Exhibit
10.4
 
 
 SUPPLY AGREEMENT
 NAVISTAR, INC
AND  ENOVA SYSTEMS INC




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Table of Contents
 NAVISTAR, INCTERMS
    
    
    41. TERM OF AGREEMENT
    
    
    42. FREIGHT
    
    
    43. PAYMENT TERMS
    
    
    4PRODUCT
    
    
    54. PRODUCT TERMS
    
    
    55. PRICING
    
    
    66. MATERIAL CLAUSE
    
    
    87. SERVICE PARTS AVAILABILITY
    
    
    88. PACKAGING AND PACKING
    
    
    89. LABELING
    
    
    910. VOLUMES
    
    
    911. TOOLING
    
    
    912. PRODUCT IMPROVEMENTS / COST REDUCTION
    
    
    1013. FORCED SELLER CHANGES, OBSOLESCENCE, AND NEW PRODUCTS
    
    
    1114. PRODUCT REGULATORY COMPLIANCE
    
    
    1115. PRICING, QUANTITY, REBATE AND FREIGHT DISPUTES
    
    
    1116. INSPECTION OF PRODUCTS
    
    
    1217. TRANSACTION SUPPORT
    
    
    12SELLER PERFORMANCE
    
    
    1218. PERFORMANCE ACHIEVEMENT
    
    
    1219. KEEP COMPETITIVE AGREEMENT
    
    
    1320. SUPPLY FAILURE
    
    
    1321. LATE DELIVERY CHARGES
    
    
    1322. ASSURANCE OF PERFORMANCE
    
    
    1323. REIMBURSEMENT FOR NON-PERFORMANCE BY SELLER
    
    
    1424. WARRANTY
    
    
    1425. REIMBURSEMENT FOR WARRANTY CLAIMS
    
    
    1526. FINANCIAL VIABILITY
    
    
    1627. AUDIT RIGHTS
    
    
    1628. NAFTA DOCUMENTATION
    
    
    1629. SUPPLIER DIVERSITY PROGRAM
    
    
    1630. VALUE SELLING
    
    
    17ENGINEERING/TECHNICAL SUPPORT
    
    
    1731. GENERAL
    
    
    1732. COMPLIANCE WITH CONTROLLED REVISIONS OF ENGINEERING
    
    
    1733. ENGINEERING SPECIFICATION AND PRODUCT COMPLIANCE
    
    
    1734. TRUCK ENGINEERING CAD/CAM SUPPLIER DESIGN DATA REQUIREMENTS
    
    
    1935. ELECTRONIC DATA INTERCHANGE (EDI) TRANSACTION REQUIREMENTS
    
    
    1936. INFORMATION TECHNOLOGY
    
    
    2037. QUALITY REGISTRATION
    
    
    21LEGAL/REGULATORY
    
    
    2138. COMPLIANCE WITH LAWS AND REGULATIONS
    
    
    2139. NON-COMPLIANCE CHARGES
    
    
    2140. MATERIAL SAFETY DATA SHEETS (MSDS)/SUBSTANCE RESTRICTIONS
    
    
    2141. NON-DISCRIMINATION
    
    
    22
 (NAVISTAR LOGO)
    
    Date of revision:
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42.
VETERANS READJUSTMENT ASSISTANCE ACT
    
    
    2243. GOVERNMENTAL REQUIREMENTS
    
    
    2244. DIRECT PAYMENTS
    
    
    2345. INDEMNIFICATION
    
    
    2346. LIABILITY INSURANCE
    
    
    2447. REMOVAL OF IDENTITY OF BUYER
    
    
    2548. NEW BUSINESS
    
    
    2549. CONFIDENTIAL INFORMATION / INTELLECTUAL PROPERTY
    
    
    2650. TERMINATION
    
    
    27MISCELLANEOUS
    
    
    2851. ASSIGNMENT OF RIGHTS AND DUTIES
    
    
    2852. MODIFICATION AND AMENDMENT OF AGREEMENT
    
    
    2953. CHOICE OF LAW
    
    
    2954. CONSENT TO JURISDICTION
    
    
    2955. SEVERABILITY
    
    
    2956. NO LIMITATION OF RIGHTS AND REMEDIES; SPECIFIC PERFORMANCE
    
    
    3057. FORCE MAJEURE
    
    
    3058. ENTIRE AGREEMENT
    
    
    3159. NOTICES
    
    
    3160. NO WAIVERS
    
    
    3261. CONSTRUCTION
    
    
    3262. HEADINGS
    
    
    3263. COUNTERPARTS
    
    
    33APPENDIX
A  PRODUCT DESCRIPTION / PRODUCT PRICING
    
    
    35APPENDIX
B  NON-CONFORMANCE CHARGE SCHEDULE
    
    
    36APPENDIX
C  PRODUCTION VOLUMES
    
    
    37APPENDIX
D  SERVICE PARTS
    
    
    38APPENDIX
E  AFTERMARKET SERVICE PARTS DIRECT SHIP and PARTS DISTRIBUTION CENTER REQUIREMENTS
    
    
    39APPENDIX
F  AFTERMARKET PRICE FILE FORMAT & COMMUNICATION
    
    
    40APPENDIX
G  SURPLUS STOCK AND DIRECT SHIP RETURNS
    
    
    41
 (NAVISTAR LOGO)
    
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TERMS
 1. TERM OF AGREEMENT
 This Supply Agreement (the Agreement) between NAVISTAR, INC, a Delaware corporation,
4201 Winfield Road, Warrenville, IL 60555 (the Buyer ) and ENOVA SYSTEMS INC, a California
corporation, 19850 S. Magellan Drive, Torrance, CA 90502 (the Seller ), dated February 28,
2008, (the Effective Date ) will be for an initial term of thirty-six (36) months
commencing February 28, 2008 and terminating February 28, 2011 unless otherwise terminated
as provided herein (the Initial Term ). This Agreement may be extended for 2 additional
terms of twelve (12) months (each a Renewal Term ) provided that both parties agree in
writing to such extension no later than sixty (60) days prior to expiration of the Initial
Term or renewal term, as the case may be. This Agreement is effective as of the Effective
Date and shall remain in effect until either terminated by either party in accordance with
the terms of this Agreement or the expiration of the Agreement at the end of the Initial
Term or any Renewal Term.
 2. FREIGHT
 A.
    
    Seller agrees to use only those freight carriers specified in writing by Buyer. Buyer
must approve in writing any other freight carriers used by Seller prior to shipment.
The terms of delivery for all Products (as defined below) sold pursuant to this
Agreement shall be F.O.B. at Sellers United States plants. Seller further agrees
to ship any and all service parts to multiple locations as required
by Buyers
Distribution Network.B.
    
    Seller is responsible for following Buyers routing instructions and handling all
transportation activities efficiently and effectively. Specifically, Seller is required to
have Product staged for delivery and paperwork accurately prepared to support the freight
carriers prearranged pick-up time. Seller is responsible for paying any additional
transportation charges billed by the freight carrier as a result of Sellers failure to have
Product staged for delivery and paperwork accurately prepared. Buyer expects Seller to
settle properly documented charges promptly. Sellers failure to do so will result in
freight debits to Seller.
 3. PAYMENT TERMS
 Payment terms under this Agreement shall be thirty (30) days from date of receipt of a
correct invoice from Seller, or the date of receipt of the Products (as defined below) by
Buyer, whichever is later. All payments shall be made in U.S. dollars. Buyer neither
guarantees nor is responsible for any liabilities incurred by any Third Party Designees
under this Agreement.
 (NAVISTAR LOGO)
    
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PRODUCT
 4. PRODUCT TERMS
 A.
    
    During the Initial Term (or Renewal Term, if any) of this Agreement, Buyer shall purchase
from Seller, and Seller shall sell to Buyer, one hundred percent (100%) of Buyers original
equipment, and one hundred percent (100%) of Buyers service requirements for
POST-TRANSMISSION HYBRID DRIVE SYSTEMS as detailed in the written specifications, drawings,
part numbers, design and style of Buyer ( Product ),
attached hereto as Appendix A  PRODUCT
DESCRIPTION / PRODUCT PRICING, or as they may be hereafter improved or modified if such
improvements and modifications are approved by Buyer in writing, except where the Buyers
customer specifies another suppliers product. Buyers requirements for modules, which may
or may not include similar components or equipment as the Products herein, are not included
in Sellers or Buyers obligations under this section. Seller shall also, at Buyers sole
option, sell Products to Buyers subsidiaries, affiliates, third party contractors or any
other Buyer designated party (Third Party Designee), under the same terms and conditions as
set forth in this Agreement. All of Sellers representations, warranties and obligations
under this Agreement apply to sales to Third Party Designees.B.
    
    Seller hereby further agrees to provide to Buyer all Product related services and related
materials, including, without limitation, sequencing, painting, warehousing, packaging,
containers, necessary software, and any and all literature pertaining to such Products and
which service and materials are requested by Buyer. Costs of such services will be
determined and negotiated in good faith by both parties.C.
    
    Buyer reserves the exclusive right at any time to make changes or modifications to the
drawings and specifications of any Products, materials, or work covered by this Agreement
which are designed by Buyer, or are uniquely designed or created for Buyer. Any difference
in price or time for performance resulting from such changes shall be equitably adjusted,
and the Agreement shall be amended and modified in writing accordingly.D.
    
    During the Initial Term (and Renewal Term, if any) of this Agreement, Seller shall not
sell, give, transfer or in any way cause to be or facilitate to be manufactured or sold the
Products or any derivatives of Products identified in Appendix A  PRODUCT DESCRIPTION /
PRODUCT PRICING of this Agreement and any Products sold to Buyer under this Agreement to any
other party other than Buyer, into the North American School and Commercial Bus Market,
unless expressly authorized in writing by Buyer.E.
    
    Seller may not contract or sub-contract for any third party to make the Product or any
other component or sub-component thereof without prior written agreement of Buyer.F.
    
    Seller hereby agrees to provide Buyers Service Requirements for Products solely through
the Buyers Parts Distribution Network or Buyers designated Affiliates and Seller is hereby
prohibited from distributing such Products to Buyers Customers
 (NAVISTAR LOGO)
    
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through any alternate aftermarket distribution channel, unless written authorization
to do so has been obtained from Buyer.G.
    
    Shipments of Products by Seller must equal the exact quantity ordered by Buyer, unless
otherwise agreed to in writing by Seller and Buyer. Shipping schedules may contain
authorization by Buyer to the Seller to fabricate within a time specified quantities of
Products under this Agreement, the delivery of which has not been specified by Buyer. A
shipping schedule may also contain authorization by the Buyer to the Seller to acquire
within a specified period of time materials necessary to fabricate a certain quantity of the
Products under this Agreement.H.
    
    Seller will be the exclusive POST-TRANSMISSION HYBRID DRIVE SYSTEM supplier for all
Buyers IC Corporation commercial passenger vehicles. Category includes (as described in the
USDOT http://tmip.fhwa.dot.gov/clearinghouse/ docs/accounting/):
 
    
    North American School buses,
    
    North American Commercial and Shuttle buses.
 I.
    
    Buyer will be the only purchaser of Sellers POST-TRANSMISSION HYBRID DRIVE SYSTEM for
all North American applications described in 4H. Seller will not sell POST-TRANSMISSION
HYBRID DRIVE SYSTEMS to any other customers for the North American applications described in 4H.J.
    
    In an effort to promote mutual growth Buyer will be Sellers exclusive distributor of
POST-TRANSMISSION HYBRID DRIVE SYSTEMS for all Buyers IC Corporation North American bus
aftermarket applications.K.
    
    Buyer will offer to Seller access to the Buyers IC Corporation service, aftermarket and
dealer network.L.
    
    Seller will offer Buyer the necessary product support in
terms of Operation Training, Service Training, Repair Training and Sales Training of the POST-TRANSMISSION HYBRID
DRIVE SYSTEM.M.
    
    Seller will support Buyer in promoting and marketing the
POST-TRANSMISSION HYBRID DRIVE SYSTEM during trade shows, dealer events and other related sales
activities with personnel, necessary equipment (as needed) and share Sellers
experience on marketing POST-TRANSMISSION HYBRID DRIVE SYSTEMS.N.
    
    Supplier product pricing does not include warehousing, sequencing, packaging and special
handling.
 5. PRICING
 A.
    
    Similar Pricing for Production Products and Service Parts. Products used for OEM
production vehicles (Production Parts), Products used to service previously sold
Production Products (Service Parts), and packaging, if applicable, shall be quoted and
priced by Seller to Buyer at the equivalent pricing levels. As Products cease being placed
in Buyers OEM production vehicles, Seller shall continue to provide the similar pricing
level for Service Parts as required. Price reductions granted to Buyer by Seller
 (NAVISTAR LOGO)
    
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on Production Products will also apply to all corresponding
Service Parts. ***B.
    
    Evidence of Cost to Buyer. Seller must provide Buyer with documentation satisfactory to Buyer
evidencing the acquisition or manufacturing costs, including packaging, if applicable, to Seller
for all Products covered in this Agreement.C.
    
    Pricing of Products. Pricing for Products shall under no circumstances exceed pricing of similar
products to Sellers Parts Distributors or any other customer of Seller which is a competitor of
Buyer. Upon receipt of a written request from Buyer, Seller hereby agrees to provide Buyers Supply
Manager with all necessary documentation to evidence Sellers compliance with its agreement set
forth in the previous sentence of this section.D.
    
    Similar Terms as Sellers Other Customers. Seller will provide Products to Buyer with terms and
conditions on an overall basis that are no less favorable than those of any other customer of
Seller purchasing comparable quantities of the same or similar Products.E.
    
    Prices for Products are set forth in Appendix A  PRODUCT DESCRIPTION / PRODUCT PRICING
SCHEDULE.F.
    
    Seller will maintain first right to quote on all POST-TRANSMISSION HYBRID DRIVE SYSTEMS ordered beyond the original application.G.
    
    Seller will recognize Buyers commitment to promoting Sellers POST-TRANSMISSION HYBRID DRIVE
SYSTEM by adjusting pricing as soon as the specified volume price break is achieved as described in Appendix A  PRODUCT
DESCRIPTION / PRODUCT PRICING SCHEDULE.H.
    
    Buyer recognizes that there will be an adjustment period during the price change process and
that during that period some POST-TRANSMISSION HYBRID DRIVE SYSTEMS may be purchased by Buyer at
the previous higher price; in order for Seller to compensate Buyer for this discrepancy, Buyer
will accept from Seller a rebate check for the amount overpaid on each POST-TRANSMISSION HYBRID
DRIVE SYSTEM at the end of Buyers fiscal year. Buyer agrees to provide to Seller the necessary
support documentation to calculate the amount of overpayment on the POST-TRANSMISSION HYBRID DRIVE SYSTEM that buyer
does not purchase at the new lower price.I.
    
    Buyer will provide its production Release to Seller at least Twenty one (21) days in advance of
the requested shipment date for all POST-TRANSMISSION HYBRID DRIVE SYSTEMS. Seller is not obligated to accept any changes, additions or schedule movement less
than ten (10) days before Buyers requested shipping date.
 (NAVISTAR LOGO)
    
    Date of revision:
March 27, 2008  Confidential DocumentEffective 1/24/07
 
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6. MATERIAL CLAUSE
 All pricing for raw material and component parts used for the Products by the Seller
shall be the sole responsibility and liability of the Seller, and Seller shall not attempt
to pass on any increase in raw material or component costs related to the Product to the
Buyer in the way of surplus charges, additional fees, currency fluctuations or otherwise. It
is further agreed that currency fluctuation shall not be a basis for Seller to increase raw
material pricing.
 7. SERVICE PARTS AVAILABILITY
 A.
    
    Service Parts for the Products covered by this Agreement will be furnished and combined
with Buyers Production Product orders. If Buyer ceases production of any product
incorporating a Product covered by this Agreement, Seller shall continue to maintain the
tools, jigs and fixtures at no charge to Buyer, and supply Buyer with the Products necessary
to satisfy Buyers past model service and replacement requirements for Product for a minimum
of *** after cessation of production.B.
    
    In addition, upon termination or expiration of this Agreement, Buyer shall have the
opportunity for a one-time buy of Products by Buyer to fulfill such service and
replacement requirements. Buyer and Seller shall negotiate in good faith with respect
thereto.C.
    
    Buyer agrees to offer Seller access to the Buyers parts distribution network in order to
support Sellers POST-TRANSMISSION HYBRID DRIVE SYSTEM. Initial pricing for Service Parts is
included in Appendix D.D.
    
    Seller agrees for aftermarket and service parts to allow surplus stock and direct ship
returns as described in Appendix G
 8. PACKAGING AND PACKING
 A.
    
    Seller must comply with all requirements detailed in the Buyers D-13 Packaging and
Packing Requirement  2001 Revision, as such is modified and amended from time to time.
This document is deemed a part of this Agreement and is available at
http://www.internationalsupplier.com/. This D-13 Packaging and Packing Requirement details
packing, packaging, labeling and shipping requirements.B.
    
    Buyer is responsible for conveying product packaging specifications to Seller.C.
    
    Interpretation of packaging specifications and determination of market competitive
packaging costs and pricing will be coordinated between Buyers and Sellers Corporate
Packaging staffs.D.
    
    If returnable containers are required by Buyer, container and transportation costs will
be negotiated in good faith between Buyer and Seller.
 (NAVISTAR LOGO)
    
    Date of revision:
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E.
    
    Seller will adhere to all retail packaging regulations of the countries where the
Products will be sold. This includes but is not limited to federal, state, provincial,
county, city, and other applicable laws, regulations and statutes.F.
    
    Seller will adhere to all hazardous material packaging regulations of the countries where
the Products will be sold. This includes but is not limited to federal, state, provincial,
county, city, and other applicable laws, regulations and statutes.G.
    
    In support of Buyers lean manufacturing goals, Seller will adhere to requested standard
packs with standard shipping quantities.
 9. LABELING
 Seller must meet the requirements identified in the Buyers Quick Receive Guideline,
which is available at http://www.internationalsupplier.com/, and which, as amended and
modified from time to time, is deemed part of this Agreement.
 10. VOLUMES
 A.
    
    Seller and Buyer agree that Buyers forecasted volumes are based on past usage and
projected market forecasts. The parties hereby agree that no minimum purchase quantities are
implied by any term of this Agreement, and no penalties shall be imposed on Buyer for
volumes of Products actually ordered by Buyer below those quantities forecasted except as
set forth below.B.
    
    The parties hereby agree that specific sales goals of POST-TRANSMISSION HYBRID
DRIVE SYSTEMS need to be achieved to maintain Buyers exclusive distribution and sale
of Sellers POST-TRANSMISSION HYBRID DRIVE SYSTEM. These sales goals are described
in Appendix C- PRODUCTION VOLUMES.C.
    
    In the event that Buyer determines that sales goals determined by Seller can not be
achieved in the established calendar year, Buyer will immediately inform Seller of the
situation. Buyer will have then forty-five (45) days after the end of the calendar year to
achieve the goal. If Buyer does not meet the sales goal expectation of Seller by the last
day of February of the following calendar year Buyer will waive all exclusivity rights to
the distribution of Sellers POST-TRANSMISSION HYBRID DRIVE SYSTEM.D.
    
    In the event that Seller determines that the forecasted volumes by Buyer can not be
supplied in a timely fashion, Seller agrees to inform Buyer immediately of the situation.
Seller and Buyer agree to negotiate in good faith and determine a viable solution to
Buyers product demand. If after the negotiation process is determined that Seller
can not meet Buyers product demand or its forecast Seller will waive all
exclusivity rights as a supplier of POST-TRANSMISSION HYBRID DRIVE SYSTEMS and Buyer
will replace at its discretion Sellers POST-TRANSMISSION HYBRID DRIVE SYSTEM with
a competitive product. Increased cost to be paid by Seller for substitute products.
 11. TOOLING
 A.
    
    Unless otherwise agreed to in writing, Seller shall furnish at its own expense, keep in
good condition, and replace when necessary, all dies, tools, gauges, fixtures, and
 (NAVISTAR LOGO)
    
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patterns necessary for the production of the Products ordered. All tooling, jigs,
fixtures and associated manufacturing equipment necessary for the successful
production and testing of the Products for which Buyer pays Seller in full will
remain the exclusive property of Buyer, and Seller assumes all liability for any
loss, damage or shortage and/or for Sellers failure to return such property,
including equipment, to Buyer upon request. The tooling which is owned by Buyer and
maintained by Seller shall be in accordance with the terms of the attached Tooling
and Bailment Agreement. Seller shall promptly notify Buyer of any such loss, damage
or shortage. Such tooling items must be identified and labeled as Owned By
International. Furthermore, all tooling owned by Buyer shall be used exclusively
for the manufacture of Products for Buyer. Seller will perform normal maintenance,
at Sellers expense, for the duration of this Agreement.B.
    
    Tooling developed for the production of the Products will conform to Buyers product
development guidelines. It is expected that Seller will exercise due care and judgment in
the design, specification, sourcing, building, and supervision of building, of all tooling
in such a way to maximize production efficiency and minimize cost. Seller will analyze
domestic and overseas placement of tooling using various cost, part and tooling design, and
timing requirements. In those instances where Buyer has an obligation to pay for tooling
costs, Buyer will pay Seller only for those costs deemed to be globally competitive in cost
and quality by Buyer. Seller shall submit all tools for inspection and review by Buyer in
accordance with AIAG (Automotive Industry Action Group) Publication, Production Part
Approval Process, prior to Buyer making payment for same. Buyer may, at its option, see
detailed tooling documents, invoices and/or tooling orders prior to issuing its approval for
payment of tooling. Tooling costs may be shared with Seller or amortized as mutually agreed
upon by both parties in writing. If Seller pays for tooling and amortizes cost to Buyer as described in the attached
Amortization Agreement, upon completion of amortization Buyer shall have the option
to purchase all such tooling from Seller for the price of one dollar ($1.00).
 12. PRODUCT IMPROVEMENTS / COST REDUCTION
 A.
    
    Seller and Buyer are committed to an active product cost reduction program. Any
Buyer-initiated cost savings resulting from product improvements and/or design
changes shall be credited *** to Buyer after funding the
total cost of initial tooling investment. Any Seller initiated or mutually
developed cost savings resulting from product/process improvements and/or design
changes shall be shared *** with Buyer after funding total cost of
initial tooling investment.B.
    
    COMPASS/IdeaStream Credits. Seller will provide *** COMPASS/IdeaStream credit per calendar
year, beginning November, 1, 2008. All ideas must be credited by
October 31st
of each calendar year in order to qualify for the *** savings. Seller
hereby agrees that it will follow COMPASS/IdeaStream guidelines set forth in the
International Supplier Network website, http://www.internationalsupplier.com/, for
what constitutes an acceptable idea submission.
 (NAVISTAR LOGO)
    
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13. FORCED SELLER CHANGES, OBSOLESCENCE, AND NEW PRODUCTS
 A.
    
    Seller shall not discontinue any Product(s) without written agreement from
Buyer. Buyer will work in good faith with Seller to accept reasonable requests.B.
    
    Seller shall provide Buyer *** advance warning of changes that
will result in changes to Buyers cost, part numbers, or production processes. Changes
that have a negative impact on the Buyers total installed cost may only be
implemented with prior written agreement from Buyer.C.
    
    When Seller introduces Products intended to replace those Product(s)
already purchased by Buyer, those Products will be priced to have a total installed
cost equal to or lower than the Products they replace. As replacement Products are
introduced, all terms and conditions described in this Agreement, including price
reductions, freight terms and rebates, will apply to the replacement Products on the
dates set forth in this Agreement.D.
    
    When Seller seeks to introduce new Products to Buyer that are not replacement
Products, Buyer and Seller will negotiate in good faith to implement a competitive
price. As new Products are introduced, all price reductions, freight terms, and rebates
described in this Agreement will apply to the new Products on the dates specified in
this Agreement.
 14. PRODUCT REGULATORY COMPLIANCE
 A.
    
    Components or systems purchased from Seller that have specific government
regulatory performance requirements will require Seller to provide evidence of
compliance satisfactory to Buyer and the applicable governmental regulatory authority,
in the form of a test report and/or engineering analysis, validating conformance to
those specific requirements.B.
    
    Seller must provide the same evidence of compliance whenever a change is made
to a particular component or system that affects the performance of that component or
system in relation to a specific government regulatory performance requirement.C.
    
    Seller must provide an annual Letter of Conformance as required by Buyer.
 15. PRICING, QUANTITY, REBATE AND FREIGHT DISPUTES
 A.
    
    All pricing, quantity, and freight debits, and rebate disputes between Buyer
and Seller that Seller wishes to contest must be communicated in writing by Seller to
the Buyer within six (6) months of the date Seller ships the Product to Buyer. For
quantity disputes, Seller must provide a copy of the relevant proof of delivery (POD)
that is stamped with the Buyers receipt number, and the bill of lading (BOL) number.B.
    
    Seller must provide ninety (90) days written notice to Buyer of any intention
to stop shipment of Products as a result of a dispute set forth above.
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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16. INSPECTION OF PRODUCTS
 All Products shall be received subject to Buyers inspection and/or rejection.
Defective Products or Products not in accordance with Buyers specifications will be
held for Sellers instructions and at Sellers risk, and, if Seller so directs, will
be returned at Sellers expense. Payment for Products prior to inspection shall not
constitute an acceptance thereof. Returned Products will be deducted from total
shipments.
 17. TRANSACTION SUPPORT
 A.
    
    Seller and Buyer understand that in the commercial vehicle and bus industries,
suppliers are often required to provide incentives, extended warranties, or rebates to
truck end-customers and/or dealers to persuade the customer and/or dealer to specify
the suppliers product(s) in lieu of competitive supplier products, which practice is
defined as Transaction Support. Transaction Support is paid by the Seller using
several approaches, including 1) through the bus OEM, 2) through the OEM dealer, and/or
3) directly to the end-customer.B.
    
    Seller and Buyer also understand that Customers typically interpret
Transaction Support to be a commitment between the product supplier and the Customer
that is independent of which bus OEM brand the Customer selects for their purchase.C.
    
    Seller understands Customers strategic preference for other bus components
that may not include Sellers Product offering.D.
    
    If Seller provides Transaction Support to a Customer for multiple components
when ordering a competitors vehicle, and Buyer does not wish to include all of
Sellers components in a proposal to the Customer, then Seller will offer the same or
dollar-value adjusted Transaction Support to the Customer when ordering vehicles
supplied by the Buyer with less than all of the multiple components in question. For
example, if Seller offers a Customer a $500 rebate for ordering a vehicle from Brand A
that includes Sellers Product A, B, and C, and Buyer does not offer Sellers Product C
to this Customer, then the Seller will offer such Customer a $500 rebate for ordering a
vehicle from Buyer or will adjust the rebate to reflect the reduction in dollar value
for the exclusion of Product C.
 SELLER PERFORMANCE
 18. PERFORMANCE ACHIEVEMENT
 Seller is required to meet all cost, performance, delivery, reliability, quality and
technology requirements, and documentation thereof, as specified in this Agreement.
Buyers plants, Parts Distribution Centers or Supply Manager will communicate
non-conformances directly to Seller with requests for corrective actions. These
corrective actions must be performed in a timely manner and the issues corrected to
the reporting locations satisfaction. All non-conformances will be subject to the
minimum charges as detailed in Appendix B  NON-CONFORMANCE CHARGE SCHEDULE.
 (NAVISTAR LOGO)
    
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19. KEEP COMPETITIVE AGREEMENT
 Buyer and Seller recognize that continuing to be competitive in price, performance,
delivery, reliability, quality and technology is essential for this Agreement. If
Buyer reasonably demonstrates to Seller that any Product is not a competitive value
in price, performance, delivery, reliability, technology or quality with other
equivalent products of equivalent value, production, usage or availability in the
world, then Seller agrees to provide an action plan and timetable within sixty (60)
days of such demonstration to cure the deficiency to Buyers satisfaction. If the
plan fails to cure the deficiency within the agreed upon timetable, then Buyer may
at its option withdraw the non-competitive Product(s) from this Agreement and serve
notice to terminate the obligations of the parties under this Agreement with respect
thereto, effective upon the date specified by Buyer in such notice. Buyer agrees
that prior to exercising its option, it will consider, in good faith, any proposal
by Seller to correct the deficiency.
 20. SUPPLY FAILURE
 In the event of a partial failure of Sellers sources of supply for the Products
purchased, Seller will first meet all of Buyers requirements hereunder prior to any
allocation among customers under Section 2-615 of the Uniform Commercial Code.
 21. LATE DELIVERY CHARGES
 If Buyer determines that Sellers deliveries are so far behind a given schedule that
Buyer requests express shipments, Seller will pay the express charges. If Sellers
deliveries are so far behind a given schedule that the Buyer is compelled to use
material not according to Buyers specification, or at a higher cost, the Seller
will pay whatever additional costs, expenses, losses, or damages Buyer sustains.
 22. ASSURANCE OF PERFORMANCE
 If Buyer reasonably deems itself insecure with respect to Sellers ongoing
performance, whether due to Sellers financial capacity or otherwise, Buyer may
demand that Seller provide assurance of future performance to Buyer within five (5)
days of the demand. This assurance may be in any security acceptable to Buyer,
including but not limited to, collateral consisting of cash, letter(s) of credit,
surety bond, parent guaranty, or lender releases. This security shall be in an amount
satisfactory to Buyer and shall also be sufficient to offset costs and expenses
incurred or reasonably expected to be incurred by Buyer in securing for itself
completion of the project or other performance due from Seller. Buyer reserves its
right to any other remedies allowed in law or equity. Failure to provide the
requested performance assurance within the stated period shall constitute a default
of this Agreement, and Buyer shall be free to procure Product from an alternate
source and/or cancel this Agreement in its discretion immediately upon expiration of
the time specified for delivery of the requested performance assurance.
 (NAVISTAR LOGO)
    
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23. REIMBURSEMENT FOR NON-PERFORMANCE BY SELLER
 A.
    
    Seller acknowledges that Buyer requires on-time delivery in order to operate
its plants and parts distribution centers. The parties further acknowledge that the
precise amount of Losses (as defined in Article 45  INDEMNIFICATION) which Buyer would
sustain in the event Seller were to fail to make timely or conforming deliveries of
Products would be difficult to determine. Therefore, the parties agree that Seller
shall be responsible for any and all actual, consequential or incidental Losses
resulting from Sellers failure to make timely or conforming deliveries of Products,
including, but not limited to, any costs or expenses Buyer incurs for the correction of
Products assembled out of sequence or for the correction of Products with quality
problems and any costs or expenses Buyer incurs in connection with Buyers assembly
line downtime as detailed in Appendix B  NON-CONFORMANCE CHARGE SCHEDULE. Seller will
advise Buyer immediately in writing of any apparent imminent problem, and the parties
will each use their best efforts to avoid any actual assembly line downtime. In
addition, Seller shall not be responsible for assembly line downtime charges for
delinquent delivery resulting from schedule changes by Buyer or Buyers unforeseen
manufacturing difficulties. With respect to Service Parts, Seller shall be responsible
for any emergency premium expenses for truck down orders.B.
    
    Seller shall promptly notify Buyer in writing of any anticipated labor dispute
or labor shortage or any other labor performance interruption, and Seller shall arrange
for advance deliveries or warehousing, at Buyers option and at locations acceptable to
Buyer, of a sixty (60) day supply of Products. Seller agrees to provide Buyer with its
plan to continue production and support Buyer with Product in the event of a labor
dispute, shortage, interruption, or contract expiration ninety (90) days before such
event. Seller also agrees to keep Buyer informed of the status of negotiations toward
renewal of any union contract or agreement. In the event that a labor dispute,
shortage, interruption, or contract expiration occurs and Seller is unable to provide
Buyer Product in accordance with this Agreement, Buyer may, at its option, and in
addition to any other rights Buyer may have, procure Product from an alternate source.
In the event that a labor dispute, shortage, interruption, or a contract expiration
lasts more than sixty (60) days and Seller is unable to provide Buyer Product in
accordance with this Agreement, Buyer may, at its option, and in addition to any other
rights Buyer may have, terminate this Agreement.C.
    
    Buyer and Seller agree to the delivery performance targets, and the associated
performance charges, for shipments to Buyers Parts Distribution Centers (PDCs),
contract packagers, and/or freight forwarders.
 24. WARRANTY
 A.
    
    Seller agrees to provide Buyer a two (2) year warranty on Sellers
POST-TRANSMISSION HYBRID DRIVE SYSTEM. This warranty will cover all Products mentioned
in Appendix A  PRODUCT DESCRIPTION / PRODUCT PRICING SCHEDULE. Warranty period will
start when the vehicle with the installed POST-TRANSMISSION HYBRID DRIVE SYSTEM is
delivered to the end user.
 (NAVISTAR LOGO)
    
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B.
    
    Seller agrees to warrant its Product(s) against defects in design, materials,
or workmanship, or any combination of these. This warranty is subject to the terms and
conditions published in Buyers CTS-1100 Warranty Manual in effect at the time the
Sellers Product(s) is delivered to the end user, or is installed subsequently as an
aftermarket component, whichever is applicable, subject to Article 25  REIMBURSEMENT
FOR WARRANTY CLAIMS, which follows.C.
    
    Sellers warranty for Service Parts is not covered by 24A. Seller will honor a
12 month warranty on all Service Parts and products mentioned in Appendix D  SERVICE
PARTS.
 25. REIMBURSEMENT FOR WARRANTY CLAIMS
 A.
    
    Subject to the terms in Article 24  WARRANTY above, Seller shall reimburse
Buyer for warranty claim costs determined by Buyer to be the result of a defect in the
Sellers material, design, and/or workmanship as follows:
 i.
    
    Material costs at the Sellers selling price (Seller to Buyers Service Parts
Organization); plusii.
    
    Buyers Handling Allowance (Buyer to Dealer) in effect
at the time of failure (currently, dealer net price times ***; plusiii.
    
    Dealers approved labor rate at the time of failure times the appropriate Standard Repair Time as published in Buyers current CTS-1200 and current S-00025 Warranty Time Schedule Manual or mutually agreed to time if no SRT is
published; plusiv.
    
    Freight charges associated with the delivery of replacement parts; plusv.
    
    Freight and processing cost incurred by Buyer due to Sellers requirement to have failed material returned; plusvi.
    
    Charges associated with the
purchase of parts outside of Buyers distribution system, and/or repairs made by subcontractors; plusvii.
    
    Cost of repairs of any damage to other components caused by Sellers defective parts.
 B.
    
    In the event that a Product fails at an extraordinary rate and results in Buyer
issuing an Authorized Field Change or a Safety Recall, Seller will reimburse Buyer for
reasonable expenses associated with administering the Authorized Field Change or Safety
Recall in addition to the reimbursement as specified in Article 25-A-iii 
REIMBURSEMENT FOR WARRANTY CLAIMS above.C.
    
    If Buyer agrees to reimburse a Customer for product failures beyond the
warranty period or terms in order to show good will and maintain customer satisfaction,
Seller agrees to negotiate in good faith with Buyer regarding reimbursement for these
expenses to Buyer on a case-by-case basis.D.
    
    Seller will issue credit within sixty (60) days of the time that the claim is
presented by the Buyer. If Seller fails to do so the Buyer has the right to debit the
Sellers account.
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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E.
    
    If the Seller disputes its responsibility for a claim it must do so in
writing within sixty (60) days of notice of such claim and provide details to support
such denial.
 26. FINANCIAL VIABILITY
 Buyer will not award any new or additional business to Seller without evidence of
the Sellers financial viability, including, without limitation, being provided with
its most current audited financial statements and all of Sellers monthly and
quarterly unaudited financial statements since its last audit. All financial
information will be promptly provided to the Buyer upon request.
 27. AUDIT RIGHTS
 In order to assess Sellers compliance with the terms and conditions of this
Agreement, Seller shall permit Buyer and its authorized representatives, including
its accountants and attorneys (and Seller shall obtain a similar right from
permitted subcontractors), reasonable access to all of Sellers books and records
pertaining to the performance of this Agreement, wherever such books and records may
be located and shall also grant Buyer and its representatives reasonable access to
the Sellers business and operations personnel involved in the performance of this
Agreement.
 28. NAFTA DOCUMENTATION
 A.
    
    Seller will provide to Buyer annually, by the specified due date, an accurate
and complete North American Free Trade Agreement (NAFTA) Certificate of Origin for
those Products by part number that qualify for NAFTA and an accurate and complete
Country of Origin Affidavit for all Products by part number. The NAFTA Certificate of
Origin must be completed in accordance with regulations published by the U.S.
Department of the Treasury in 19 C.F.R. Sec. 181.11 et seq. and any amendments thereto,
and in accordance with Buyers NAFTA Policy included in the Customs Invoicing
Instructions (International document PR-38) available on the Buyers supplier website
http://www.internationalsupplier.com/. In the event that Seller fails to comply
with this requirement, Buyer reserves the right to assess a *** non-compliance per
Product part number charge.B.
    
    In addition to the NAFTA Certificates of Origin or Country of Origin
Affidavits mentioned above, the Seller will provide to the Buyer any requested
supplemental part content and functionality information in relation to import or export
operations, which may or may not be directly related to NAFTA.
 29. SUPPLIER DIVERSITY PROGRAM
 Seller agrees to utilize Small Disadvantaged-Owned Business Concerns,
Minority-Owned Business Concerns, Women-Owned Business Concerns, Veteran-Owned
Business Concerns, Service Disabled-Owned Business Concerns, and Hubzone-Located
Business Concerns as required by Federal Laws 97-507, 99-661, and 103-355. Buyers
policy states that all suppliers receiving contracts from Buyer in excess of
five-hundred thousand dollars ($500,000), except small business concerns defined
above,
 (NAVISTAR LOGO)
    
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will set a 5% minimum spending goal to further subcontract with Small
Disadvantaged-Owned Business Concerns; will set a 5% minimum spending goal to
further subcontract with Minority-Owned Business Concerns; will set a 5% minimum
spending goal to further subcontract with Women-Owned Business Concerns; and will
set a 3% minimum spending goal to further subcontract with Veteran-Owned Business
Concerns, Service Disabled-Owned Business Concerns, and Hubzone-Located Business
Concerns commensurate with the Sellers sales to the Buyer. The Seller further
agrees to submit an annual written plan to Buyer by August 31st outlining
how the above stated goals will be achieved. Reference is hereby made to the
Supplier Diversity section of Buyers supplier website for goal details at
http://www.internationalsupplier.com/.
 30. VALUE SELLING
 Buyer has a Brand Promise which is INTERNATIONAL listens, understands, and delivers
the best ways to move our Customers ahead. On the road and in their business.
Seller is required to provide a value statement to the Buyer upon request. The value
statement should describe the value to the Buyers Customers that the Sellers
Product provides over their competitors product.
 ENGINEERING/TECHNICAL SUPPORT
 31. GENERAL
 Seller will provide at no additional cost to Buyer such design and design
qualification assistance, manufacturing assistance, technical, service parts and
field support as required by Buyer.
 32. COMPLIANCE WITH CONTROLLED REVISIONS OF ENGINEERING SPECIFICATIONS
 In addition to the requirements set forth in Article 33  ENGINEERING SPECIFICATION
AND PRODUCT COMPLIANCE, Seller must assure that Products comply with the most current
controlled revisions of Buyers Engineering Material Specifications (CEMS), Truck
Material Specification (TMS), or Engineering Standard Parts as defined in
Statements of Work (SOW), Specification Transmittals, prints, models, and math
data. Information Handling Services Inc., or other firm identified by Buyer, shall be
the sole source for controlled copies of the foregoing documents and Seller is
responsible for ensuring that it obtains controlled copies for the duration of the
term of this Agreement in order to assure compliance with the most current documents.
 33. ENGINEERING SPECIFICATION AND PRODUCT COMPLIANCE
 A.
    
    TRUCK GENERAL REQUIREMENTS. Seller must do the following:
 i.
    
    Meet requirements as defined in Statements of Work (SOW),
Specification Transmittals, prints, models, and math data.
 (NAVISTAR LOGO)
    
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ii.
    
    Assure that Wiring System Sellers are capable of supplying
and receiving CAD data in NDP, with the ability to transition to a
Saber/Unigraphics (UG) based CAD system in conjunction with Buyer.iii.
    
    Supply Unigraphics (UG) compatible 3D engineering CAD data and
drawings. Reference Article 34  TRUCK ENGINEERING CAD/CAM SUPPLIER DESIGN
DATA REQUIREMENTS.iv.
    
    Have the capability of and use electronic data exchange for
engineering and CAD data throughout the life of the development program and
for production maintenance.v.
    
    Use quality tools where warranted in the development of
Buyer components, such as, but not limited to, FEA (Finite Element Analysis),
DVP&Rs (Design Verification Plans and Reports), DFMEA (Design Failure Mode
and Effects Analysis), PFMEA (Process Failure Mode and Effects Analysis), and
must provide raw data, test reports, and detailed FMVSS Compliance reports
for all tests as needed.vi.
    
    Provide on-site supplier engineers during the Product
Development Process if requested by Buyers engineers.vii.
    
    Have production intent prototype parts development capability.
 B.
    
    ENGINE SYSTEMS AND COMPONENTS. Seller must do the following:
 i.
    
    Seller must use an organized cross functional Program Management
Process with defined deliverables and timing as well as status reporting that
meet the requirements of Buyers engineering defined product development
process (Quality Value Planning Process  QVPP for Engine or Product
Development Process  PDP for truck).ii.
    
    All Seller processes from prototype through production release
must be in compliance with the principles of Advanced Product Quality Planning -
APQP -as defined in the manual published by AIAG and preferably validated by
QS-9000 certification.iii.
    
    Seller must assign a program manager to insure resource
availability for early involvement in the design process (simultaneous
engineering).iv.
    
    Seller must provide prototypes as a part of their commitment and
rapid prototyping capability, either developed in house or with a qualified
partner.v.
    
    Seller who provides strategic technology components or
assemblies must provide product definition in the form of 3D solid models and 2
D drawing documentation in Buyers native I-Deas CAD/CAM/CAE system format (no
translations). Seller who provides non-strategic components or assemblies is
also required to provide the product definition in the form of 3D solid models
and 2D drawing documentation, however, alternative CAD/CAM/CAE systems can be
employed provided that Seller provides a format which is compatible with I-Deas
and with prior written approval from Buyers engineering. Commodity components
and assemblies are excluded from this requirement.vi.
    
    Seller is required to employ bi-directional data transfer of
CAD/CAM/CAE product definition data via FTP site-to-site communication. All
other engineering and program support documentation (Program Management APQP
deliverables) are required to utilize a bi-directional transfer via either
Internet / FTP communication schemes. All data transferred between Buyer and
the Seller must be encrypted with a methodology approved by Buyers Information
Technology Group. All FTP communication must be via Buyers FTP site.
 (NAVISTAR LOGO)
    
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C.
    
    SERVICE PARTS. Seller must do the following:
 i.
    
    Seller must furnish, at Buyers request, bills of materials,
specifications and drawings regarding components and subassemblies associated
with complete parts and assemblies supplied for Buyers production
requirements.
 34. TRUCK ENGINEERING CAD/CAM SUPPLIER DESIGN DATA REQUIREMENTS
 Buyer requires that Seller adhere to acceptable levels of CAD/CAM data as outlined in
Buyer document TEM-PR-7.03 and is deemed part of this Agreement.
 35. ELECTRONIC DATA INTERCHANGE (EDI) TRANSACTION REQUIREMENTS
  A.
    
    Buyer requires that all EDI transactions with trading partners will be
communicated utilizing ANSI X 12 standards and AIAG implementation guidelines. The
following table summarizes the transaction requirements for Buyers Truck, Engine and
Service Parts business units. Please be reminded that as business needs and
conditions change, this set of required transactions will be modified accordingly.
 EDITRANSACTION
    
    PURPOSE
    
    TRUCK
    
    ENGINE
    
    SERVICE PARTS830
    
    Materials Release
    
    All Suppliers
    
    All Suppliers
    
    All Suppliers *862
    
    Shipment Authorization
    
    Selected Suppliers
    
    Selected Suppliers
    
    Selected Suppliers866
    
    Sequenced Components
    
    Selected Suppliers856
    
    Shipment Notification
    
    All Suppliers
    
    All Suppliers
    
    All Suppliers824
    
    Applications Advice
    
    All Suppliers
    
    All Suppliers
    
    All Suppliers861
    
    Receiving Advice
    
    All Suppliers846
    
    Inventory Advice
    
    
    
    All Suppliers864
    
    Text Messages
    
    All Suppliers997
    
    Functional Acknowledgment
    
    All Suppliers
    
    All Suppliers
    
    All Suppliers850
    
    Purchase Order
    
    Selected Suppliers
    
    Selected Suppliers
    
    All Suppliers860
    
    Purchase Order Change
    
    Selected Suppliers
    
    Selected Suppliers
    
    All Suppliers810
    
    Invoice
    
    Selected Suppliers
    
    
    
    Selected Suppliers820
    
    Remittance Advice
    
    Selected Suppliers
    
    Selected Suppliers
    
    Selected Suppliers
 
 *
    
    For Service Parts, the 830 is a planning document only, to be used
solely for forecasting, not shipping, purposes. B.
    
    Buyer and its suppliers share the challenges of continuously rising Customer
expectations and an increased demand for speed and agility in all business processes.
In recognition of these challenges, the following requirements have been developed to
 (NAVISTAR LOGO)
    
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streamline EDI activities while delivering the highest standards of process quality
and business flexibility. For purposes of clarity, these requirements have been
grouped into three categories: Implementation, Production and General. Seller must:
 i.
    
    Implementation.
 a.
    
    Implement all Buyer required transactions for all
plants in the applicable Buyer business unit within thirty (30) days of
first contact by Buyer or its designated enabling service.b.
    
    Eliminate testing for location changes, where the
supplier is currently doing that transaction with Buyer.c.
    
    Implement location changes for all current
transactions within seventy- two (72) hours of first contact by Buyer.
 ii.
    
    Production.
 a.
    
    Trade all required transactions in a
productionized flow that eliminates all manual intervention by Buyer in
the underlying business processes.b.
    
    Access mailboxes minimum daily to retrieve 830,
846, 862, 850 and 860 transactions, and at 45-minute intervals to
retrieve 866 transactions.c.
    
    Send 997 transactions to acknowledge all
transactions received from Buyer.d.
    
    Review all 997 transactions received from Buyer to
timely identify and correct errors related to the 856 transaction at the
translation level.e.
    
    Comply with all requirements pertaining to the
receiving suite of transactions, which include timely transmission of
accurate 856 transactions and timely processing / acknowledging 824
transactions.f.
    
    Communicate any systems downtime affecting 856
transmission to the appropriate Buyers EDI Coordinator.
 iii.
    
    General.
 Provide current EDI contact information to Buyer at
mailto:edi.hotline@nav-international.com.
 C.
    
    Due to Buyers high level of EDI to application integration, any manual
processing introduces excess cost, time, complexity and opportunity for error. As a
result, Buyer reserves the right to impose charges for non-compliance to EDI
requirements, as follows:
 i.
    
    Failure to meet implementation requirements in Articles
35-B-i-a and 35-B-i-b  EDI TRANSACTION REQUIREMENTS above will
result in a charge of *** per
day past the specified timeframe until implementation status is achieved.ii.
    
    Failure to meet production requirements highlighted in Articles 35-B-ii-a and
35-B-ii-e  EDI TRANSACTION REQUIREMENTS above will result in a charge
of *** per occurrence.
 36. INFORMATION TECHNOLOGY
 A.
    
    Seller attests to information technology capability that enables them to
electronically access Buyer via the International Supplier Network (ISN)
website: http://www.internationalsupplier.com/.B.
    
    Seller agrees to participate in any and all systems made available via ISN
within sixty (60) days of notice of availability. This includes but is not limited to
current systems
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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37.
    
    QUALITY REGISTRATION
  LEGAL/REGULATORY
 38.
    
    COMPLIANCE WITH LAWS AND REGULATIONS
  39.
    
    NON-COMPLIANCE CHARGES
  40.
    
    MATERIAL SAFETY DATA SHEETS (MSDS)/SUBSTANCE RESTRICTIONS
 A.
    
    Seller shall properly classify, describe, package, mark, label and provide
Material Safety
Data Sheets (MSDS) for approval by Buyer prior to the initial shipment of all
Products, provide a new MSDS each time there are any changes to the Product that
affect the MSDS, and provide an updated MSDS every three years commencing with
the effective date of this Agreement. Seller will defend, indemnify and hold
harmless
Buyer from any claims, penalties, or damages incurred by Buyer as a result of any
Product received from Seller not in agreement with the current MSDS provided to
Buyer.B.
    
    Seller is expected to eliminate lead (Pb) unless required by Buyers
specification,
mercury (Hg), cadmium (Cd) and
hexa-valent chromium (Cr VI) from
its
Products. Seller will provide written notification of its action plans to Buyer
to
eliminate these four heavy metals from its Products within six (6) months of the
signing of this Agreement.
 (NAVISTAR LOGO)
    
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C.
    
    If the Sellers parts are subsequently incorporated into Buyers
Customers products, and if these Customers have specific material and/or
substance reporting and management requirements, Buyer will cascade these
requirements down to Seller and expects Seller to further cascade the
requirements down to its sub-tier suppliers. Seller has to achieve the specific
material and/or substance reporting and management requirements as part of the
Production Part Approval Process (PPAP). Any changes in the use of substances or
concentrations of the substances as a result of engineering changes requires
pre-approval from Buyer and may require re-approval of the PPAP process.
 41.
    
    NON-DISCRIMINATION
  42.
    
    VETERANS READJUSTMENT ASSISTANCE ACT
  43.
    
    GOVERNMENTAL REQUIREMENTS
  (NAVISTAR LOGO)
    
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44.
    
    DIRECT PAYMENTS
  45.
    
    INDEMNIFICATION
 A.
    
    Indemnification by Seller. Seller agrees to protect, defend,
hold harmless and
indemnify Buyer, its officers, directors, dealers, employees, agents and
affiliates,
against all claims, actions, suits, proceedings, demands (collectively,
Claims),
including all liabilities, losses, costs, expenses (including all legal costs and
expenses)
and all judgments, settlements and judicially or administratively imposed damages
(including all consequential damages) (collectively with Claims, Losses),
resulting
from or arising or related to:
 i.
    
    Any breach or violation of Sellers representations, covenants or
agreements
under this Agreement;ii.
    
    Any alleged negligence, gross negligence, recklessness, willful
misconduct or
fraud on the part of Seller and/or its Affiliates or any employee,
subcontractor
or agent of theirs related to this Agreement, or;iii.
    
    Any property damage or personal injury, including death, attributed
to, in
whole or in part, a defect in the design, materials, or workmanship of
Sellers
Products or occurring in connection with the manufacture of such Sellers
Products.
 B.
    
    Indemnification by Buyer. Buyer agrees to protect, defend, and
hold harmless, and
indemnify Seller, its officers, directors, employees, agents, and affiliates,
against all
Losses, resulting or arising from or related to:
 i.
    
    Any breach or violation of Buyers representations, covenants or
agreements
under this Agreement;ii.
    
    Any alleged negligence, gross negligence, recklessness, willful
misconduct or
fraud on the part of Buyer and/or its Affiliates or any employee,
subcontractor
or agent of theirs related to this Agreement, or;iii.
    
    Any property damage or personal injury, including death, attributed to,
in
whole or in part, Buyers negligent installation or use, or both, of
Sellers
Products.
 C.
    
    Intellectual Property Indemnity. Seller agrees to defend, at its
sole expense, any Claim
against Buyer, Buyers Customers, or either of their officers, directors,
employees,
agents and affiliates based on an assertion or Claim that any Product furnished by
 (NAVISTAR LOGO)
    
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D.
    
    Collaborative Efforts. In the event that a Claim should be made
based upon a design
defect and the design was a collaborative effort, Seller and Buyer shall cooperate
fully
in the defense of this matter, sharing in all Losses related to such Claim, provided
each
party will contribute to the aggregate Losses arising from such Claim in a proportion
reflecting to the relative and comparative responsibilities of the parties for such
Losses,
as well as any other relevant equitable considerations.E.
    
    Notice of Indemnification. No Claim shall be valid unless notice of
the matter which
may give rise to such Claim is given in writing by the indemnitee (the Indemnitee)
to
the persons against whom indemnification may be sought (Indemnitor) as soon as
reasonably practicable after such Indemnitee becomes aware of such Claim. Failure of
the Indemnitee to notify the Indemnitor within such notice period shall not relieve
Indemnitor of any liability hereunder, except to the extent the Indemnitor reasonably
demonstrates that the defense of such third party claim is materially prejudiced by
such failure. Such notice shall state that the Indemnitor is required to indemnify
the
Indemnitee for a Loss and shall specify the amount of Loss, if available, and
relevant
details thereof. The Indemnitor shall notify Indemnitee within a reasonable time from
such notice of its intention to assume the defense of any such claim, which consent
shall not be unreasonably withheld or delayed.
 46.
    
    LIABILITY INSURANCE
  (NAVISTAR LOGO)
    
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47.
    
    REMOVAL OF IDENTITY OF BUYER
  48.
    
    NEW BUSINESS
  (NAVISTAR LOGO)
    
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49.
    
    CONFIDENTIAL INFORMATION / INTELLECTUAL PROPERTY
 A.
    
    During the term of this Agreement, each party hereto may disclose to the
other certain
confidential information relating to the manufacturing, sale, marketing, development
or
distribution of the Product(s), the application of the Product(s) by Buyer,
processes,
trade secrets and business and financial information and marketing plans of either
party as well as confidential information (which may be in electronic form, as well)
resulting from the performance of this Agreement, including, without limitation,
purchase orders, sales projections, customer lists, designs under development,
intellectual property and know-how. Any such information that is marked or otherwise
clearly identified at the time of disclosure as confidential or proprietary or
any
information which a person would reasonably deem to be confidential information of
the parties under the circumstances shall be considered as Confidential
Information
for purposes of this Agreement, provided that, if the information is disclosed
orally, a
writing identified as confidential or proprietary and summarizing the
Confidential
Information will be provided within thirty (30) days after disclosure. During the
term
of this Agreement and for a period of five (5) years after the expiration or
termination
of this Agreement, the receiving party will use its best efforts to prevent the
disclosure
of such Confidential Information to third parties and will not use such Confidential
Information for any purpose other than to effectuate the provisions of this
Agreement.
Best efforts with respect to any Confidential Information means at least that
degree
of care normally used by the receiving party to prevent disclosure to others of its
own
confidential information of similar importance, but in no case less than a
reasonable
degree of care. Notwithstanding the foregoing, Seller and Buyer agree that
Confidential Information shall not include any information which: (a) is or
becomes
publicly known through no wrongful act on the receiving partys part; or (b) is, at
the
time of disclosure under this Agreement, already known to the receiving party
without
restriction on disclosure; or (c) is, or subsequently becomes, rightfully and
without
breach of this Agreement, in the receiving partys possession without any obligation
restricting disclosure; or (d) is independently developed by the receiving party
without
reference to or use of the Confidential Information; or (e) is disclosed pursuant to
an
order of any governmental or judicial authority, after prior notice to the
disclosing
party respecting such order, and affording the disclosing party reasonable
cooperation
respecting any objections by the disclosing party to the request for disclosure,
including a reasonable opportunity for the disclosing party to obtain a protective
order
in respect to the Confidential Information at the expense of the disclosing party.B.
    
    Upon request of the disclosing party at any time, the recipient agrees to
return to the
disclosing party or destroy all materials in its possession or control which contain
Confidential Information of the disclosing party, including, without
limitation,
documents, drawings, CAD drawings, computer media, models, prototypes, sketches,
designs, and lists furnished by the disclosing party or accessed by the recipient,
including copies thereof made by the recipient, and to delete from its computers any
software, data files, or CAD files containing Confidential Information furnished by
the
disclosing party. If materials are destroyed, an officer of the recipient shall
identify
 (NAVISTAR LOGO)
    
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C.
    
    Seller agrees to communicate to Buyer all inventions, discoveries, computer
programs,
algorithms, technical data and information resulting under this Agreement made or
conceived by Seller, its employees, contractors or subcontractors solely or in
collaboration with Buyers personnel during the term of the Agreement: and Seller
shall
execute or cause its employees, contractors or subcontractors to execute any and all
documents which Buyer may deem necessary to assign or to convey to Buyer or a
subsidiary thereof, Buyers successors or assigns, the sole and exclusive right,
title and
interest in and to such inventions, discoveries and improvements in any Letters
Patent
therefore.D.
    
    Seller agrees that all drawings, graphics, technical analyses, models,
prototypes,
writings, computer programs, algorithms, and other materials developed under this
Agreement are considered to be works for hire and shall become and remain the
property of Buyer. All drawings created under this Agreement shall be marked
International® Confidential or International® Proprietary or words to that
effect.
At the request of Buyer, Seller shall execute or cause its employees, contractors or
subcontractors to execute, any and all documents which International may deem
necessary to assign to International or a subsidiary thereof, Buyers successors or
assigns, the sole and exclusive right to such designs, model, and other materials, as
well as to industrial design registrations, design patents and copyrights related
thereto.E.
    
    Seller is granted a limited trademark license to use the International logo and
word
mark, and any other trademarks owned by International or its wholly-owned affiliates,
International Truck Intellectual Property Company LLC and International Engine
Intellectual Property Company LLC, solely as necessary to fulfill the terms of this
Agreement and for no other purpose. Buyer reserves the right to review and approve
or disapprove all uses of the licensed trademarks.F.
    
    This Article 49  CONFIDENTIAL INFORMATION / INTELLECTUAL PROPERTY, shall
survive the termination or expiration of this Agreement.
 50.
    
    TERMINATION
 A.
    
    Termination by Buyer. Buyer shall have the right at any time and for
any reason (without any penalty) to terminate, in whole or in part, this Agreement or
the deliveries specified and the authorizations contained in any shipping schedule
given to the Seller by Buyer, provided the Buyer shall provide the Seller one hundred
and twenty (120) days notice of such termination, whereupon this Agreement shall
automatically terminate immediately after the 120th day. Upon such
termination by Buyer, the Buyer shall have no liability or responsibility to the
Seller for Products completed or partially completed, or raw materials acquired by
the Seller for the purpose of performing this Agreement, unless the delivery or
fabrication of such
 (NAVISTAR LOGO)
    
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B.
    
    Termination by Seller: At any time during the Initial Term (or any
Renewal Term) of
this Agreement should Buyer default in performing any of its material obligations
hereunder, the Seller may give written notice of default giving the full details
thereof.
If Buyer fails within thirty (30) days of the receipt of written notice of default
to cure
the default, then Seller shall have the right to terminate this Agreement with
regard to
the particular Product materially affected by the default, or if the default
materially
affects all Products, Seller shall have the right to terminate this Agreement in its
entirety. The Seller shall give Buyer thirty (30) days written notice from the
determination of the failure to cure the default, whereupon the termination shall be
effective.C.
    
    Rights and Obligations of Parties. Except as otherwise provided
for herein, the
termination of this Agreement for any reason shall be without
prejudice to (without
acting as a limitation):
 i.
    
    Either partys obligations of confidentiality provided for in
Article 49 
CONFIDENTIAL INFORMATION / INTELLECTUAL PROPERTY;ii.
    
    Either partys right to receive all payments (including any amounts
provided for
in Article 5  PRICING hereof) accrued hereunder prior to the date of such
termination; andiii.
    
    Any other remedies which either party may then or thereafter have
hereunder
or under law, equity or otherwise.
 D.
    
    Survival. Any termination or expiration of all or part of this
Agreement shall not relieve
either party of obligations incurred pursuant to and during the Initial Term (or any
Renewal Term) prior to such termination or expiration of this Agreement, including
but
not limited to the warranty provisions set forth in Article 24  WARRANTY hereof,
the
Indemnification provisions of Article 45    INDEMNIFICATION hereof, and
the
Confidential Information provisions set forth in Article 49  
CONFIDENTIAL
INFORMATION / INTELLECTUAL PROPERTY hereof. Articles 23A  REIMBURSEMENT
FOR NON-PERFORMANCE BY SELLER, 24  WARRANTY, 25  REIMBURSEMENT FOR
WARRANTY CLAIMS, 39  NON-COMPLIANCE PENALTIES, 45  INDEMNIFICATION, 47
   REMOVAL OF IDENTITY OF BUYER, 49    CONFIDENTIAL INFORMATION /
INTELLECTUAL PROPERTY, 50C and D  TERMINATION, 53  CHOICE OF LAW, 54 -
CONSENT TO JURISDICTION, 56  NO LIMITATION OF RIGHTS AND REMEDIES, and
59  NOTICES of this Agreement and any other provision, that by its terms is
intended
to survive, shall survive any termination or expiration of this Agreement.
 MISCELLANEOUS
 51.
    
    ASSIGNMENT OF RIGHTS AND DUTIES
  (NAVISTAR LOGO)
    
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52.
    
    MODIFICATION AND AMENDMENT OF AGREEMENT
  53.
    
    CHOICE OF LAW
  54.
    
    CONSENT TO JURISDICTION
  55.
    
    SEVERABILITY
  (NAVISTAR LOGO)
    
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##### 



56.
    
    NO LIMITATION OF RIGHTS AND REMEDIES; SPECIFIC PERFORMANCE
  57.
    
    FORCE MAJEURE
 A.
    
    Except as described below, neither party shall be liable for any failure or
delay in the
performance of its obligations under this Agreement to the extent this failure or
delay
both:
 i.
    
    Is caused by any of the following: acts for war, terrorism,
civil riots, or rebellions; quarantines, embargoes, and other similar unusual
governmental action; extraordinary elements of nature or acts of God; andii.
    
    Could not have been prevented by the non-performing partys
reasonable precautions or commercially accepted processes (including, but not
limited to, implementation of disaster recovery and business continuity plans
in accordance with industry best practices), or could not reasonably be
circumvented by the non-performing party through the use of substitute
services, alternate sources, work-around plans, or other means by which the
requirements of a buyer of products substantively similar to the product
hereunder would be satisfied.
  B.
    
    Notwithstanding any other provision of this Article, a Force Majeure Event
shall
obligate Seller to begin and successfully implement all services relating to disaster
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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Navistar, Inc  
Enova Systems  
Supply Agreementrecovery set forth in a Disaster Recovery Plan as may be specifically requested by
Buyer. If a Force Majeure Event causes a material failure or delay in the performance
of any Seller obligation with respect to any Product, Buyer may, at its option, and
in addition to any other rights Buyer may have, procure such Product from an
alternate source until Seller is again able to provide such Products. If a Force
Majeure Event causes a material failure or delay in the performance of any Seller
obligation with respect to any Product for more than five (5) consecutive days, Buyer
may, at its option, and in addition to any other rights Buyer may have, terminate
this Agreement58.
    
    ENTIRE AGREEMENTThis Agreement, together with confidentiality, non disclosure agreements and the
Exhibits, Appendices and Schedules attached hereto (and thereto), embodies and sets
forth the entire agreement and understanding of the parties with respect to the
subject matter herein and there are no promises, terms, conditions or obligations,
oral or written, expressed or implied, other than those contained in this Agreement.
The terms of this Agreement shall supersede all previous oral or written agreements
which may exist or have existed between the parties relating to the subject matter of
this Agreement. No party shall be entitled to rely on any agreement, understanding or
arrangement which is not expressly set forth in this Agreement. Any amendments to
this Agreement must be in writing and signed by the parties to this Agreement.59.
    
    NOTICESA.
    
    Except as otherwise specifically provided, any notice or other documents to be
given under this Agreement shall be in writing and shall be deemed to have been duly
given if sent by registered mail or nationally recognized overnight courier to a party
or delivered in person to a party at the address set out below for such party or such
other address as the party may from time to time designate by written notice to the
other:
 If to Buyer:
    
    Navistar, Inc4201 Winfield Road
P.O. Box 1488
Warrenville, IL 60555Attn:
    
    Ramses BandaPhone:
    
    630-753-2712Email:
    
    Ramses.banda@navistar.comWith copies to:Attn:
    
    Mark MeeganPhone:
    
    630-753-6112Email:
    
    Mark.Meegan@navistar.comIf to Seller:
    
    ENOVA SYSTEMS19850 South Magellan Drive
Torrance, CA 90502Attn:
    
    Terry MoranoFacsimile:
    
    310.527.7888Phone:
    
    310.527.2800
 (NAVISTAR LOGO)
    
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##### 



Email:
    
    tmorano@enovasystems.comWith copies to:Attn:
    
    Mike StaranFacsimile:
    
    310.527.7888Phone:
    
    310.527.2800Email:
    
    mstaran@enovasystems.com
 B.
    
    Any such notice or other document shall be deemed to have been received by the
addressee five (5) business days following the date of dispatch of the notice or other
document by Email and by mail or, where the notice or other document is sent by
overnight courier or by hand, simultaneously with the delivery. To prove the giving of
a notice or other document it shall be sufficient to show that it was dispatched.60.
    
    NO WAIVERSNeither the failure nor delay on the part of a party to require the strict
performance of any term, covenant or condition of this Agreement or to exercise any
right or remedy available on a breach thereof shall constitute a waiver of any such
breach or of any such term or condition. The consent to, or the waiver of, any
breach, or the failure to require the performance or timely performance of any term,
covenant, or condition of this Agreement shall not be construed as authorizing any
subsequent or additional breach and shall not prevent a subsequent enforcement of
such term, covenant, or condition.61.
    
    CONSTRUCTIONThe language in all parts of this Agreement shall be construed, in all cases,
according to its fair meaning. Buyer and Seller hereby acknowledge that each party
hereto and its counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
Whenever used herein, the words include, includes and including shall mean
include, without limitation, includes, without limitation and including,
without limitation, respectively. The masculine, feminine or neuter gender and the
singular or plural number shall each be deemed to include the others whenever the
context so indicates. Days means calendar days unless other specified.62.
    
    HEADINGSThe headings used in this Agreement are for convenience only and are not a part of
this Agreement nor affect the interpretation of any of its provisions.
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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##### 



Navistar, Inc  
Enova Systems  
Supply Agreement63.
    
    COUNTERPARTSThis Agreement may be executed simultaneously in counterparts (and may be delivered
by facsimile), each of which shall be deemed an original, but all of which together
shall constitute a single agreement.
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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##### 



BUYER: NAVISTAR, INC
    
    SELLER: ENOVA SYSTEMS INC.Name: Ramses Banda
    
    Name: Bill FrederiksenTitle: Supply Manager
    
    Title: Executive Director of OperationsDate:
    
    Date:
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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##### 



APPENDIX A  PRODUCT DESCRIPTION / PRODUCT PRICING
  Long Term Agreement
 Enova Systems, Inc.Navistar, Inc.
    
    
    
    Revised 3/31/08Charge Sustaining Post Transmission Parallel Hybrid SV620000A-
 Volume Based Pricing Levels(pricing Levels are established according to cumulative Sales of Systems)1000 p.a.
    
    3000 p.a.
    
    5000 p.a.200 p.a.
    
    500 p.a.
    
    unit price
    
    unit price
    
    unit pricePart
    
    
    
    
    
    
    
    Initial/Single
    
    unit price (200-
    
    unit price (500-
    
    (1000-2999
    
    (3000-4999
    
    (5000+Number
    
    Description
    
    Qty
    
    System Price
    
    499 Systems)
    
    999 Systems)
    
    Systems)
    
    Systems)
    
    Systems)Drive SystemSV520300A-
    
    25/80kW In-line Induction Motor &Mounting System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV620200A-
    
    P90 Controller (CEU) w/ DC/DCConverter & Mounting Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV620900A-
    
    Cable & Harness System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV620700A-
    
    Cooling System & Mounting Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV620400A-
    
    Dual Battery Pack & Junction
Box (NiMh)
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***System Tuning and Test
    
    
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***Total System w/
batteries and options
(sustaining)
    
    
    
    
    
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
 
 Terms
    
    Software development and other development quotations are based on Enova
providing limited vehicle control function for operation of
engine and electric motor only. Pricing may vary dependent on level of vehicle control
required and inter-component communication. 90
days ARO (estimated) based on Statement of Work to be mutually defined.Pricing is based on cumulative sales to Buyer. During the duration of
this agreement and any renewal thereof.Once the pricing level has been
achieved, the pricing level for that part number will not revert to a
lower level (higher per unit price).Pricing level does not revert to a
lower accumulated sales volume pricing.FOB Torrance CaliforniaAdditional Charges: Navistar program Management (***), System
Integration (***) Long Term Agreement
 Enova Systems, Inc.Navistar, Inc.
    
    
    
    Revised 3/31/08Charge Depleting Post Transmission Parallel Hybrid SV520000A-
 Volume Based Pricing Levels(pricing Levels are established according to cumulative Sales of Systems)1000 p.a.
    
    
    3000 p.a.
    
    
    5000 p.a.200 p.a.
    
    
    500 p.a.
    
    
    unit price
    
    
    unit price
    
    
    unit pricePart
    
    
    
    
    
    
    
    Initial/Single
    
    
    unit price (200-
    
    
    unit price (500-
    
    
    (1000-2999
    
    
    (3000-4999
    
    
    (5000+Number
    
    Description
    
    Qty
    
    
    System Price
    
    
    499 Systems)
    
    
    999 Systems)
    
    
    Systems)
    
    
    Systems)
    
    
    Systems)Drive SystemSV520300A-
    
    25/80kW In-line Induction Motor &Mounting System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520200A-
    
    P90 Controller (CEU) w/ 6.6kWcharger &DC/DC Converter SystemAssembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520900A-
    
    Cable & Harness System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520700A-
    
    Cooling System & Mounting Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520400A-
    
    Battery Pack (Li-Ion)
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***- Split Battery Pack
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***System Tuning and Test
    
    
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***Total System w/
batteries and options
(depleting)
    
    
    
    
    
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
 
 Terms
    
    Software development and other development quotations are based on Enova providing limited vehicle
control function for operation of
engine and electric motor only. Pricing may vary dependent on level of vehicle control required and
inter-component communication. 90
days ARO (estimated) based on Statement of Work to be mutually defined.Pricing is based on cumulative sales to Buyer. During the duration of this agreement and any
renewal thereof.Once the pricing level has been achieved, the pricing level for that part number will not revert to
a lower level (higher per unit price).Pricing level does not revert to a lower accumulated sales volume pricing.FOB Torrance CaliforniaAdditional Charges: Navistar program Management (***), System Integration (***)  (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 
 ***
    
    CONFIDENTIAL TREATMENT REQUESTED 35




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##### 



APPENDIX B  NON-CONFORMANCE CHARGE SCHEDULE
 Article Reference
    
    Description
    
    Charge18. Performance Achievement
    
    Customs Invoicing Non-Compliance (as detailed
in Customs Invoicing Instructions PUR-4003 on
the ISN website)
    
    *** per non-complying/missing
invoice18. Performance Achievement
    
    International/Penske LLP Non-Compliance (as
detailed in the Penske Supplier Training
Manual on the ISN website)
    
    *** per non-complying occurrence18. Performance Achievement
    
    Routing Matrix Non-Compliance (as detailed in
latest Routing Matrix CTDR-1 letter).
    
    Full dollar value of
non-conforming freight bill18. Performance Achievement
    
    Service Parts D-13 Supplier Packaging and
Shipping Standards  US ONLY (as detailed in
Compliance Letter).
    
    *** per occurrence, plus cost
excess labor and handling23. Reimbursement for
Non-Performance (Late Delivery,
Defective Material) by Seller
    
    Per ITPS-074001-ST (Supplier Material Charge
Back Process):-   Repair Cost: Excess
Time To Complete Truck/Bus for Shipment
    
    - Plant Shop Rate (***) *
Repair 
  Hours * # of Units/Parts
Affected-   Production Line Down
Time Cost:
    
    - Hourly Cost for Production
  Line * Down Time Hours-   Miscellaneous
Costs:-   Premium freight
    
    - Full dollar value of
freight bill-   Other extraordinary
charges
    
    - TBD28. NAFTA Documentation
    
    Missing NAFTA Certificate of Origin (as
detailed in Article 28  NAFTA DOCUMENTATION
of this Agreement)
    
    *** per non-complying part
number34. EDI Transaction Requirements
    
    EDI 856 Advance Ship Notice (ASN) errors (as
detailed Article 35  EDI TRANSACTION
REQUIREMENTS of this Agreement available on
ISN website)
    
    *** per non-complying
transaction (implementation TBD)34. EDI Transaction Requirements
    
    Implementation of all required EDI
transactions within 30 days of contact (as
detailed in Article 35  EDI TRANSACTION
REQUIREMENTS of this Agreement)
    
    *** per day thereafter
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 
 ***
    
    CONFIDENTIAL TREATMENT REQUESTED 36




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##### 



APPENDIX C  PRODUCTION VOLUMES
   Agreement Year
    
    Annual Sales GoalCalendar Year 2007
    
    30 POST-TRANSMISSION HYBRID DRIVE SYSTEMSCalendar Year 2008
    
    400 POST-TRANSMISSION HYBRID DRIVE SYSTEMSCalendar Year 2009
    
    1,100 POST-TRANSMISSION HYBRID DRIVE SYSTEMSCalendar Year 2010
    
    2,500 POST-TRANSMISSION HYBRID DRIVE SYSTEMS
   (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
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##### 



APPENDIX D  SERVICE PARTS
 Long Term Agreement- Service PricingEnova Systems, Inc.International Truck and Engine CorporationPost Transmission Parallel Hybrid
    
    
    
    3/31/2008
 Volume Based Pricing Levels
(pricing Levels are established according to cumulative Sales of Systems)Service Parts
    
    Service Parts
    
    Service PartsService Parts
    
    500 p.a. units
    
    1000 p.a.
    
    3000 p.a. units
    
    Service PartsPart
    
    
    
    
    
    
    
    Service Parts
    
    200 p.a. units
    
    (500-999
    
    units (1000-
    
    (3000-4999
    
    5000 p.a. unitsNumber
    
    Description
    
    Qty
    
    Single System
    
    (200-499 units)
    
    units)
    
    2999 units)
    
    units)
    
    (5000+ units)Drive SystemSV520300A-
    
    25/80kW In-line InductionMotor & Mounting System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520200A- (CD)SV620200A- (CS)
    
    P90 Controller (CEU)
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***V37000AC
    
    6.6kW Charger
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***V15000AA
    
    12V/100A DC/DC Converter
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520700A- (CD)SV620700A- (CS)
    
    Cooling System & Mounting Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV520900A- (CD)SV620900A- (CS)
    
    Cable & Harness System Assembly
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***System Total Price
    
    
    
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***Accessories/OptionsSV520400A- (CD)
    
    Battery Pack (Depleting)
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***SV620400A- (CS)
    
    Dual Battery Pack & Junction Box (Sustaining)
    
    
    1
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***Split Battery Pack (CD)
    
    
    
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
 Terms
    
    Service parts pricing is similar to Production pricing, Service pricing does not include
shipping, handling or special packaging.Pricing is based on cumulative sales to Buyer. During the duration of this agreement and any renewal thereof.Once the pricing level has been achieved, the pricing level for that part number will not revert to a lower level (higher per
unit price).Pricing level does not revert to a lower accumulated sales volume
pricing.FOB Torrance California (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 
 ***
    
    CONFIDENTIAL TREATMENT REQUESTED 38




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##### 



APPENDIX E  AFTERMARKET SERVICE PARTS DIRECT SHIP and
PARTS DISTRIBUTION CENTER REQUIREMENTS
 Critical / Emergency Orders:
  Dealer Benefits:
  Freight Policy:
      (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 39




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##### 



APPENDIX F AFTERMARKET PRICE FILE FORMAT & COMMUNICATION
 1.
    
    Price file shall be provided in an electronic format.2.
    
    Price file shall be sent to the International Aftermarket Pricing Manager
and International Aftermarket Supply Manager(s).3.
    
    Price file shall include the following pieces of information for each part number:
 a.
    
    Enovas full part numberb.
    
    International Part Distribution Center (PDC) part numberc.
    
    International Direct Ship (DS) part numberd.
    
    Descriptione.
    
    Suggested Dealer Netf.
    
    PDC Costg.
    
    DS Costh.
    
    Country of Origini.
    
    Lead Timej.
    
    Weightk.
    
    Mandatory Purchase Multiplel.
    
    Standard Unit Pack Quantity (qty per pallet or over pack box)
 (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 40




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##### 



APPENDIX G- SURPLUS STOCK AND DIRECT SHIP RETURNS
 I. Return Eligibility
     B. Direct Ship Return
  C. Shipped In Error Return
  II. Restocking Fee:
  (NAVISTAR LOGO)
    
    Date of revision: March 27, 2008  Confidential Document
Effective 1/24/07
 41