Monthly Avg. Al. Cost -- Base Al. Rate
Monthly Al. Consumption = (Al. Weight per engine + 5%) x Monthly volume
(Monthly Rate Deviation x Monthly Al. Consumption) + 13% = Total Monthly
Adjustment
Note: Monthly consumption must be calculated by engine model due
to differences in aluminum weight between models.
Component costs are adjusted for fluctuations in currency exchange rates every
six months based on the following formula.
Monthly Currency Deviation = Monthly Avg. Exchange Rate -- Base Exchange Rate
(Monthly Currency Deviation x Total Cost of Imported Parts x Monthly Volume) +
13% = Total Monthly Adjustment
Note: Import parts are defined as parts imported into Japan.
Component costs are based in Japanese Yen.
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