Document:

Exhibit 10.3

 

Confidential Materials omitted and filed separately
with the

Securities and Exchange Commission. Asterisks
denote omissions.

 

Supply Agreement

 

This
Supply Agreement (this “Agreement”) is being entered into by and between Fisker Automotive, Inc. and  A123
Systems, Inc., a Delaware corporation (“A123”) (Fisker and A123
individually a “Party” and together the “Parties”).

 

The
purpose of this Agreement is to set forth certain terms and conditions with
respect to A123’s supply, and Fisker’s purchase, of lithium ion battery packs
(the “Products”) for Fisker’s vehicle programs currently designated as the Karma PHEV Program 1 (K1) and the Karma PHEV
Program 2 (K2) (each, a “Vehicle Program”).  The Parties hereby agree as follows:

 

1.             Program
Award. 
Fisker will award A123 the K1 and K2 Vehicle Programs. A123  will be the exclusive supplier of batteries
for the K1 and K2 Vehicle Programs for the life of the program contingent on
meeting Fisker’s continued engineering specifications, performance, quality,
durability, total landed cost, supply chain and delivery requirements.  After Fisker has purchased the initial [**]
batteries from A123 for the K1 and K2 Vehicle Program, if Fisker determines and
is able to document that A123 is uncompetitive in any of the afore mentioned
areas by more than [**]%, Fisker shall give A123 written notice of the
deviation.  A123 shall then have [**]
days in which to close the competitive gap and retain the business.  Should this gap not be closed within the [**]
days, Fisker shall have the right to re-source all or any part of the business,
in Fisker’s sole discretion.

 

2.             Future
Program Awards.  Fisker is in the process of developing a
third Program, currently designated as the Nina Program.  The Nina program will be competitively bid.
The parties intend that A123 shall supply batteries for the Nina Program based
on A123 meeting Fisker Automotive Inc’s. engineering specifications,
performance, quality, reliability, durability, total landed cost, supply chain
and delivery requirements as stated in the Product manual.  Should Fisker receive alternative, qualified,
competitive bids it agrees that it shall, subject to its confidentiality
obligations, provide A123 with written notice of the A123 gaps based on the
qualified bids it has received. The parties will mutually agree proceedure for
treating third party confidential information. 
A123 shall have [**] days to match the [**] of the competitive offers.
If A123 is able to match the alternative bid, then A123 will be awarded the
production Program. If A123 is awarded the Program, should Fisker determine and
be able to document A123 to be uncompetitive in any of the afore mentioned
areas by more than [**]%, Fisker shall give A123 written notice of the
deviation.  A123 shall then have [**]
days in which to close the competitive gap and retain the business.  Should this gap not be closed within the [**]
days, Fisker shall have the right to re-source the business.

 

3.             Intentionally
Left Blank

 

4.             Term. This Agreement will become effective on the date of the last Party to
sign this Agreement (the “Effective Date”) and will expire upon the earlier of
the Tenth Anniversary (the “Term”), or upon the default provisions of Fisker’s
General Terms and Conditions.

 

1

 

5.             Applicable
Terms and Conditions.  All Purchase Orders for Products issued to
A123 during the Term will be subject to Fisker’s “General Terms and Conditions
of Purchase” attached hereto, except to the extent that such general terms and
conditions have been expressly modified by this Agreement including the
exceptions set forth in Exhibit A attached hereto and incorporated
by reference herein.  In case of a
conflict between a term or condition in a Purchase Order, General Terms and
Conditions of Purchase and a term or condition in this Agreement, the term or
condition in this Agreement will control and supersede the conflicting term or
condition in the General Terms and Conditions of Purchase or Purchase Order.

 

6.             Unit
Prices.  The
applicable unit prices for the Karma PHEV Program 1 Products
are set forth in Exhibit 2 attached hereto and incorporated
herein.   The Parties will mutually agree
on the pricing for the Karma
PHEV Program 2 and Nina Program.

 

7.             Confidentiality.  The
terms of the Mutual Nondisclosure Agreement dated April 3, 2009 between
the Parties are hereby incorporated into this Agreement.

 

8.             Entire Agreement. This Agreement (including all exhibits,
schedules and attachments hereto), the Purchase
Orders, and the General Terms and Conditions of Production constitute the entire understanding and
agreement between the Parties with respect to the matters contained in this
Agreement and supersede all prior oral or written representations and
agreements pertaining to the subject hereof. 
This Agreement (including any policies and procedures incorporated by
reference) may only be modified by a written amendment executed on behalf of
both Parties by a person of comparable authority to the signatories of this
Agreement.

 

[Signature Pages Follow]

 

2

 

This
Agreement has been executed on behalf of the Parties by their duly authorized
representatives as follows:

 

	
  FISKER
  AUTOMOTIVE, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Henrik Fisker

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Henrik
  Fisker

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  1/13/2010

  	
   

  

 

SIGNATURE PAGE TO SUPPLY
AGREEMENT

 

 

This
Agreement has been executed on behalf of the Parties by their duly authorized
representatives as follows:

 

	
  A123
  SYSTEMS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  David P. Vieau

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  David
  P. Vieau

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  President
  and CEO

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  1/13/2010

  	
   

  

 

SIGNATURE PAGE TO SUPPLY
AGREEMENT

 

 

Exhibit A

 

Exceptions to the General Terms and Conditions of
Purchase

 

The
Parties hereby agree to the following modifications to the General Terms and
Conditions of Purchase:

 

1.     Paragraph
4 of the General Terms and Conditions is hereby modified in the following
manner:

 

Notwithstanding
any provision to the contrary, Seller’s liability for delayed delivery of up to
[**] shall not exceed the fees paid to Seller by Buyer hereunder in the [**]
prior to the applicable claim provided however, Seller shall not be liable for
any damages, costs or fees that result from a delay in performing, if the delay
or failure was due to any cause beyond Seller’s control.  Causes beyond Seller’s control shall include,
but not be limited to, acts of God, flood, explosion, natural catastrophe,
storms, fire or accident.

 

Notwithstanding
any provision to the contrary, the Products shall be deemed accepted upon
shipment.  Nothing in this provision
relieves Seller of its warranty obligations under this Agreement.

 

Section 6
is deleted in its entirety.

 

2.     Paragraph
9 of the General Terms and Conditions is hereby deleted and replaced with the
following:

 

During
the ten-year period after Buyer completes the last purchases for production,
Seller shall sell to Buyer Supplies to fulfill Buyer’s service and replacement
requirements.  All such Supplies shall be
sold at the prices mutually agreed upon by the Parties in the last year of
production and Buyer and Seller shall negotiate in good faith with regard to
such price provided, however that in no event shall the price for such Supplies
exceed the price that Seller charges others for the same or similar Supplies at
similar volumes.

 

3.     Paragraph
10 of the General Terms and Conditions is hereby replaced with the following:

 

“(a)         Express Warranties.

 

(1)           Seller
warrants that during the Warranty Term the Products will (A) conform to the
Product Specifications (as mutually agreed upon by the Parties), (B) be
merchantable, and (C) be free from defects in material and workmanship.

 

1

 

(2)           Seller
further warrants that on delivery Buyer will receive good title to the
Products, free and clear of all liens and encumbrances and that all Products.

 

(3)           Seller
warrants that the services shall be performed in a professional and workmanlike
manner, consistent with all industry standards.

 

(b)           Warranty
Term. The Warranty Terms shall begin on the date of delivery of the Product
to Buyer and end on the earliest to occur of: (A) [**] from the date of
delivery of the Product to Buyer  or (B) the
end of the warranty period offered by Buyer to end-users for the vehicle into
which the Product is assembled (currently 50 months or 50,000 miles whichever
occurs sooner).

 

(c)           Warranty
Claims; Process and Procedures

 

(1)           Seller’s
liability for a breach of the warranties given herein will be determined by the
Parties’ analysis of a sample of parts against which claims are made that the
parts are defective.  Buyer and Seller
will work together in good faith to develop procedures and guidelines for this
process which will require component level serviceability, mutual agreement on
any warranty cause and remedy, and development of an optimal low cost service
and warranty process.

 

(2)           Buyer
and Seller will mutually agree on a warranty claims process and a list of
serviceable pack components which Buyer will utilize in its field service
organization.

 

(d)           Warranty
Disclaimer.

 

EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED IN THIS ORDER, SELLER MAKES NO OTHER WARRANTIES
ABOUT THE PERFORMANCE OF THE PRODUCTS AND DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, RELATING TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT.”

 

4.     Paragraph
11 of the General Terms and Conditions is hereby replaced with the following:

 

(a)   Seller
agrees to indemnify, defend and hold Buyer and its stockholders, directors,
officers, employees, distributors, agents and customers (each, an “Indemnified
Party”) harmless against any and all third party demands, actions, expenses
(including attorneys’ fees and disbursements), losses, claims, suits,
proceedings, liabilities, damages or penalties arising out of or in connection
with infringement by the Products (including the Product’s materials or design)
of any patent, trademark, copyright, trade secrets or any other proprietary rights
of any third party, except to the extent such infringement results exclusively
from (a) the design specifications provided or required by Buyer, or (b) such
infringement 

 

2

 

results
from Buyer’s design or other development activities where any applicable
Product (including third party products) in combination with Buyer’s design or
other development activities would infringe, or (c) such infringement
would not have occurred but for a modification of the Products by any party
other than Seller or (d) the combination, operation or use of the Products
with any other products or services not supplied by Seller where the Products
would not by themselves be infringing.

 

(b)   If
the use of the Products, is enjoined or in Seller’s opinion is likely to become
the subject of a valid claim of infringement, then Seller shall, at its sole
expense either: (i) procure for Buyer the right to continue using the
Products as authorized hereunder; (ii) replace the Products with a
non-infringing version of equivalent function, performance and price; and/or (iii) modify
the Products to be non-infringing. 
Nothing in this Section 11(b) shall limit Seller’s indemnity
obligations under this Agreement

 

5.     Paragraph
14 is hereby modified by deleting Section  14(b)(i).

 

6.     Paragraph
14 is hereby modified by deleting Section  14(h)(i) and 14(h)(ii).

 

7.     Section 14(k) is
hereby modified by deleting the last sentence and replacing it with the
following. “Seller’s obligation related to Recalls shall apply only during the
warranty period for the Product.”

 

8.     Section 14(n) is
modified by addition the following language to the beginning of the first
sentence; “Except for a party’s breach of confidentiality or misappropriation
of the other party’s intellectual property....”

 

9.     Paragraph
18 is hereby modified in the following manner:

a.     Section 18(c) is
deleted.

b.     Section 18
(d) is deleted and replaced with the following:

 

This
Agreement does not affect the ownership of any existing intellectual property
rights of either party. Each party shall retain ownership to all of its
background intellectual property including but not limited to any improvements,
modification or enhancements to its background intellectual property regardless
of who created the improvements, modifications or enhancements.  With the exception of the items specified
below, Seller shall own all intellectual property rights in the Product
developed under this Agreement.   Seller’s
background intellectual property includes, without limitation, Seller’s
proprietary cells and their related components, materials and chemistry,
product specifications, manufacturing and development methodologies, cell and
system level electronics, know-how and research, experimental and development
work, design details, and engineering information.

 

Buyer
shall retain ownership to all of its background intellectual property including
but not limited to any improvements, modification or enhancements to its
background intellectual property regardless of who created the improvements, 

 

3

 

modifications
or enhancements.  With regard to
intellectual property rights in the product developed under this Agreement,
Buyer shall own the [**].

 

10.   The
first two sentences of Section 20 (a) are deleted and replaced with
the following:

 

Seller
shall maintain and upon request furnish to Buyer a certificate evidencing (a) general
liability insurance with liability coverage limits reasonably acceptable to
Buyer and naming Buyer as an additional insured and (b) workers
compensation insurance as required by applicable law.

 

11.   The
following new provision is hereby added to the General Terms and Conditions of
Purchase:

 

“Limitation
of Liability”

 

(a)   Disclaimer.  EXCEPT FOR EITHER PARTY’S
BREACH OF CONFIDENTIALITY OR MISAPPROPRIATION OF THE OTHER PARTY’S INTELLECTUAL
PROPERTY, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL, EXEMPLARY, PUNITIVE, OR OTHER INDIRECT DAMAGES, OR FOR LOSS OF
PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES, ARISING OUT OF THIS AGREEMENT,
WHETHER BASED UPON WARRANTY, CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.

 

(b)   Limitation.  Except for Seller’s
indemnification obligation under Section 11 or either party’s breach of
its confidentiality obligations or misappropriation of the other party’s
intellectual property, each party’s aggregate liability to the other party,
whether in contract, tort, or otherwise, for all claims, in the aggregate,
arising out of or in connection with this Agreement, shall not exceed the
amount of fees paid to Seller by Buyer hereunder in the twelve (12) months
prior to the applicable claims, less any amounts paid for any other claims in
such twelve (12) month period.

 

12.   The
following new provision is hereby added to the
General Terms and Conditions of Purchase:

 

Payment terms are (45 days)
from date of invoice.  Seller shall
invoice Buyer on a monthly basis for the units shipped in the preceding month. 

 

4

 

Exhibit 2

 

Pricing Schedule

Karma PHEV Program 1

 

A.  [**]

 

[**]
will be paid by Fisker to A123 at PPAP, [**]% at interim, [**]% at Full. [**]
has the capacity to produce [**] packs per year, plus [**]% for a maximum of
[**] without additional [**] procured and deployed.

 

	
  [**] Description

  	
   

  	
  Cost $

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
  [**]

  	
   

  	
  [**]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  [**]

  	
   

  

 

B.  Prototype Pricing

 

A-
Samples:           $[**]/pack, [**]
deliverables

B-
Samples:           $[**]/pack, [**]
deliverables

C-samples:             $[**]/pack, [**] through  start of production

 

1

 

C.  Production
Pricing

 

	
  Cumulative Pack

  Volume during the

  Term

  	
   

  	
  Pack Price

  	
   

  	
  Comments

  	
   

  	
  Est. timing

  
	
  [**] units

  	
   

  	
  [**]

  	
   

  	
  Ramp up cost

  	
   

  	
  [**]

  
	
  [**] units

  	
   

  	
  [**]

  	
   

  	
  Karma Prod. Volumes

  	
   

  	
  [**]

  
	
  [**] units

  	
   

  	
  [**]

  	
   

  	
  Karma + Nina [**]

  	
   

  	
  [**]

  
	
  [**] units

  	
   

  	
  [**]

  	
   

  	
  Productivity

  	
   

  	
  [**]

  
	
  [**] units

  	
   

  	
  [**]

  	
   

  	
  Productivity

  	
   

  	
  [**]

  

 

Note:

 

1.     Shipping Terms are FCA
manufacturing location

 

2.     Pricing is per the [**]
cell agreed upon design solution.

 

3.     100% of the production
volumes on the Karma Fisker and its derivatives are supplied by A123, subject
to the program award terms defined above.

 

4.     Price downs will be
provided once the cumulative volume limits have been reached to qualify for the
next step down in pricing level

 

5.     Pricing assumes that
Fisker will reasonably support A123 with all the necessary qualification
approvals for A123 to launch a [**].

 

6.     Recycling costs are not
included in the pricing. FA and A123 will develop a mutually agreed upon
recycling procedure. In the event the Product is in breach of the product
warranty and the parties mutually agree to recycle the Product, Seller shall be
responsible for the recycling costs for that particular unit.

 

7.     Fisker will provide
annual volume levels for planning and quotation purposes with quarterly
releases and adjustments thereto. These quarterly volumes releases will be
updated monthly and the [**] week schedule of product releases will be Fisker’s
volume commitment.

 

8.     Buyer shall purchase
[**] units from A123 and cannot suspend performance until the initial [**]
units of packs have been purchased.

 

2

 

9.     Non returnable dunnage
(in accordance with the FA quality and logistics manual) costs have been
included in the above listed piece prices.

 

D. 
Non-Recurring Engineering

 

The cost to engineer
and validate the Karma PHEV Program 1 and Karma PHEV Program 2 pack is $[**]
(details to be supplied to Fisker). 
[**].

 

3

 

Exhibit 3

General Terms and Conditions of Purchase

 

4

 

FISKER
AUTOMOTIVE, INC.

 

GENERAL TERMS AND CONDITIONS

 

OF PURCHASE

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  The Supplies and Parties Covered by the
  Order

  	
  1

  
	
  2.

  	
  The Terms of the Order

  	
  1

  
	
  3.

  	
  Quantity; Blanket Orders; Material Releases

  	
  2

  
	
  4.

  	
  Shipping and Delivery

  	
  3

  
	
  5.

  	
  Price and Payment

  	
  5

  
	
  6.

  	
  Non-Conforming Supplies

  	
  6

  
	
  7.

  	
  Buyer and Industry Standards and Policies

  	
  7

  
	
  8.

  	
  Changes

  	
  8

  
	
  9.

  	
  Service Parts

  	
  8

  
	
  10.

  	
  Warranties

  	
  9

  
	
  11.

  	
  Indemnification

  	
  11

  
	
  12.

  	
  Inspection and Audit

  	
  12

  
	
  13.

  	
  Ethical Conduct

  	
  13

  
	
  14.

  	
  Duration, Termination and Remedies

  	
  14

  
	
  15.

  	
  Buyer’s Property

  	
  19

  
	
  16.

  	
  Seller’s Property

  	
  21

  
	
  17.

  	
  Tooling

  	
  22

  
	
  18.

  	
  Intellectual Property

  	
  23

  
	
  19.

  	
  Proprietary Information

  	
  24

  
	
  20.

  	
  Insurance; Waiver of Liens

  	
  26

  
	
  21.

  	
  Excusable Delay

  	
  26

  
	
  22.

  	
  Buyer’s Liability

  	
  28

  
	
  23.

  	
  Limitation on Assignment and Subcontracting

  	
  28

  
	
  24.

  	
  Compliance with Laws

  	
  28

  
	
  25.

  	
  Foreign Purchases

  	
  29

  
	
  26.

  	
  Buyer Financing

  	
  29

  
	
  27.

  	
  Miscellaneous

  	
  30

  

 

i

 

FISKER AUTOMOTIVE, INC.

 

GENERAL TERMS AND CONDITIONS OF PURCHASE

 

1.             The Supplies
and Parties Covered by the Order

 

(a)           Supplies

 

These General Terms and Conditions (“Terms”) apply
to the purchase of the goods and/or services (“Supplies”) identified in a
purchase order issued by Buyer to Seller which references these Terms.

 

(b)           Parties

 

Buyer and Seller are identified on the face of the
purchase order.

 

2.             The Terms
of the Order

 

(a)           Terms of the Order

 

The “Order” consists of the following, which are
sometimes referred to collectively as the Terms of the Order: (i) the purchase order; (ii) Material Releases (as defined in
Section 3(a)) issued by Buyer to Seller under the purchase order (iii) these Terms; (iv) all other documents specifically
incorporated into or otherwise made a part of the Order by Buyer; and (v) Buyer’s purchase policies, as
revised by Buyer and agreed to in writing by Seller from time to time. Seller
is responsible for keeping current regarding the terms of Buyer’s purchase
policies.

 

(b)           Seller’s Acceptance

 

The purchase order is an offer by Buyer to purchase
the Supplies from Seller on the Terms of the Order. The contract is formed when
Seller accepts the offer of Buyer. This occurs upon the earlier of: (i) Seller beginning work or
performance based on the purchase order; or (ii) Seller
notifying Buyer of its acceptance of the offer in writing. The Order is limited
to and conditional upon Seller’s acceptance of these Terms exclusively.

 

(c)           Seller’s Terms Rejected

 

The Order does not constitute an acceptance of any
offer or proposal made by Seller, and Seller acknowledges that: (i) a request for quotation or
similar document issued by Buyer is not an offer by Buyer; and (ii) any response by Seller to a
request for quotation or similar document issued by Buyer is not an offer by
Seller. Any additional or different terms proposed by Seller, whether in
Seller’s quotation, acknowledgement, invoice or otherwise, are unacceptable to
Buyer, are expressly rejected by Buyer, and are not part of

 

1

 

the Order. However, additional or different terms
proposed by Seller shall not operate as a rejection of the Order if Seller
commences work or otherwise accepts Buyer’s offer, in which case the Order
shall be deemed accepted by Seller without any additional or different terms or
variations whatsoever. Any reference in the Order to any prior communication by
Seller is solely to incorporate the description or specifications of the
Supplies in such prior communication, but only to the extent that such
description or specifications are not directly in conflict with the description
and specifications in the Order. If the Order is determined to be an acceptance
of any prior offer or proposal by Seller, such acceptance shall be limited to
the Terms of the Order.

 

(d)           Entire Agreement

 

The Order is the entire agreement between the
parties respecting the Supplies and when accepted, supersedes any prior
agreements, negotiations or understandings of the parties respecting the
Supplies, whether written or oral. No modification shall be effective unless in
writing and signed by Buyer’s and Seller’s authorized representative. The Order
may be modified only by a writing signed by Buyer and agreed to in writing by
Seller.

 

3.             Quantity;
Blanket Orders; Material Releases

 

(a)           Releases

 

Unless specified differently in the Order, Seller
shall deliver Supplies in strict conformance with the dates, times, quantities
and delivery locations determined by Buyer and identified as firm orders in
material authorization releases, manifests, broadcasts or similar releases
(“Material Releases”). Time, quantities and location are of the essence under
the Order and Seller shall provide 100% on-time delivery of the quantities and
at the times specified by Buyer. Seller shall not make any commitments for raw
materials or other inventory or manufacture any Supplies in advance of the time
necessary to meet Buyer’s firm delivery requirements. Buyer is not required to
purchase Supplies exclusively from Seller unless the Order expressly states
that it is exclusive, 100% requirements, or similar term.

 

(b)           Blanket Orders

 

If the Order does not specify a quantity, states
zero, “blanket,” “per release” or similar term, the Order is a Blanket Order.
If the Order is a Blanket Order, then for consideration of $10.00 to be paid by
Buyer following expiration or termination of the Order, Seller grants to Buyer
an irrevocable option during the term of the Order to purchase Supplies in such
quantities specified in Material Releases that are transmitted to Seller during
the term of the Order, provided that Buyer shall purchase no less than a
minimum quantity of at least one piece or unit of each of the Supplies and a
maximum of no more than 100% of Buyer’s requirements for the Supplies.

 

2

 

(c)           Forecasts

 

Any estimates or forecasts of production volumes or
length of program are for planning and are subject to change from time to time
and shall not be binding upon Buyer or Seller.

 

(d)           EDI

 

Buyer may require Seller to participate in
electronic data interchange or similar inventory management program, at
Seller’s expense, for notification of Material Releases, shipping notices and
confirmation and other information.

 

(e)           Suspension of Performance

 

Buyer may at any time, by prior written notice to
Seller, suspend performance of deliveries and Seller’s other performance
obligations for such time as it deems appropriate. Upon receiving notice of
suspension, Seller shall promptly suspend deliveries and work to the extent
specified, and properly care for and protect all work in progress and
materials, supplies and equipment Seller has on hand for performance. Upon
Buyer’s request, Seller shall promptly deliver to Buyer copies of Seller’s
outstanding purchase orders and subcontracts for materials, equipment and/or
services related to performance of an Order, and shall take such action
relative to such purchase orders and subcontracts as Buyer may direct. Buyer
may at any time withdraw the suspension as to all or part of the suspended
deliveries and work by written notice specifying the effective date and scope
of withdrawal. Seller shall resume diligent performance on the specified
effective date of withdrawal. In the event suspension of performance occurs for
longer than 60 days, then Seller shall be entitled to recover its costs under
section 14. All claims caused by suspension shall be limited to an equitable
extension of time for performance as Seller’s exclusive remedy must be pursued
pursuant to and consistent with the Section on “Changes” or they shall be
deemed waived.

 

4.             Shipping
and Delivery

 

(a)           Buyer’s Requirements

 

Seller shall properly pack, mark, and ship Supplies
(and provide related documentation) according to the requirements specified by
Buyer, the involved carriers and the country of destination. Seller shall
promptly provide Buyer with, in the form required by Law and as requested by
Buyer, the identity and amount of all ingredients (and any changes in the
ingredients) of the Supplies. Seller’s Quality and Logistics Manual or similar
documents,, prepared in association with its designated assembly supplier,
Valmet Automotive, provides some of the specific requirements of Buyer and it
will be provided separately by Buyer. Buyer may provide amendments, supplements
and replacements to and/or of the current Manual for Logistics, which shall be
binding on Seller.

 

3

 

(b)           Delay in Delivery

 

If Seller, for any reason, does not comply with
Buyer’s delivery schedule or any other requirement of a Material Release, Buyer
may, in its sole discretion: (i) approve
a revised delivery schedule; (ii) require
expedited or premium shipment of any of the Supplies; or (iii) cover from other sources, and
adjust any quantity requirement under the Order accordingly. Seller shall be
liable for all excess costs and for all other direct damages incurred by Buyer
as a result of Seller’s failure including: (a) additional
transportation costs; (b) the
direct cost of any production disruption; and (c) the
cost of obtaining Supplies from an alternate source. Buyer’s rights under this
Section may be exercised at Seller’s sole expense, at Buyer’s sole
discretion, and in addition to and without prejudice to any other right or
remedy available to Buyer.

 

(c)           Title and Risk of Loss

 

(i)            Except for Tooling, Buyer
shall take title to all Supplies upon the earlier of: (i) delivery and acceptance of the
Supplies FCA Incoterms 2000 Seller’s plant; or (ii) payment
by Buyer of 100% of the purchase price of identified Supplies. Supplies shall be
deemed identified upon fabrication, unless the Supplies are part of Seller’s
standard stock and sold to persons in addition to Buyer, in which case
identification occurs when the Supplies are marked or otherwise designated by
Seller as relating to the Order.

 

(ii)           If the Supplies are Tooling,
Buyer shall take title and risk of loss upon payment in full for the Tooling.
Tooling includes fixtures, gauges, jigs, patterns, castings, cavity dies and
molds, with all related software, appurtenances, accessions, and accessories.

 

(iii)          Seller shall comply with
Section 15 with respect to any Supplies to which Buyer has title but which
are in the custody or control of Seller or Seller’s suppliers, contractors or
agents.

 

(iv)          All shipments are at the
risk of Seller until receipt by Buyer. If risk of loss is assumed by Buyer, all
risk casualty insurance for replacement value must be provided by Seller for
the benefit of Buyer. The cost of any insurance shall be paid by Seller unless
otherwise expressly agreed in writing by Buyer. Under no condition will the
risk of loss be that of Buyer unless such insurance is provided. Risk of loss
shall not be governed by transfer of title.

 

(d)           Country of Origin

 

Seller shall promptly and reasonably furnish to
Buyer all certificates of origin or domestic value-added and all other
information relating to the costs and places of origin of the Supplies as may
be deemed reasonably necessary by Buyer to comply fully with all

 

4

 

customs, tariffs and other applicable Laws (as
defined in Section 24). Seller shall comply with all such Lawsand warrants
that any such information that is supplied to Buyer is true and that all sales
covered by the Order will be made at not less than fair value under the
anti-dumping Laws of the countries to which the Supplies are exported

 

(e)           Hazardous Materials

 

Seller shall comply with all Laws relating to any
hazardous or restricted material that is an ingredient or part of the Supplies.
Seller’s responsibility shall include appropriate government/country
registration requirements such as REACH (“Registration, Evaluation,
Authorization, and Restriction of Chemicals”) and IMDS (“International Material
Data System”). Seller shall give Buyer sufficient warning in writing (including
appropriate labels, containers, and packing, and handling, disposal and
recycling instructions, material safety data sheets and certificates of
analysis) of any such materials.

 

5.             Price and
Payment

 

(a)           Price

 

The purchase price of the Supplies is set forth in
the Order. Unless otherwise stated in the Order, the purchase price: (i) is a firm fixed price for the
duration of the Order and not subject to increase for any reason, including
increased raw material costs, increased labor or other manufacturing costs,
increased development costs, or changes in volumes or program length from those
estimated or expected unless agreed to in writing by Buyer and Seller; (ii) is inclusive of all federal,
state, provincial, and local taxes and any duties applicable to provision of
the Supplies; and (iii) is
inclusive of all storage, handling, packaging and all other expenses and
charges of Seller. All prices are FCA Incoterms 2000 Seller’s plant (place of
shipment) unless otherwise provided in the Order.

 

(b)           Invoices

 

Unless otherwise stated in the Order, invoices shall
be issued on or after shipment of Supplies to Buyer and payment shall be deemed
to occur upon mailing or other rendering of payment to Seller. All payments
shall be made in U.S. dollars unless agreed to in writing by Buyer. Seller
shall, at its expense, comply with Buyer’s written instructions and policies
with respect to the form, content and method for submission of invoices, which
will be provided to Seller by Buyer.

 

(c)           Payment Terms

 

Unless otherwise stated in the Order, payment terms
are net 45 days after date of receipt of invoice by Buyer.

 

5

 

(d)           Best Price

 

Seller warrants that the prices for the Supplies
sold to Buyer are no less favorable than those that Seller currently extends to
all third parties for the same or similar Supplies at similar locations under
substantially similar Terms and in similar quantities. If Seller reduces its
prices to third parties for the same or similar Supplies at similar locations
under substantially similar Terms during the term of the Order for the
Supplies, Seller shall correspondingly reduce the prices charged to Buyer.

 

(e)           Setoff

 

In addition to any right of setoff or recoup
provided by law, Buyer shall be entitled at any time to setoff or recoupment
against sums payable by Buyer to Seller any amounts for which Buyer determines
in good faith Seller is liable to Buyer or its affiliates under any Order or
other agreements with Seller. Buyer may do so upon prior notice to Seller.

 

(f)            Payment Not Acceptance

 

Payment for Supplies shall not constitute acceptance
of non-conforming Supplies nor limit or affect any rights or remedies of Buyer.

 

(g)           Credits

 

Credits or benefits resulting from the Order, including
trade credits, export credits, and or the refund of duties, taxes, or fees,
belong to Buyer. Seller shall provide all information and certificates
(including NAFTA and other country and area certificates of origin) necessary
to permit Buyer to receive these benefits or credits.

 

6.             Non-Conforming
Supplies

 

(a)           Rejection

 

If defective or otherwise non-conforming Supplies
are rejected by Buyer, the quantities under the Order are automatically reduced
unless Buyer otherwise notifies Seller, and Seller shall not replace reduced
quantities without a new Material Release from Buyer. Following rejection,
Seller shall, without prejudice to any other right or remedy of Buyer, at
Buyer’s sole discretion and at Seller’s sole expense:

 

(i)            Accept return of the non-conforming
Supplies to Seller for a refund of the full invoice price, plus payment of
transportation charges for such defective or otherwise non-conforming supplies;

 

(ii)           Replace the non-conforming
Supplies with conforming Supplies; and/or

 

6

 

(iii)          Correct at any time prior to
shipment from Buyer’s plant the non-conforming Supplies.

 

(b)           Buyer’s Losses

 

Seller is liable for all direct damages, losses,
costs, and expenses incurred by Buyer resulting from Seller’s failure to
deliver conforming and non-defective Supplies or to comply with the shipping
and delivery or other requirements of Buyer, even if Seller has cured the
failure. This includes but is not limited to compensating Buyer for:

 

(i)            Any amounts charged by
Buyer’s vehicle assembly supplier to Buyer;

 

(ii)           All costs of containment,
sorting, repair, replacement, cure, cover, or any other reasonable and
documented costs incurred by Buyer, determined in such manner and in such
amount as reasonably determined by Buyer;

 

(iii)          All costs of any recall
campaign, corrective service action, or other voluntary or involuntary action
in which Buyer participates in connection with inclusion of Supplies in goods
sold by Buyer.

 

(c)           Corrective Action

 

Promptly upon learning of defective or
non-conforming Supplies, Seller shall develop, document and implement
corrective actions in accordance with all applicable quality control policies
and standards in the Supplier Quality and Logistics Manual as provided by Buyer
to Seller. Seller shall immediately notify Buyer in writing when Seller becomes
aware of any ingredient, component, design or other defect in the Supplies that
is or may become harmful to persons or property.

 

7.             Buyer and
Industry Standards and Policies

 

(a)           Quality Standards

 

Seller and Supplies shall conform to all quality
control and other standards and inspection systems as established or directed
by Buyer in the Supplier Quality and Logistics Manual Buyer may provide
amendments, supplements, and replacements to and/or of the current Supplier
Quality and Logistics Manual, which shall be binding on Seller.

 

7

 

8.             Changes

 

(a)           Buyer’s Changes

 

Buyer reserves the right to change the design,
specifications, engineering level, materials, packaging, testing requirements,
shipping date, or time or place of delivery, of the Supplies. Seller shall
promptly make any such change as directed by Buyer, provided that the parties
agree upon the feasibility and cost impact of such changes per section 8(c).

 

(b)           Seller’s Changes

 

Seller shall not make any change to the Supplies
except at Buyer’s written instruction or with Buyer’s written approval. If
Seller learns of a possible change to the Supplies that may reduce costs, improve
quality, or otherwise be beneficial to Buyer, Seller shall promptly inform
Buyer of the possible change in writing. Seller shall maintain a process of
continuous improvement in the Supplies. Seller certifies the location(s) from
which it will ship the Supplies as specified in the Order. If Seller at any
time intends to change such location(s), Seller must notify Buyer in writing
prior to the change so that the effect of such change can be evaluated as to
quality, transportation costs and time, packaging methods, and other factors.

 

(c)           Impact on Changes

 

Seller shall, at the earliest of ten working days of
receipt of a request for change from Buyer or the receipt of a purchase order
change, notify Buyer in writing if a change directed or approved by Buyer will
affect cost or timing and provide substantiation of its claim. Buyer and Seller
will negotiate in good faith and agree on an equitable price adjustment (up or
down), a change in shipping or delivery terms, required tooling investment, or
other appropriate adjustment prior to implementation of any change. If an
adjustment is not agreed upon, Seller shall make the change and the claim shall
be subject to the dispute resolution provisions of these Terms.

 

9.             Service
Parts

 

(a)           Period and Prices

 

During the ten-year period after Buyer completes
purchases for production, Seller shall sell to Buyer Supplies to fulfill
Buyer’s service and replacement requirements. All such Supplies shall be sold
at the prices specified in the Order plus actual cost differentials for
packaging. During the tenth year of such period, Buyer and Seller shall
negotiate in good faith with regard to Seller’s continued manufacture of
service and replacement Supplies. Seller shall store and maintain all Tooling
and other resources necessary for the production of service and replacement
Supplies. If the Supplies are no longer required

 

8

 

for Buyer’s vehicle production, then the price of
the Supplies for service requirements will be no greater than the last price
stated in the order plus or minus: (i) any
changes in the cost of materials since the Order was terminated or production
ceased; (ii) a volume
adjustment reflecting the actual increase in the cost per unit of producing
fewer units; (iii) a set-up
charge reflecting the actual cost of preparation for the production run; and (iv) any additional costs actually
incurred for special packaging. The foregoing must be documented to Buyer’s
reasonable satisfaction, including, but not limited to, set-up detail, machine
productivity, scrap allowance, labor inefficiencies and excess raw material
requirements. Seller shall mark the Supplies shipped for service requirements,
“Made in (country of origin)”.

 

(b)           Components

 

If the Supplies are systems or modules, Seller shall
sell each component or part for service or replacement purposes at a price that
does not, in the aggregate, exceed the system or module price specified in the
Order, less assembly costs, plus any actual cost differential for packaging.

 

10.          Warranties

 

(a)           Express Warranties

 

In addition to any other express and implied
warranties provided by law or otherwise, Seller warrants to Buyer that the
Supplies shall:

 

(i)            Be new and conform to Order
in all respects;

 

(ii)           Conform to all specifications,
drawings, samples and other descriptions furnished by Buyer or otherwise part
of the Order;

 

(iii)          Be free from all defects in
design (to the extent designed by or for Seller), workmanship and materials
(with the exception of materials or components consigned by Buyer) during the
warranty period and be of highest quality and workmanship;

 

(iv)          Be selected, designed (to
the extent designed by Seller), manufactured and assembled by Seller based upon
Buyer’s stated use and be fit and sufficient for the purposes intended by
Buyer;

 

(v)           Conform to all applicable
Laws (as defined in Section 24) in countries where the Supplies (or goods
into which the Supplies are incorporated) are to be sold (and Buyer shall
provide a list of such countries to Seller upon written request), including
without limitation, in the case of Supplies used in connection with the
manufacture of motor vehicles, the National Traffic and

 

9

 

Motor Vehicle Safety Act,
United States motor vehicle safety standards and European Union Directive
2000/53/EC;

 

(vi)          Not infringe, misappropriate or
violate the Intellectual Property Rights (as defined in Section 18) of
third parties;

 

(vii)         Properly function and be suitable for
use within the systems, the vehicles and the products in which they are to be
assembled; and

 

(viii)        Conform to ISO 9001 and TS 16949 and
other quality standards of Buyer.

 

(b)           Service Warranties

 

For all services included in Supplies, Seller
further warrants that its services shall be performed in a professional and
workmanlike manner, consistent with all standards and specifications
established by Buyer and otherwise consistent with industry standards.

 

(c)           Title

 

Seller warrants that title to all of the Supplies
shall be vested in Buyer free and clear of any and all liens and encumbrances
of any nature.

 

(d)           Warranty of Continued Performance

 

All warranties of Seller extend to future
performance of the Supplies and are not modified, waived or discharged by
delivery, inspection, tests, acceptance and payment. Buyer’s approval of any
design, drawing, material, process or specifications shall not relieve Seller
of these warranties. Seller waives any right to notice of Seller’s breach.

 

(e)           Warranty Period

 

The warranty period is the longest of: (i) five years from the date Buyer
accepts the Supplies; (ii) the
warranty period provided by applicable law; or (iii) the
warranty period offered by Buyer to end-users for the vehicles and products
into which the Supplies are assembled ( 50 months or 50,000 miles).

 

(f)            Cumulative

 

All warranties and remedies provided by the Order
are cumulative and in addition to those provided by law and shall survive
testing and inspection of the Supplies by Buyer.

 

10

 

11.          Indemnification

 

(a)           Indemnity

 

Seller shall indemnify, defend and hold harmless
Buyer, and its affiliates, directors, officers, shareholders, employees,
customers, dealers and users of the Supplies sold by Buyer (or the products in
which they are incorporated) and all of their respective agents, successors and
assigns (including, as those terms are defined in Section 26, the Credit
Providers, the Secured Party and their representatives), and each of their
shareholders, directors, officers, employers and agents, on demand,
(collectively “Indemnified Parties”) from and against any and all costs, fees,
penalties, damages (direct, incidental, consequential and otherwise),
reasonable attorneys’ fees and all other liabilities and obligations whatsoever
(“Losses”), which, in whole or in part, arises from or relates to any actual or
alleged:

 

(i)            Defect or non-conformity to Buyers
specifications in the Supplies;

 

(ii)           Noncompliance by Seller with any of
its representations, warranties or obligations under the Order;

 

(iii)          Negligence or fault of Seller in
connection with the design (if designed by or for Seller) or manufacture of the
Supplies.

 

(iv)          Any recall campaign, corrective
service action, or other voluntary or involuntary action in which Buyer
participates with respect to the Supplies or vehicles or products into which
the Supplies are incorporated;

 

(v)           Any spill, discharge or emission of
hazardous wastes or substances which relates, in whole or in part, to the
Supplies;

 

(vi)          Infringement (including claims of
direct or contributory infringement or inducement to infringe),
misappropriation or violation of any Intellectual Property Right relating to
Supplies provided by Seller, even if they are made to Buyer’s specifications;

 

(vii)         Damages to the property of or personal
injuries to Buyer, their respective agents, or any other person or entity to
the extent arising from or in connection with Seller’s work on the premises or
Seller’s use of Buyer’s property; and

 

(viii)        Challenge to Buyer’s sole right, title
and interest in the Tooling (as defined below), or right to possession of the
Tooling, brought or asserted by

 

11

 

any third party, including toolmakers,
subcontractors, and lending institutions, if Seller received payment for such
tooling.

 

(ix)          Changes to the Supplies which have not
been approved by Buyer in writing whether or not the Supplies otherwise comply
with the specifications and other obligations under the Order.

 

(b)           Buyer’s Participation

 

If Seller is obligated to indemnify under this
Section, Buyer may at its option participate in or control the defense of any
third party claim with its own counsel, at Buyer’s expense. Seller’s obligation
to indemnify shall not be lessened or compromised in anyway, even if Buyer is
alleged or is found to have contributed in part to the events giving rise to
the Losses.

 

12.          Inspection and Audit

 

(a)           Inspection of Facility

 

Buyer, its third party designees or representatives
of the Secured Party or DOE (as defined in Section 26) may enter Seller’s
and its subcontractors’ facilities during Seller’s normal business hours, upon
reasonable notice to inspect the facility, Supplies, materials, and any of Buyer’s
property related to the Order. Seller shall provide, without additional charge,
all approvals and reasonable facilities and assistance for any such inspection.
Buyer’s inspection does not constitute acceptance of any work-in-process or
finished goods and does not relieve Seller of any of its responsibilities or
warranties.

 

(b)           Audit

 

Upon reasonable notice to Seller, either Buyer (or a
third party designee of Buyer) or representatives of the Secured Party or DOE
may audit Seller’s or its subcontractor’s production facility, Supplies and any
other Buyer property (including all pertinent documents, data and other
information) related to the Order at the facility for the purpose of verifying
Seller’s costs and its compliance with its obligations under the Order. Seller
shall provide, without additional charge, all reasonable facilities and
assistance.

 

(c)           Financial Review

 

Upon reasonable notice to Seller, either Buyer (or a
third party designated by Buyer) or representatives of the Secured Party or DOE
may review the financial condition of Seller and its contractors and
affiliates. Seller will fully cooperate in such review and shall promptly
provide copies of or access to requested documents , including without
limitation financial records and statements, forecasts, business plans, banking
contacts and loan documents, and shall make its financial managers available
for discussions with

 

12

 

Buyer or representatives of the Secured Party or
DOE, as applicable, during reasonable business hours. The inspecting party
shall keep confidential any nonpublic information about Seller obtained in a
financial review and use such information only for purposes of the review,
except as needed to enforce the Order.

 

(d)           Buyer’s Discretion

 

Buyer’s right to conduct any inspection, audit or
review under this Section or otherwise is at its sole discretion. Buyer
has no obligation to Seller to conduct any inspection, audit or review. Buyer’s
decisions as to whether, how and when to conduct any inspection, audit or
review does not modify or relieve Seller of any obligations under the Order,
does not give rise to any liability of Buyer to Seller and is without prejudice
to any rights or remedies available to Buyer.

 

13.          Ethical Conduct

 

(a)           Work Environment

 

Seller warrants that no child, prison, forced or
involuntary labor shall be used by Seller or its subcontractors in the
provision of Supplies. Seller and its subcontractors shall maintain a work
place free from physical abuse and any practice in violation of local law.
Seller and its subcontractors shall provide a healthy, safe work environment,
wages and benefits as required by law, freedom of association and reasonable
working conditions.

 

(b)           Business Practices

 

Seller shall not: (i) give
or offer to give any gift or benefit to Buyer’s employees; (ii) solicit or accept any
information, data, services, equipment or commitment from Buyer’s employees
unless it is: (a) required
under a contract between Buyer and Seller, (b) made
pursuant to a written disclosure agreement between Buyer and Seller, or (c) specifically authorized in
writing by Buyer’s management; (iii) solicit
or accept favoritism from Buyer’s employees; (iv) enter
into any outside business relationship with Buyer’s employees or other
suppliers without full disclosure to and prior approval of Buyer’s management;
or (v) provide to or accept
from other suppliers any information regarding Buyer or its business. For the
purposes of this Section: “employee” includes members of the employee’s
immediate family and household, plus any other person who is attempting to
benefit from his or her relationship to the employee; “Seller” includes all
employees and agents of Seller; “gift or benefit” includes money, goods,
services, discounts, favors and the like in any form but excluding items with a
value of $25.00 or less; “supplier” includes prospective, current and past
suppliers; and “favoritism” means partiality in promoting the interest of
Seller over that of other suppliers. Any breach by Seller of its obligations
under this Section shall constitute a material default by Seller of every
contract and Order with Buyer and may further result in Seller’s debarment from
doing

 

13

 

business with Buyer. Seller shall also comply with
all ethics, fair business practices, non-discrimination and non-harassment
policies of Buyer.

 

14.          Duration, Termination and Remedies

 

(a)           Duration

 

The Order shall be effective on the date specified
in the Order, or if no date is specified, when accepted. Unless otherwise
specifically provided in the Order:

 

(i)            The Order shall terminate on the
date specified in the Order; or, if no date is specified, one year from the
effective date. The termination date is not extended by an amendment or
revision to an Order which does not expressly modify the termination date.

 

(ii)           The Order will automatically renew
for successive one-year periods after the initial term unless Seller provides
written notice at least 90 days prior to the end of the current term of its
desire that the Order not be renewed.

 

(b)           Termination by Buyer

 

In addition to any other rights of Buyer to cancel
or terminate the Order, Buyer may terminate the Order in whole or in part by
written notice (a “Termination Notice”), as follows:

 

(i)            For convenience, 60 days following
delivery of the Termination Notice or upon such other date specified by Buyer
in writing; and

 

(ii)           For Default, effective upon delivery
of the Termination Notice or upon such other date specified by Buyer in
writing. Seller shall be in “Default” if it: (i) breaches
any warranty or other Term of the Order; (ii) repudiates,
breaches or threatens to breach any of the terms of the Order; (iii) fails to deliver, or threatens
not to deliver, Supplies in connection with the Order; (iv) fails to make progress or to
meet reasonable quality requirements so as to endanger timely and proper
performance of the Order; (v) Seller
makes an assignment for the benefit of creditors, or proceedings in bankruptcy
or insolvency are instituted by or against Seller; (vi) Seller requests accommodations from Buyer,
financial or otherwise, in order to meet its obligations under the Order; or (vii) at any time in Buyer’s sole
judgment Seller’s financial or other condition or progress on the Order shall
be such as to endanger timely performance. Termination by Buyer shall not
relieve Seller of any liability under the Order except as provided in these
Terms.

 

14

 

(c)           Suspension or Termination by Seller

 

Seller may terminate or suspend performance under an
Order only for non-payment of the purchase price for Supplies which are 30 or
more days past due and material in amount, and then only if: (i) Seller first provides Buyer written
notice specifying the amounts past due and Seller’s intent to terminate or
suspend performance under the Order if the past due amount is not paid; and (ii) Buyer, within 30 days of such
notice, does not either: (a) pay
the past due amounts, or (b) notify
Seller that the amount claimed to be unpaid is disputed by Buyer. Seller shall
terminate or suspend under this Section by delivering a termination notice
to Buyer. Seller may not suspend performance or terminate the Order for any
reason except as permitted under this Section.

 

(d)           Seller’s Obligations Following Termination

 

Following delivery of a notice of termination,
Seller shall, unless otherwise directed by Buyer and subject to its obligation
to provide Transition Support as provided in Section (h) below;

 

(i)            Terminate promptly all performance
under the Order and transfer title and deliver to Buyer all finished Supplies
completed prior to receipt of the Notice of Termination;

 

(ii)           Transfer title and deliver to Buyer
all work in process, and the parts and materials which Seller produced or
acquired in accordance with an Order and which Seller cannot use in producing
goods for itself or for others to the extent such use is permitted;

 

(iii)          Verify/settle all claims by
subcontractors for actual costs that are rendered unrecoverable by such
termination and provided the recovery of materials in Seller’s possession is
ensured; and

 

(iv)          Take actions reasonably necessary to
protect property in Seller’s possession in which Buyer has an interest until
disposal instruction from Buyer has been received.

 

(v)           Seller shall continue performance of
an Order to the extent not terminated and shall be liable to Buyer for any
excess costs for alternative products or services and other direct damages. As
an alternative remedy, and in lieu of termination for default, Buyer, at its
sole discretion, may elect: (i) to
extend the delivery schedule; and/or (ii) to
waive other deficiencies in Seller’s performance; in which case an equitable
reduction in an Order price shall be established by Buyer to compensate Buyer
for its damages. If Seller for any reason anticipates difficulty in complying
with a required delivery date, or in meeting any of the other requirements of
an Order, Seller shall promptly notify

 

15

 

Buyer in writing of the
potential default, the cause thereof, and the estimated length of the
anticipated default. Buyer is under no obligation to waive any default.

 

(e)           Buyer’s Obligations Following Termination

 

Subject to Section (g)(ii), Buyer shall pay to
Seller in connection with termination only the following amounts, without
duplication, in complete and final satisfaction of any liabilities relating to
the Order:

 

(i)            The purchase price for all
conforming Supplies received by Buyer prior to Notice of Termination or
delivered following Notice of Termination pursuant to Sections (d)(i) or
(h) or at the written direction of Buyer;

 

(ii)           Any amounts owed for Transition
Support pursuant to Section (h)(iii); and

 

(iii)          If terminated for any reason other
than Default by Seller, Seller’s reasonable actual cost of: (i) merchantable and useable work-
in-process and the parts and materials transferred to Buyer under Section (d)(ii) above
(but not to exceed the Order price of the Supplies had the work been
completed); (ii) settling
claims under Section (d)(iii); and (c) carrying out its obligation
under Section (d)(iv).

 

(f)            Buyer’s Obligations Following Expiration

 

If the Order expires, Buyer shall pay to Seller, in
complete and final satisfaction of any liabilities relating to the Order, only
the purchase price for all conforming Supplies received by Buyer prior to
expiration and all quantities listed as firm releases not otherwise purchased
by Buyer, and, if applicable, any amounts owed for Transition Support pursuant
to Section (h)(iii).

 

(g)           Limitations on Buyer’s Obligations Following
Termination or Expiration

 

(i)            Buyer’s obligations under Section (e) are
conditioned upon Seller’s furnishing to Buyer, within 60 days after the date of
termination (or such shorter period as may be required by its customer), a
termination claim, which will consist exclusively of the items of Buyer’s
obligation to Seller that are expressly permitted by this Section. Buyer may
audit Seller’s records before or after payment to verify amounts requested in
Seller’s termination claim.

 

(ii)           Buyer has no obligation under Section (e) to
make any payment for Supplies, work-in-process, parts or raw materials
inventory: (i) in

 

16

 

excess of those authorized
or required under any firm Material Release; (ii) that
are damaged or destroyed or that are not merchantable or useable; (iii) that are in Seller’s standard
stock or that are readily marketable; or (iv) that
can be returned to Seller’s suppliers or subcontractors for credit.

 

(iii)          Buyer has no obligation for and will
not be required to pay Seller, directly or on account of claims by Seller’s
subcontractors, for loss of anticipated profit, failure to realize anticipated
production volumes, revenues or savings, unabsorbed overhead, interest on
claims, product development and engineering costs, Tooling, facilities and
equipment rearrangement costs or rental, unamortized capital or depreciation
costs, or general administrative burden charges from termination or expiration
of the Order, except as otherwise expressly agreed in a separate Order issued
by Buyer.

 

(h)           Transition of Supplies Following Termination or
Expiration

 

Following expiration or termination of the Order by
either party for any reason (including termination by Seller) and
notwithstanding any claimed or actual breach of any obligation by Buyer, Seller
shall cooperate in the transition of supply to a successor supplier, including
the following, which will collectively be referred to as “Transition Support”:

 

(i)            Seller shall continue production and
delivery of all Supplies as ordered by Buyer, at the prices and other terms
stated in the Order, without premium or other condition, during the entire period
reasonably needed by Buyer to complete the transition to the alternate
supplier(s), so that Seller’s action or inaction causes no interruption in
Buyer’s ability to obtain Supplies as needed;

 

(ii)           At no cost to Buyer, Seller will
promptly provide all requested information and documentation regarding and
access to Seller’s manufacturing process, including on-site inspections,
bill-of-material data, tooling and process detail and samples of Supplies and
components; and

 

(iii)          Subject to Seller’s actual capacity
constraints, Seller shall provide special overtime production, storage and/or
management of extra inventory of Supplies, extraordinary packaging and
transportation and other special services as expressly requested by Buyer in
writing. If the transition occurs for reasons other than Seller’s termination
for Default, Buyer shall, at the end of the transition period, pay the
reasonable, actual cost of the assistance under this Section 14(h)(iii),
provided that Seller has advised Buyer prior to incurring such amounts of its
estimate of such costs. If the parties disagree on the cost of Transition
Support, Buyer shall pay the agreed portion to Seller without prejudice to
Seller’s right to seek to recover any disputed amounts.

 

17

 

(i)            Termination and Change of Control

 

Buyer may terminate an Order or Release, in whole or
in part, upon reasonable written notice to Seller, if control of Seller
changes. A change of control includes: (i) the
sale, lease or exchange of a substantial portion of Seller’s assets used for
the production of the Supplies; (ii) the
sale or exchange of a controlling interest in the shares or other ownership
interests of Seller; or (iii) the
execution of a voting or other agreement of control. Seller shall provide Buyer
with written notices of a proposed and actual change of control at least ten
days prior to the date the change of control is scheduled to occur and within
ten days after the change of control has become effective. Buyer will have 30
days from the date the second notice from Seller is received within which to
notify Seller if it decides to terminate the Order and the effective date of
the termination, which will be no sooner than 30 days after the date the
written notice of termination is sent.

 

(j)            Duty to Deliver

 

Seller’s continued holding of the Supplies, Buyer’s
Property or Seller’s Property (as defined herein), after demand has been made
by Buyer for delivery, will substantially impair their value, and Buyer shall
be entitled to a court order for possession without bond. Seller shall continue
to sell Supplies under an Order during any dispute with Buyer provided Buyer
continues to pay Seller amounts owed in excess of any right of offset.

 

(k)           Recall

 

In the event of any safety, maintenance or
improvement program, general recall or similar action (“Recall”) involving the
Supplies which Buyer has determined do not meet requirements of the Order,
whether initiated by Buyer, Seller, or any governmental agency or body, both
Buyer and Seller shall use reasonable commercial efforts to reduce costs in
connection with such Recall. If it shall be alleged or determined that failure
of Supplies supplied by Seller to conform to Seller’s warranty is a proximate
cause of any Recall, Seller shall defend, indemnify and hold harmless Buyer,
its affiliates, subsidiaries, directors, officers, employees, agents and other
representatives from and against all expenses and costs of such Recall. All
Recalls shall be at the discretion of Buyer after consultation with Seller,
except as ordered by a government agency or body. Seller’s obligations related
to Recalls shall continue to apply after the expiration of Seller’s express
warranties.

 

(l)            Cumulative and Additional Remedies

 

Buyer’s remedies under this Section and the
applicable law shall be cumulative and additional to any other or further
remedies provided under the Order or by statute, law or equity, including, but
not limited to, the recovery of direct damages and the entry of injunctive
relief, but Buyer shall be entitled to only one full recovery of all of its
damages and enforcement of all its rights.

 

18

 

(m)          Restrictions on Waiver

 

A delay by Buyer in notification of a breach or
making a claim shall not constitute a waiver of a breach or remedy. No waiver
of a breach of any provision of the Order by Buyer shall constitute a waiver of
any other breach, or of the breached provision itself. No claim or right of
Buyer arising under, or related to, the Order can be discharged in whole or in
part by a waiver or renunciation unless supported by additional consideration
and in writing signed by Buyer.

 

(n)           Seller’s Remedy

 

Money damages, as limited by the Order, are Seller’s
exclusive remedy for breach of contract or other claim or theory. Seller may
not allege breach of contract or other theory of recovery for such money
damages without providing a written notice of breach, documentation supporting
the claim, and a reasonable time for Buyer to cure any breach and otherwise
resolve the claims.

 

(o)           Remedial Work

 

If repair, sorting, inspection, or similar
activities (“Remedial Work”) is necessary for any rejected Supplies, then Buyer
may elect either to perform the Remedial Work itself or to have a third party
perform it. In either case, the reasonable cost of such Remedial Work shall be
either: (i) offset against
the amounts otherwise due Seller for such rejected Supplies; or (ii) charged separately to Seller.
Buyer may require that the Remedial Work be performed on the premises of Buyer
or its Customer by Seller, in which case Buyer or its Customer shall provide
Seller with reasonable access to its premises and otherwise assist Seller with
such arrangements as are necessary to perform the Remedial Work. In performing
Remedial Work or replacing rejected Supplies, Seller is responsible for
segregating and sorting any applicable Supplies providing for transportation of
the Supplies, supervising the segregation and removal of the Supplies, and
other incidental activities, all at its sole cost. Remedial Work by Seller
requires the prior written permission of Buyer and/or Buyer’s Customer.

 

(p)           Rights of the Secured Party and DOE

 

The Secured Party and DOE
may exercise any of the Buyer’s rights under this Section 14 and, subject
to the provisions of Section 26, such exercise shall not result in the
assumption of any of Buyer’s obligations hereunder.

 

15.          Buyer’s Property

 

(a)           Buyer’s Property Defined

 

Buyer’s Property means any tangible or intangible
property to which Buyer has title. Buyer’s Property includes:

 

19

 

(i)            As provided in Section 4(c),
Supplies, together with materials and components incorporated or to be
incorporated in the Supplies;

 

(ii)           All property which is
furnished by Buyer, either directly or indirectly to Seller to perform the
Order;

 

(iii)          Intellectual Property Rights
and Proprietary Information of Buyer, as specified in Sections 18 and 19;

 

(iv)          Tooling (as defined herein)
and other property (including, by way of example, returnable packaging) for
which Buyer has paid, and

 

(v)           Any modifications, repairs,
refurbishments, and replacements of Buyer’s Property defined above.

 

(b)                   Obligations of
Seller

 

With respect to Buyer’s Property in the custody or
control of Seller or Seller’s suppliers, subcontractors or agents, Buyer’s
Property shall, at Seller’s cost and risk:

 

(i)            Be used only for the
production of Supplies for Buyer.

 

(ii)           Be kept: (i) in good working condition house,
maintain, repair and replace it, except for normal wear and tear; (ii) fully insured for the benefit of
Buyer; and (iii) be kept
segregated from all other assets and labeled as being the property of Buyer.

 

(iii)          Bailment; Seller shall have
only temporary possession as a bailee at will. Seller shall assure that Buyer’s
Property is not released, relocated or delivered to any third party without the
express written permission of Buyer. Seller shall promptly notify Buyer of the
location of Buyer’s Property if located at any place other than Seller’s
facility.

 

(iv)          Buyer, DOE and the Secured
Party shall have the right to enter Seller’s premises to inspect Buyer’s
Property and all records of Seller and other third parties regarding Buyer’s
Property. Only Buyer (or Buyer’s affiliates) and the Secured Party has any
right, title or interest in Buyer’s Property, except for Seller’s limited
right, subject to Buyer’s sole discretion, to use Buyer’s Property in the
provision of Supplies. Seller shall neither create nor allow to exist any liens
on Buyer’s Property, and Seller shall immediately sign any documents reasonably
required by Buyer to perfect all rights granted or confirmed by these Terms.
Seller grants to Buyer, DOE and the Secured Party a limited and irrevocable
power of attorney, coupled with an interest, to execute and record on Seller’s
behalf any documents with respect to Buyer’s Property that Buyer, DOE or the

 

20

 

Secured Party determines are
reasonably necessary to reflect Buyer’s or the Secured Party’s interest in
Buyer’s Property.

 

(v)           Return; Unless instructed by
Buyer to the contrary, immediately upon Buyer’s request or upon any bankruptcy
or insolvency filing, and without payment of any kind, Seller shall return
Buyer’s Property, and shall comply with Buyer’s instructions relating to its
return, including but not limited to the method and location for its return.
Seller is responsible for labor and other costs incidental to the return of
Buyer’s Property. Seller shall cooperate with Buyer and shall provide Buyer
with access to all facilities at which Buyer’s Property is located. Seller
expressly waives any right to additional notice or process relating to Buyer’s
exercise of its rights under this Section. Seller waives, to the extent
permitted by law: (i) any
lien or other rights that Seller might otherwise have on any of Buyer’s
Property, including but not limited to molder’s and builder’s liens; and (ii) any objection to Buyer’s
repossession and removal of Buyer’s Property for any or no reason, including
bankruptcy or insolvency proceedings.

 

16.          Seller’s
Property

 

(a)                   Definition

 

“Seller’s Property” means all Tooling and other
items that are not Buyer’s Property and that are necessary for the production
of Supplies are Seller’s Property.

 

(b)                   Maintenance

 

Seller, at its expense, shall furnish, keep in good
working condition capable of producing Supplies meeting all applicable
specifications, and replace when necessary, all Seller’s Property. Seller shall
insure Seller’s Property with full fire and extended coverage insurance for its
replacement value. If Seller uses Seller’s Property to produce goods or
services similar to Supplies for other customers, including aftermarket
customers, such goods or services will not incorporate any of Buyer’s logos,
trademarks, trade names or part numbers. Seller shall not disclose or imply in
its marketing efforts that such goods or services are equivalent to those
purchased by Buyer.

 

(c)                   Option to
Purchase

 

Seller grants to Buyer an irrevocable option to take
possession of and title to Seller’s Property that is specific for the
production of Supplies under the Order upon payment to Seller of its net book
value less any amounts that Buyer has previously paid to Seller for the cost of
such items. This option does not apply if Seller’s Property is used to produce
goods that are the standard stock of Seller or if a substantial quantity of
like goods is being sold by Seller to other than Buyer.

 

21

 

17.          Tooling

 

(a)                   Definition and
Acquisition

 

Tooling means all Tooling, jigs, fixtures and other
personal property other than capital equipment used in the manufacture of
Supplies. Unless otherwise provided in this order, property of every
description including all tools, equipment, material, drawings, manufacturing
aids and replacements of the foregoing furnished by Buyer, either directly or
indirectly, or as acquired or manufactured by Seller for use in the performance
of this order, for which Seller has been reimbursed by Buyer (“Special
Tooling”), will be: (i) the
property of Buyer; and (ii) plainly
marked or otherwise adequately identified by Seller as the property of Buyer.
Seller shall not purchase any Tooling for the account of Buyer or charge Buyer
for any tooling except as authorized in an Order.

 

(b)                   Payment &
Terms

 

If Buyer has agreed to compensate Seller for Tooling
in an Order:

 

(i)            The price for Tooling in the
Order will be adjusted to credit Buyer in the amount, if any, by which the
price exceeds Seller’s actual cost as verified by Buyer. If Seller does not
provide access and documentation necessary for Buyer’s verification, Buyer may
determine in its reasonable discretion an appropriate adjustment. Seller shall
retain all cost records for a period of two years after receiving final payment
for Tooling. Seller shall provide to Buyer, as requested, access to Seller’s
premises and all documentation relating to the Tooling prior and subsequent to
payment, to inspect work performed, and to verify charges submitted by Seller
against the Order.

 

(ii)           Seller shall be entitled to
receive payment only after it is completed unless otherwise provided in the
Order. Tooling is not complete until Seller, at its own expense, has
successfully completed all required testing (including completion of the PPAP
process) and has submitted all necessary documentation required by the Order.

 

(iii)          Payment terms for Tooling
shall be specified in the Order.

 

(c)                   Warranty

 

If Seller is responsible for fabricating or
acquiring Tooling, Seller warrants that such Tooling shall: (i) comply with any specifications
provided by Buyer; and (ii) be
capable of producing Supplies that satisfy the Order, including meeting any
volume requirements or estimates provided to Seller during the life of the
product as well as satisfying the requirements for Service Parts. Time is of
the essence for Seller’s acquisition or fabrication of Tooling. Seller shall
provide Tooling progress reports on Buyer’s request

 

22

 

and shall promptly notify Buyer in writing if it
believes that the Tooling might not be completed by the completion date
specified on the Order.

 

(d)                   Third Party
Tool Makers

 

If all or part of the fabrication, modification,
repair or refurbishment of Tooling will be subcontracted to a third-party
toolmaker, Seller will: (i) give
Buyer advance written notice of the identity of the toolmaker and the location
of the Tooling;(ii) inform
the toolmaker in writing that it is a bailee-at-will, through Seller, of
Tooling owned by Buyer; and (iii) be
solely responsible for payments to the toolmaker. Buyer has no obligation to
Seller or subcontractor other than payment to Seller of the Order price. If a
subcontractor brings an action against Seller for payment of the Tooling,
Seller will not join Buyer in the action.

 

(e)                   Bailment to
Subcontractors

 

If Seller intends to subcontract all or part of the
manufacture of the Supplies to a third- party subcontractor and to deliver
Tooling to the subcontractor’s premises, Seller shall: (i) provide Buyer with prior written
notice of the identity of the subcontractor and the location of the Tooling; (ii) obtain the written permission of
Buyer in advance of Seller’s delivery; (iii) inform
the subcontractor in writing that it is a bailee-at-will, through Seller, of
Tooling owned by Buyer; and (iv) be
solely responsible for payments to the subcontractor.

 

18.          Intellectual
Property

 

(a)                   Warranty of
Non-Infringement

 

Seller warrants that the Supplies and the sale
and/or use thereof (before or after incorporation into products during
manufacture) do not and will not infringe, misappropriate or violate any
Intellectual Property Rights. “Intellectual Property Right” means all rights
arising under U.S. or foreign law relating to patent, trademark, copyright,
moral rights, industrial design right, Proprietary Information (as defined in
Section 19) and trade secrets or other intellectual property rights.

 

(b)                   Restriction on
Use of Buyer’s Intellectual Property

 

Seller shall not manufacture or provide, or offer to
manufacture or provide, any goods or services that are based in whole or in
part upon inventions, confidential or Proprietary Information (as defined in
Section 19) of Buyer or Intellectual Property Rights of Buyer, whether for
its own purposes (other than to satisfy its obligations under Order), or any
other third parties, without Buyer’s prior written consent.

 

23

 

(c)                   License to
Buyer

 

Seller grants to Buyer, its subsidiaries and
affiliates, and their respective successors and assigns, and Buyer hereby
accepts, a non-exclusive, irrevocable, royalty-free, fully paid up worldwide
license, including the right to sublicense to others under: (i) any Intellectual Property Rights
owned or controlled by Seller or its affiliates, and relating to the Supplies,
to make, have made, repair, reconstruct, rebuild, relocate, use, sell and
import the Supplies; and (ii) any
works of authorship fixed in any tangible medium of expression (including
drawings, prints, manuals and specifications) furnished by Seller in the course
of Seller’s activity under Order, to reproduce, distribute and display such
works and to prepare derivative works based thereon, subject to the other
provisions of Order (all items in clauses (i) and
(ii) above, collectively,
“Seller’s Intellectual Property”, and such license in respect thereof, the
“License”). Seller acknowledges and understands that the License shall be
effective from the first date of delivery of the Supplies under Order and
extend for so long as Buyer has contractual obligations to any customer. The
license is subject to 11 USC §365(n) and other Law, as an executory
agreement under which Buyer has license rights to Seller’s Intellectual
Property, and is supplementary to any other rights of Buyer under the Order and
any other agreement with Seller.

 

(d)                   Ownership

 

Any developments or work product that are created by
or on behalf of Seller in the performance of an Order, whether or not they may
be protected by patent, copyright or otherwise, shall be work for hire and be
the exclusive property of Buyer, and to the extent any such developments or
work product do not qualify as work for hire, Seller assigns all rights in such
developments or work product to Buyer and shall execute such further documents
as may be necessary to record or otherwise enforce Buyer’s rights therein
including patent, copyright, trademark or other intellectual property rights,
and all related expenses shall be paid by Buyer. Seller hereby appoints Buyer
as its attorney-in-fact to execute assignments of, and register all rights to,
such developments and work product. Seller acknowledges that Buyer has a
substantial interest in ensuring that the developments and work product are
assigned to Buyer and that revocation of the appointment of attorney-in-fact
would be inequitable.

 

(e)                   Subcontractor
Obligations

 

Seller shall ensure that the terms of its contracts
with its subcontractors and employees are consistent with the terms of this
Section.

 

19.          Proprietary
Information

 

(a)                   Buyer’s
Information

 

Any information or knowledge clearly marked to be
confidential which Buyer may have disclosed or may hereafter disclose to Seller
in connection with the Order (including but not limited to the terms of the
Order) and any and all services to be rendered and/or work

 

24

 

to be performed pursuant to the Order is and shall
be deemed confidential and proprietary information (collectively, “Proprietary
Information”) of Buyer. Seller shall not, without authorization in writing from
Buyer, use (except as necessary to the performance of the Order), communicate
or disclose the confidential and proprietary information of Buyer or use such
information for any purpose other than to perform its obligations under the
Order. Seller shall safeguard the confidential and proprietary information of
Buyer by using reasonable efforts, and in any event no less effort than Seller
uses in the protection of its own proprietary information of a similar nature,
to prevent its disclosure to third parties. Seller shall cause its employees,
“contractors”, officers, directors, agents and representatives to be bound by
and comply with the foregoing restrictions regarding the use or disclosure of
such confidential and proprietary information. Seller shall not assert any
claims with respect to any technical information which Seller shall have
disclosed or may hereafter disclose to Buyer in connection with the Supplies.

 

(b)                   Limitations on
Buyer’s Information

 

The restrictions and obligations of Section 19(a) do
not apply to information that: (i) is
already publicly known at the time of its disclosure by Buyer; (ii) after disclosure by Buyer
becomes publicly known through no fault of Seller; or (iii) Seller can establish by written
documentation was properly in its possession prior to disclosure by Buyer or
was independently developed by Seller without use of or reference to Buyer’s
information. Notwithstanding anything to the contrary in these Terms, any
confidentiality or non-disclosure agreement between the parties that predates
the Order will remain in effect except as expressly modified by the Order, and
to the extent of a conflict between the express terms of such an agreement and
this Section, the terms of that agreement will control.

 

(c)                   Ownership

 

All documents containing proprietary information
relating to the Supplies produced or acquired by Seller under an Order shall
belong to Buyer and Seller shall execute documents confirming ownership to
Buyer. All drawings, know-how, and confidential information supplied to Seller
by Buyer and all rights therein will remain the property of Buyer and shall be
kept confidential by Seller.

 

(d)                   Return

 

Seller shall, within five business days of Buyer’s
request or the expiration or termination of Order, return all confidential and
proprietary information (including all copies, notes and/or extracts thereof).

 

25

 

20.          Insurance;
Waiver of Liens

 

(a)                   Insurance

 

Seller shall furnish an insurance carrier’s
certificate showing that Seller has adequate insurance coverage in the
following minimum amounts: workmen’s compensation – statutory limits for
jurisdictions in which work is to be performed; employer’s liability - $1,000,000;
general liability including premises, operations, independent contractors, and
contractual liability $10,000,000 single limit; owned and non-owned automotive
liability – bodily injury $5,000,000 per person and $10,000,000 per occurrence;
professional liability if professional services are included in Suppliers -
$5,000,000; and broad form property damage on premises and in transit -
$5,000,000; and products and completed operations - $10,000,000. Seller waives
subrogation against Buyer. All policies must provide primary non-contributory
coverage. Deductibles and co-insurance obligations of Seller shall be limited
to 1% of the amount of the coverages and shall be paid by Seller. All policies
shall be issued by an insurer with an AM Best rating of A- or better licensed
to do business in the state, province, and country where Buyer shall use and
sell the Supplies. Liability coverage shall include products, completed
operations and (if available) recall. Buyer, each Credit Provider and the
Secured Party shall be named as an additional insured under the policies and
the acts of Seller contrary to policy provisions shall not be attributable to
Buyer, any Credit Provider or the Secured Party. Seller shall furnish to Buyer
a Certificate of Insurance completed by its insurance carrier(s) certifying
that the required insurance coverages are in effect and will not be voided,
canceled or materially changes until 30 days after prior written notice has
been delivered to Buyer and the Secured Party. The certificate must set forth
the amount of each coverage, number of policy, date of expiration and buyers as
an additional insured. If Seller is a self-insurer of works compensation
liability, Seller shall furnish Buyer a certificate of the Department of Labor,
or similarly government authority of the jurisdiction in which any labor is to
be performed approving the self-insurance. The purchase of such insurance
coverage or the furnishing of a certificate shall not be a satisfaction of
Seller’s liability hereunder, or in any way modify Seller’s obligation to
indemnify Buyer.

 

(b)                   Waiver of Lien

 

Seller hereby waives all mechanics’ liens and claims
and agrees that non shall be filed or maintained against Buyer’s premises or
Supplies on account of any Supplies and shall cause all its subcontractors,
material men and suppliers (and subcontractors of such parties) to provide
similar waivers and agreements in form satisfactory to Buyer.

 

21.          Excusable
Delay

 

(a)                   Excused
Performance

 

Any delay or failure of either party to perform its
obligations will be excused for up to 30 days if and to the extent that the
party is unable to perform due to an event or occurrence beyond its reasonable
control and without its fault or negligence, such as: acts of God;
restrictions, prohibitions, priorities or allocations imposed or actions taken
by a governmental authority; embargoes; fires; explosions; natural disasters;
riots; wars;

 

26

 

sabotage; or court injunction or order (collectively
“Excusable Delay”). However, in no event will Seller’s performance be excused
by: (i) the change in cost
or availability of materials, components or services based on market
conditions, supplier actions, labor disruptions or contract disputes; (ii) Seller’s financial distress; or (iii) any labor strike or other labor
disruption applicable to Seller or to any of its subcontractors or suppliers.
At the end of the 30 days, Buyer may terminate the Order as a termination for
convenience.

 

(b)                   Notice

 

Seller shall immediately give written notice to
Buyer of any event or occurrence that threatens to delay or actually delays
Seller’s performance under the Order. Such notice shall include all relevant
information with respect to such threat, including the possible duration and
impact of a delay. In addition, Seller shall notify Buyer in writing: (i) at least 60 days prior to the
expiration of any labor contract or collective agreement; and (ii) as soon as Seller becomes aware
of any actual or threatened labor strike or other labor disruption; in each
case as may be applicable to Seller or to any of its subcontractors or
suppliers that are engaged in manufacturing or providing goods or services to
Seller in connection with Seller’s obligations under the Order.

 

(c)                   Mitigation

 

Seller, at its expense, shall use its best efforts
to mitigate any adverse effects or costs to Buyer due to any actual or
potential delay, including: (i) the
implementation of a production contingency plan; and (ii) upon Buyer’s express written authorization,
increasing Seller’s inventory of Supplies to a level sufficient to sustain
deliveries during such delay. Seller shall notify Buyer immediately of any
actual or potential labor dispute that delaying or threatening to delay timely
performance of the Order, and will include all relevant information to Buyer.
Seller shall notify Buyer in writing six months in advance of the expiration of
any labor contract. Prior to the expiration of any labor contract of Seller,
Seller shall establish, at its expense, a 40-working day inventory of Supplies
in a neutral warehouse site at least 50 miles from Seller’s manufacturing
locations. Such supply of Supplies shall be in place at least ten working days
prior to the expiration of any labor contract.

 

(d)                   Buyer’s Rights

 

During any delay or failure to perform by Seller,
Buyer may at its option and at Seller’s expense: (i) purchase Supplies from other sources and reduce its
schedules to Seller by such quantities, without liability to Seller; (ii) require Seller to deliver to
Buyer at Buyer’s expense all finished goods, work in process and parts and
materials produced or acquired for work under the Order; or (iii) have Seller provide Supplies
from other sources in quantities and at a time requested by Buyer and at the
price set forth in the Order. In addition, Seller at its expense shall take all
necessary actions to ensure the

 

27

 

supply of Supplies to Buyer for a period of at least
40 days during any anticipated labor disruption or resulting from the
expiration of Seller’s labor contracts.

 

22.          Buyer’s
Liability

 

(a)                   Limitation of
Liability

 

Buyer’s sole liability and Seller’s exclusive
remedies under the Order (including its termination, expiration or
cancellation) is to pay for the Supplies in accordance with Section 4(c) and
to pay the specific termination related amounts described in Sections 14(e) and
14(h).

 

(b)                   Excluded
Liabilities

 

In no event shall either party be liable for
anticipated profits, interest, penalties or incidental, consequential,
punitive, multiple, or exemplary damages or liabilities in connection with
Order, whether for breach of contract, late payment, property damage, personal
injury, illness, or death or otherwise.

 

23.          Limitation
on Assignment and Subcontracting

 

(a)                   Limited
Assignment

 

The Order is issued to Seller, in reliance upon its
personal performance of the obligations. Without prior written consent of Buyer
which shall not be unreasonably withheld, Seller may not: (i) assign the Order or delegate the
performance of its duties hereunder; or (ii) assign
any accounts receivable from Buyer to third parties.

 

(b)                   Liability for
Seller’s Subcontractors

 

Seller shall ensure that the terms of its contracts
with its sub-suppliers and subcontractors provide Buyer with all of the rights
specified in the Order.

 

(c)                   Retention of
Seller’s Liability

 

Any subcontracting, assignment or delegation does
not relieve Seller of any responsibility under the Order.

 

24.          Compliance
with Laws

 

Seller shall comply with all applicable laws, rules,
regulations, ordinances or other requirements of any national, state,
provincial, local, multi-national or international body (collectively “Laws”)
relating to the manufacture, sale, delivery and use of the Supplies. Upon
request, Seller will submit to Buyer evidence of such compliance.

 

28

 

25.          Foreign
Purchases

 

The following applies to all transactions involving
Supplies to be imported into the country in which Seller’s place of final
delivery is located:

 

(a)                   Buyer’s
Importation Rights

 

Buyer shall not be a party to the importation of the
Supplies, the transaction(s) represented by an Order will be consummated
subsequent to importation, and Seller will neither cause nor permit Buyer’s
name to be shown as “Importer of Record” on any customs declaration.

 

(b)                   Customs Forms

 

Upon request and where applicable, Seller shall
provide Buyer and/or its designee all properly executed customs forms required
by law for export and import of the Supplies. Upon request, Seller shall
furnish promptly all documents required for customs drawback purposes, properly
completed in accordance with government regulations applicable thereto. Unless
otherwise stated in the Order, all customs drawback will be credited to Buyer.

 

(c)                   Other
Certificates

 

Upon request, Seller shall furnish promptly to Buyer
certificates of local value added and certificates of origin in accordance with
applicable government regulations.

 

(d)                   Duties and
Drawback Rights

 

The price for goods includes, and Buyer shall own,
all related export and import customs duties and import drawback rights, if
any, including rights developed by substitution and rights that may be acquired
from Seller’s supplier(s) that Seller can transfer to Buyer. Buyer shall
include such provisions in all its subcontracts.

 

26.          Buyer
Financing

 

(a)                   Security
Interest

 

Buyer intends to assign as
collateral, and grant a security interest in, all of Buyer’s rights under the
Order and all Buyer’s Property to (i) the United States Department of
Energy (“DOE”) and the Federal Financing Bank (“FFB”), acting pursuant to the
Advanced Technology Vehicles Manufacturing Incentive Program (“ATVM”)
administered by DOE, or (ii) a collateral agent or common security
representative (who has been so designated by DOE with notice of such
designation having been provided to Seller by, or on behalf of, DOE) acting for
DOE, FFB, and certain other credit providers (DOE or, if a designation has
occurred pursuant to clause (ii) above, such collateral agent

 

29

 

or common security representative, the “Secured
Party”) to secure certain loans and other credit extensions to be made from
time to time by DOE, FFB or certain other lenders (DOE, FFB and such other
lenders, collectively, the “Credit Providers”) to Buyer. This collateral
assignment shall not in any way affect Buyer’s duty to Seller to perform
Buyer’s obligations under the Order. Seller acknowledges and consents to this
collateral assignment and agrees to execute such additional consents and
waivers as the Secured Party (or its representative) may reasonably request in
order to evidence and perfect the Secured Party’s lien. Seller also agrees to
notify the Secured Party prior to exercising any right it might have to suspend
or terminate this Order because of acts of Buyer and provide the Secured Party
a reasonable period to cure [(such period to be in any event a period of not
less than 60 days after the Secured Party receives notice of Seller’s intended
suspension or termination)] the non-performance permitting the Seller to
suspend or terminate the Order. Seller agrees to accept performance or cure by
a Credit Provider, the Secured Party (or their representatives) as performance
or cure by Buyer and satisfaction by Buyer of its obligations under the Order.
Notwithstanding any such cure, neither the Credit Providers, the Secured Party
or their representatives will be deemed to have assumed any of Buyer’s
obligations under the Order unless such person expressly agrees in writing with
the Seller to do so. Seller acknowledges that the Secured Party is a third
party beneficiary of Seller’s obligations under the Order and shall permit DOE
or the Secured Party (or their representatives) to exercise the same inspection
rights and access to Buyer’s Property as are available to Buyer under Section 15(b) as
well as to exercise all of the other rights of Buyer under the Order. DOE and
the Secured Party (or their representatives) and Buyer shall each be entitled
to exercise all rights of Buyer under the Order unless the Secured Party
notifies Seller that such rights may only be exercised by DOE, the Secured
Party and their representatives. Should the Secured Party (or its
representative) exercise its right to foreclose upon its security interest in
the Order, it may transfer all of Buyer’s rights and obligations under the
Order and any of Buyer’s Property to any third party.

 

(b)                   Notices to
Secured Party

 

Seller shall deliver any
notices required to be given to the Secured Party pursuant to Section 26(a) and
Section 28 to: Advance Technology Vehicles Manufacturing Loan Program,
United States Department of Energy, 1000 Independence Avenue, SW, Washington,
DC 20585, Attention: Director ATVM Program, or such other address as the
Secured Party may advise Seller from time to time.

 

27.          Miscellaneous

 

(a)                   Jurisdiction
and Applicable Law

 

The Order shall be interpreted and enforced in
accordance with the laws of the State of California and of the United States of
America, exclusive of the choice of law rules thereof. The state courts of
California in Orange County, California or the federal courts

 

30

 

in the district including Orange County shall have
exclusive jurisdiction and venue over any lawsuit arising out of or related to
the Goods or Order. The United Nations Convention on the International Sale of
Goods shall not apply.

 

(b)                   Waiver

 

Either party’s failure to insist on the performance
by the other party of any term or failure to exercise any right or remedy
reserved in the Order, or either party’s waiver of any breach or default
hereunder by the other party shall not, thereafter, waive any other terms,
conditions, rights, remedies, breaches or defaults, whether of the same or a
similar type or not.

 

(c)                   Severability

 

If any provision of the Order, or portion of any
provision, is declared or found to be unenforceable, the balance of the Order
or such provision shall be interpreted and enforced to the greatest extent
possible as if the unenforceable provision or portion had never been a part
hereof. In particular, if any interest rate provided for herein is higher than
that permitted by applicable law it shall automatically be amended to the
highest legal rate.

 

(d)                   Survival

 

The obligations of Seller to Buyer survive
termination of the Order, except as otherwise provided in the Order.

 

(e)                   Interpretation

 

No provision may be construed against Buyer as the
drafting party. Section headings are for convenience or reference only,
and do not affect the meaning of the Order.

 

(f)                    No Publicity

 

Seller shall not advertise, publish or disclose to
any third party (other than to Seller’s professional advisors on a confidential
and need-to-know basis) in any manner the fact that Seller has contracted to
furnish Buyer the Supplies covered by the Order or any terms of the Order
(including prices), or use any trademarks or trade names of Buyer in any press
release, advertising or promotional materials, without first obtaining Buyer’s
written consent.

 

(g)                   Relationship of
Parties

 

Seller and Buyer are independent contracting parties
and nothing in the Order shall make either party the employee, agent or legal
representative of the other for any purpose. The Order does not grant either
party any authority to assume or to create any obligation on

 

31

 

behalf of or in the name of the other. Seller shall
be solely responsible for all employment and income taxes, insurance premiums,
charges and other expenses it incurs in connection with its performance of the
Order, except as expressly provided in a written agreement signed by Buyer. All
employees and agents of Seller or its respective contractors are employees or
agents solely of Seller or such contractors, and not of Buyer, and are not
entitled to employee benefits or other rights accorded to Buyer’s employees.
Buyer is not responsible for any obligation with respect to employees or agents
of Seller or its subcontractors.

 

(h)                   Conflict of
Interest

 

Seller represents and warrants that its performance
of the Order will not in any way conflict with any continuing interests or
obligations of Seller or its employees or contractors. Seller further warrants
that while the Order is in effect, Seller and those of its employees and
contractors participating in the performance of the Order will refrain from any
activities which could reasonably be expected to present a conflict of interest
with respect to Seller’s relationship with Buyer or its performance of the
Order.

 

28.          Dispute
Resolution

 

(a)                   Negotiation
Process

 

(i)            Before the filing of any
claim in any court, a party will serve on the other party to the Terms (a) written
notice of the claim, specifying the exact amount claimed and the provision of
the Terms or other authority for the claim; and (b) a copy of all supporting
documents.

 

(ii)           Within 10 business days
after service, the responding party will serve on the serving party (a) a
written response, setting out its position and specifying the Terms or other
provisions relied on; and (b) a copy of all supporting documents.

 

(iii)          Within 5 business days after
service of the response, the parties will meet to discuss resolution of the
claim. Each party may bring up to three people to this negotiation, at least
one of whom is a corporate officer who is not involved in the performance of
this Agreement. The written claim notice and response and the documents
produced, but not the subsequent discussion, are admissible in any subsequent
proceeding.

 

(iv)          Copies of all notices and
other documentation to be delivered to any party shall also be provided to the
Secured Party in the manner provided in

 

32

 

Section 26(b) and the Secured Party shall
be allowed to have a representative participate in any discussions or
negotiations related to the claim.

 

33Exhibit 10.4

 

FIFTH LOAN MODIFICATION AGREEMENT

 

This Fifth Loan Modification
Agreement (this “Loan Modification Agreement”) is entered into as of September
24 2010, by and among (a) SILICON VALLEY BANK,
a California corporation, with its principal place of business as 3003 Tasman
Drive, Santa Clara, California 95054 (“SVB”), as agent (“Agent”), and the other
Lenders that are now or hereafter become a “Lender” under the Loan Agreement
(as hereinafter defined), including without limitation, SVB and GOLD HILL VENTURE LENDING 03, L.P. (“Gold Hill”) and (b) A123 SYSTEMS, INC., a Delaware corporation with its chief
executive office located at 321 Arsenal Street, Watertown, MA 02472 (“Borrower”).

 

1.             DESCRIPTION
OF EXISTING INDEBTEDNESS AND OBLIGATIONS.  Among other indebtedness and obligations
which may be owing by Borrower to the Lenders, Borrower is indebted to the
Lenders pursuant to a loan arrangement dated as of August 2, 2006, evidenced
by, among other documents, a certain Term Loan and Security Agreement dated as
of August 2, 2006, between Borrower and the Lenders, as amended by a certain
First Loan Modification Agreement dated as of July 10, 2007, between Borrower
and the Lenders, as further amended by a certain Section Loan Modification
dated as of September 24, 2008, between Borrower and the Lenders (the “Second
Amendment”), as amended by a certain Third Loan Modification dated as of March
16, 2009, between Borrower and the Lenders (the “Third Amendment”), and as
further amended by a certain Fourth Loan Modification Agreement dated as of
March 31, 2009 (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise
defined herein shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION
OF COLLATERAL.  Repayment of the Obligations is secured by
the Collateral as described in the Loan Agreement (together with any other
collateral security granted to Agent, for the ratable benefit of the Lenders,
the “Security Documents”).  Hereinafter,
the Security Documents, together with all other documents evidencing or
securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

3.             DESCRIPTION
OF CHANGE IN TERMS.

 

A.            Modifications
to Loan Agreement.

 

1.                                       The Loan Agreement shall be amended by deleting the
following provision appearing as Section 2.6 thereof:

 

“2.6        Overadvances. 
If, at any time, the sum of
(a) the outstanding principal amount of any Revolving Advances (including any
amounts used for Cash Management Services), plus (b) the face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letters of Credit Reserve), plus (c) the FX Reduction Amount
exceeds the lesser of either the Revolving Line of the Borrowing Base, Borrower
shall immediately pay to SVB in cash such excess.”

 

and inserting in lieu thereof the
following:

 

“2.6        Overadvances.  If, at any time, the sum of (a) the
outstanding principal amount of any Revolving Advances (including any amounts
used for Cash Management Services), plus (b) the face amount of any outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of 

 

1

 

Credit Reserve), plus (c) the FX
Reduction Amount exceeds the lesser of either (i) the Revolving Line or (ii)
the aggregate of (x) the Borrowing Base, plus (y) the Permitted Overadvance,
Borrower shall immediately pay to SVB in cash such excess.”

 

2.                                             The Loan Agreement shall be amended by deleting the
following definition, appearing in Section 13.1 thereof:

 

“                  “Availability Amount” is (a) the lesser of (i) the Revolving
Line or  (ii) the amount available under
the Borrowing Base minus (b) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to
any Letter of Credit Reserve, minus (c) any FX Reduction Amount, minus (d) any
unreimbursed amounts used for Cash Management Services, and minus (e) the
outstanding principal balances of any Revolving Advances

 

“                  “Revolving Line Maturity Date” is September 24, 2010.”

 

and inserting in lieu thereof the
following:

 

“                  “Availability Amount” is (a) the lesser of (i) the Revolving
Line of (ii) the aggregate amount of (x) the amount available under the
Borrowing Base, plus (y) the Permitted Overadvance, minus (b) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) plus an amount equal to any Letter of Credit Reserve, minus (c) any FX
Reduction Amount, minus (d) any unreimbursed amounts used for Cash Management Services,
and minus (e) the outstanding principal balance of any Revolving Advances

 

“                  “Revolving Line Maturity Date” is December 23, 2010.”

 

3.                                             The Loan Agreement shall be amended by inserting the
following new definitions to appear alphabetically in Section 13.1 thereof:

 

“                  “2010 Effective Date” is September 24, 2010.”

 

“                  “Permitted Overadvance” is an Advance of Advances under the
Revolving Line up to (i) Four Million Dollars ($4,000,000.00) from the 2010
Effective Date through and including the Revolving Line Maturity Date.”

 

4.             FEES.  Borrower shall pay
to SVB a modification fee equal to Five Thousand Dollars ($5,000.00), which fee
shall be due and payable on the date hereof and shall be deemed fully earned as
of the date hereof.  Borrower shall also
reimburse SVB and Lenders for all legal fees and expenses incurred in
connection with this amendment to the Existing Loan Documents.

 

2

 

5.             CONSISTENT
CHANGES.  The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.

 

6.             RATIFICATION
OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Agent, for the ratable benefit of the Lenders, and confirms that the
indebtedness secured thereby includes, without limitation, the Obligations.

 

7.             NO
DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that,
as of the Effective Date, Borrower has no offsets, defenses, claims, or
counterclaims against Agent or Lenders with respect to the Obligations, or
otherwise, and that if Borrower now has, or ever did have, any offsets,
defenses, claims or counterclaims against Agent or Lenders, whether known or
unknown, at law or in equity, all of them are hereby expressly WAIVED and
Borrower hereby RELEASES Agent and Lenders from any liability thereunder.

 

8.             CONTINUING
VALIDITY.  Borrower understands and agrees that in
modifying the existing Obligations, Agent and Lenders are relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing Loan
Documents.  Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect.  Lenders’ agreement to modifications to the
existing Obligations pursuant to this Loan Modification Agreement in no way
shall obligate any Lender to make any future modification to the
Obligations.  Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Lenders and Borrower
to retain as liable parties all makers of Existing Loan Documents, unless the
party is expressly released by Agent in writing.  No maker will be released by virtue of this
Loan Modification Agreement.

 

9.             COUNTERSIGNATURE.  This Loan
Modification Agreement shall become effective only when it shall have been
executed by Borrower, Agent and Lenders.

 

3

 

This Loan Modification Agreement is
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first written above.

 

 

	
  BORROWER:

  	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
  A123 SYSTEMS, INC.

  	
   

  	
  SILICON
  VALLEY BANK, as Agent and Lender

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/  Michael Rubino

  	
   

  	
  By:   /s/ 
  Robin Gil

  
	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Michael
  Rubino

  	
   

  	
  Name:  Robin Gill

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  CFO

  	
   

  	
  Title:  VP

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  GOLD
  HILL VENTURE LENDING 03, L.P., as Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:   /s/ 
  David Fischer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  David Fischer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:  Manager

  

 

4

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