Document:

exv10w46w1

 

Exhibit 10.46.1

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

	 	 	 
	

	 	
	WEYERHAEUSER BUILDING MATERIALS

	 	ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.

Wood-Plastic Composite

Decking Agreement

THIS AGREEMENT (this “Agreement”) made as of August 23, 2004, by and between
Weyerhaeuser Company, Weyerhaeuser Building Materials (“WBM”) and Advanced Environmental
Recycling Technologies, Inc. (“AERT”).

BACKGROUND

	 	A.	 	The parties have entered into that certain ChoiceDek® Products Agreement dated as of
December 21, 2001 (the “2001 Agreement”).
	 
	 	B.	 	The parties have entered into that certain Reload/Storage Agreement for Weyerhaeuser
ChoiceDek® Products dated as of October 1, 2002 (the “Reload Agreement”), a copy
of which is attached hereto as Exhibit A.
	 
	 	C.	 	It is anticipated that AERT’s planned increases in production and production capacity
of wood-plastic composite decking and decking accessories will be more than WBM’s ability
to sell such products and AERT desires to be able to sell such products to others than WBM
under brands other than ChoiceDek ®.
	 
	 	D.	 	While WBM desires to continue to purchase quantities of
wood—plastic composite
decking and decking accessories from AERT; AERT understands that WBM desires to be able to
purchase such products from multiple suppliers.
	 
	 	E.	 	Thus, the parties desire (i) to terminate the 2001 Agreement and replace such
agreement with this Agreement and (ii) for the Reload Agreement to remain in full force
and effect.

THEREFORE, the parties hereby agree as follows:

 

 

Scope.

	 	A.	 	Lowe’s Relationship.

	 	1)	 	Subject to the terms and conditions of this Agreement, WBM agrees
to buy exclusively from AERT all of WBM’s requirements for resale to Lowe’s
Companies, Inc. (“Lowe’s”) of wood-plastic composite decking products and
decking accessories listed in Exhibit B, sold under the Weyerhaeuser
ChoiceDek® trademark (hereinafter these products so branded are referred to as
“ChoiceDek® Products”), and AERT shall manufacture and supply such requirements.
	 
	 	2)	 	In the event that Lowe’s and its affiliates reduce the volume of
ChoiceDek® purchases by [**] or more (of the minimum Contract Year volume
established in Section 3B of this agreement) then the volume of ChoiceDek®
Products to be purchased by WBM under this Agreement for the Contract Year in
which such action by Lowe’s occurs shall be reduced accordingly.
	 
	 	3)	 	In the event that Lowe’s and its affiliates discontinue
purchasing ChoiceDek® Products from WBM for any reason, then WBM shall be free
to terminate this Agreement at the end of the Contract year in which such action
by Lowe’s occurs.
	 
	 	4)	 	Should Lowe’s discontinue purchasing ChoiceDek ® products from
WBM, AERT and WBM agree to meet, without obligation, in order to explore other
ChoiceDek ® sales options.

	 	B.	 	Trademark
	 
	 	 	 	AERT understands and agrees that ChoiceDek® is a registered trademark owned by
Weyerhaeuser Company. AERT agrees that it will not use the ChoiceDek® mark other
than as directed by Weyerhaeuser on products sold to Weyerhaeuser. AERT further
agrees that it shall not publicize or advertise that AERT manufactures ChoiceDek®
Products except as approved by Weyerhaeuser.
	 
	 	C.	 	Other Markets and Products.
	 
	 	 	 	The parties agree that during the term of this Agreement, AERT shall be entitled to
manufacture and/or sell wood-plastic composite decking and decking accessories, other
than products bearing the ChoiceDek® trademark, under a private label or different
brand name or label to any person or entity. The parties agree that during the term
of this Agreement, WBM shall be entitled to purchase wood-plastic composite decking
and decking accessories for sale to customers other than Lowe’s from AERT and/or any
other manufacturer.

	2.	 	Product Development.

	 	A.	 	AERT agrees to provide WBM exclusive colors and profiles of ChoiceDek® Premium
Products for WBM to sell to Lowe’s in the Lowe’s territory, and such exclusive colors
and profiles are listed in Exhibit B. WBM shall have first right of refusal
for an exclusive for ChoiceDek® Products for sale to Lowe’s on any new colors and
profiles of decking products that AERT might develop during the term of this Agreement;
provided that, at such time, WBM is not in breach of this Agreement. WBM is obligated
to respond in writing to such offers from AERT within sixty (60) days of receipt of
product design specifications, cost estimates, and prototypes. WBM’s failure to so
notify AERT within such sixty (60) day period shall be deemed WBM’s refusal thereof and
AERT shall be entitled to sell such products to any person or entity.
	 
	 	B.	 	To help ensure timely deliveries of ChoiceDek® Products to WBM, AERT shall
produce a reasonable inventory of finished ChoiceDek® Products at its producing
locations (reference the “Reload Agreement attached hereto as Exhibit A). Said
production will be based upon a mutually

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	 	 	agreed upon strategic inventory plan which will be implemented and finalized by [**]
of each calendar year for the following year. ChoiceDek® Products will be maintained
by AERT based upon a production schedule mutually agreed upon by AERT and WBM, taking
into consideration WBM’s minimum purchase requirements established in accordance with
the provisions of this Agreement. Such inventories shall be shipped in good condition
and not weathered. Further, AERT will rotate inventories so that no high volume
ChoiceDek® Products item remains in inventory longer than three (3) months.

	3.	 	Minimum Purchase Requirements.

	 	B.	 	During 2004 WBM shall purchase from AERT a minimum of [**] truckloads ([**]) of
ChoiceDek® Products, subject to Section 1 of this Agreement.
	 
	 	C.	 	On or before September 30 of each Contract Year during the term of this
Agreement, AERT and WBM shall establish in writing the minimum volume ([**]) of
ChoiceDek® Products to be purchased by WBM from AERT during the next Contract Year. In
the event that AERT and WBM are unable to reach an agreement as to the minimum volume
(by truckload) of ChoiceDek® Products for any Contract Year on or before December 31 of
the immediately preceding Contract Year, the minimum volume of ChoiceDek® Products
shall be [**] of ChoiceDek® Products. WBM shall be obligated to purchase during such
Contract Year the minimum volume of ChoiceDek® Products established by AERT and WBM,
subject to the terms and conditions in Section 1 and elsewhere in this
Agreement. AERT reserves the right to manufacture and/or supply and make available for
purchase by WBM a volume of ChoiceDek® Products which is [**] in excess of the minimum
volume of ChoiceDek® Products established by AERT and WBM for such Contract Year.
	 
	 	D.	 	In the event WBM desires to purchase from AERT during any Contract Year
ChoiceDek® Products in excess of the volume of ChoiceDek® Products forecast to be
purchased by WBM for such Contract Year pursuant to WBM’s strategic inventory plan
delivered to AERT in writing, AERT shall use commercially reasonable efforts to
manufacture and/or supply such excess volume of ChoiceDek® Products to WBM. Provided,
however, AERT shall not be obligated to supply an excess volume more than [**] greater
than the minimum volume unless AERT otherwise agrees. In the event AERT advises WBM in
writing that it is unable to fulfill any request by WBM for such excess volume of
ChoiceDek® Products, AERT shall have [**] to provide a solution for increasing supply
or WBM shall have the right, notwithstanding the exclusivity provisions set forth in
Section 1 of this Agreement, to purchase any such excess volume of ChoiceDek®
Products from alternate suppliers.

	4.	 	Pricing.

	 	D.	 	The initial prices for the ChoiceDek® Products to be purchased under this Agreement
shall be as set forth on Exhibit D attached hereto. The prices do not include
sales, use, excise or other taxes, all of which shall be paid by WBM to AERT. If WBM
is exempt from any such taxes, it shall provide AERT with evidence of such exemptions.
	 
	 	E.	 	On or before [**] of each Contract Year during the term of this Agreement, AERT
and WBM shall establish in writing the prices for the ChoiceDek® Products for the next
Contract Year. Pricing shall be established through good faith discussions and
reasonable determination between the parties with the primary factors being market
demand and costs of competitive products, but also considering costs of raw materials,
additive requirements and production costs.
	 
	 	F.	 	AERT must give thirty (30) days notice when requesting to increase prices to WBM, but
any proposed increase is subject to written acceptance by WBM (based upon Lowe’s
acceptance of such increase). With respect to new ChoiceDek® Products, the price
shall be subject to agreement between AERT and WBM, based upon the additional costs
involved with producing said product.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	G.	 	Prices are F.O.B. AERT production plant or inventory storage facility, as
applicable, unless otherwise noted at the time of order. Title to all ChoiceDek®
Products passes to WBM upon delivery thereof to the transportation company at the AERT
production plant or inventory storage facility, as applicable. AERT shall maintain
insurance on the ChoiceDek® Products until delivery thereof to the transportation
company. After delivery of the ChoiceDek® Products to the transportation company, all
risk of loss, damage or destruction of the ChoiceDek® Products shall be borne by WBM.

	5.	 	Term and Termination.

	 	G.	 	The initial term of this Agreement shall be three (3) years, commencing January 1,
2004 and ending on December 31, 2006, unless earlier terminated in accordance with the
terms hereof. As used in this Agreement, a “Contract Year” shall be a calendar
year. This agreement shall automatically renew for one contract year unless either
party has notified the other part of its intention to terminate this agreement by
September 1, 2006 or by September 1 of each succeeding contract year.
	 
	 	H.	 	Notwithstanding the foregoing, in the event that a party is in default of its
obligations under this Agreement, the party not in default shall give the party in
default written notice of the default. In the event that the default is not cured
within a reasonable time (not exceeding sixty (60) days) from the notice of default
(unless the default is not susceptible to cure within such sixty (60) days, in which
case the non-defaulting party may not terminate this Agreement if the defaulting party
has commenced to cure such default within such sixty (60) day period and thereafter
diligently pursues the same, provided that such default is cured no later than ninety
(90) days after notice thereof is delivered) or if the party receiving the notice
disputes that it is in default, the parties shall engage senior officials of each party
to meet in a good faith effort to resolve the dispute. In the event such meetings do
not resolve the dispute, the parties agree to enter into binding arbitration before the
American Arbitration Association (AAA) under the commercial rules of the AAA. The site
of the arbitration shall be Denver, Colorado. The award of the arbitrator shall be in
writing, shall be final and binding on the parties to this Agreement and shall not be
appealable from or contested in any court, and any judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Each party
shall bear its own costs of arbitration and one-half of the fees and expenses of the
AAA and the Arbitrator.
	 
	 	I.	 	In addition, either party may terminate this Agreement at any time upon notice
to the other party of the occurrence of any of the following:

	 	1)	 	The other party attempts to assign this Agreement or any rights
hereunder or any obligations hereunder, except as permitted in this Agreement.
	 
	 	2)	 	The other party ceases to function as a going concern, ceases to
conduct its operations in the normal course of business, ceases to pay its debts
as they become due or becomes insolvent.
	 
	 	3)	 	Any proceeding is brought or filed by or against the other party
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief with respect to any present or future bankruptcy
laws; provided, however, that in the event any such proceeding is brought or
filed on an involuntary basis, the party shall have ninety (90) days to cause
such proceeding to be dismissed.

	 	J.	 	Upon termination of this Agreement, the parties shall have the following rights
and obligations:

	 	3)	 	Termination of this Agreement shall not release either party from
the obligation to make payment of all amounts then or thereafter due and
payable.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	4)	 	All provisions of this Agreement which are either expressly or by
their nature and meaning intended to survive the termination of this Agreement,
shall survive the termination of this Agreement.
	 
	 	5)	 	WBM shall be entitled to purchase any products which are the same
or substantially similar to the ChoiceDek® Products from any other person or
entity.
	 
	 	6)	 	AERT shall be entitled to manufacture and/or supply any products
which are the same or substantially similar to the ChoiceDek® Products to any
other person or entity, including, without limitation, any Weyerhaeuser Customer
Service Center, but may not use the ChoiceDek® trademark.
	 
	 	7)	 	The parties’ right of termination shall be in addition to, and
not in lieu of, any other rights or remedies available to the non-defaulting
party at law or in equity.

	6.	 	Force Majeure.

	 	H.	 	Force Majeure shall mean any event or condition, other than an obligation of
payment, not existing as of the date of execution of this Agreement, not reasonably
foreseeable as of such date and not reasonably within the control of either party,
which prevents in whole or in material part the performance by one of the parties of
its obligations hereunder or which renders the performance of such obligations so
difficult or costly as to make such performance commercially unreasonable. Without
limiting the foregoing, the following shall constitute events or conditions of Force
Majeure: acts of God, acts of civil or military authority, riots, disturbance, war,
strikes, lockouts, slowdowns, epidemics, fire, flood, hurricane, typhoon, earthquake,
lightning and explosion. It is in particular expressly agreed that any refusal or
failure of any governmental authority to grant any license or authorization legally
required for the fulfillment by AERT of its obligations hereunder shall constitute an
event of Force Majeure.
	 
	 	I.	 	Upon giving notice to the other party, a party affected by an event of Force
Majeure shall be released without any liability on its part from the performance of its
obligations under this Agreement, except for the obligation to pay any amounts due and
owing hereunder, but only to the extent and only for the period that its performance of
such obligations is prevented by the event of Force Majeure. Such notice shall include
a description of the nature of the event of Force Majeure and its cause and possible
consequences. The party claiming Force Majeure shall promptly notify the other party
of the termination of such event.
	 
	 	J.	 	The party invoking Force Majeure shall provide to the other party confirmation
of the existence of the circumstances constituting Force Majeure. Such evidence may
consist of a statement or certificate of an appropriate governmental department or
agency where available or a statement describing in detail the facts claimed to
constitute Force Majeure.
	 
	 	K.	 	During the period that the performance by one of the parties of its obligations
under this Agreement has been suspended by reason of an event of Force Majeure, the
other party may likewise suspend the performance of all or part of its obligations
hereunder to the extent that such suspension is commercially reasonable, except the
obligation for payment of amounts then due and payable.

	7.	 	Terms of Payment.

	 	K.	 	Standard payment terms are as follows (subject to the special arrangements set forth
in the Reload Agreement):

	 	1)	 	[**]
	 
	 	2)	 	[**].

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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	L.	 	Prompt payment discounts may be taken on all payments postmarked within the
prompt payment days. When the last day of the prompt payment period falls on a weekend
or a holiday, the next business day will be used for purposes of eligibility for prompt
payment discounts.
	 
	 	M.	 	Any unearned prompt payment discounts are to be re-invoiced to WBM by AERT.
Such invoices are due within three (3) business days of receipt and are not eligible
for prompt payment discounts.
	 
	 	N.	 	Mailing address for WBM invoices:
	 
	 	 	 	[**]
	 
	 	O.	 	WBM is responsible for freight arrangements for shipments to Vendor Managed
Inventories (“VMI”) unless otherwise indicated at time of order.
	 
	 	P.	 	Weyerhaeuser and AERT may agree on special terms and/or services that may
result in updated and/or revised payment terms. Both parties acknowledge that such an
agreement currently is in place where AERT provides inventory management and storage
services in exchange for modified terms of payment from WBM.
	 
	 	Q.	 	[**].

	8.	 	Co-op Marketing Funds; Samples; Merchandising.

	 	Q.	 	WBM and AERT agree to the following co-op funding.

	 	1)	 	[**].
	 
	 	2)	 	[**].

	 	R.	 	Except as set forth below, ChoiceDek® Products specifically intended for use as
samples, displays, or in other merchandising initiatives (or otherwise agreed to by
AERT) shall be provided by AERT at no cost to WBM. This material will not apply toward
agreed upon minimum purchase requirements or marketing co-op funds.
	 
	 	S.	 	Periodically AERT may extend special discounts, terms or other special
promotions or items to WBM. These may include, but are not limited to, extended terms,
sales incentives or seasonal purchase opportunities. Any special discounts or terms are
to be clearly indicated on AERT’s invoices to WBM.

	9.	 	Product Quality; Warranty; Claims; Indemnification.

	 	S.	 	AERT warrants all products WBM purchases from AERT in accordance with AERT’s
standard warranty on such products. WBM is authorized to pass such warranties through
to its customers and WBM’s customers are authorized to pass them through to customers
and users of such products. A copy of the AERT’s standard warranty(s) is attached
hereto as Exhibit E. AERT will not make any changes to the warranty(s) without
WBM’s prior written approval.
	 
	 	T.	 	AERT warrants that all products sold to WBM will be free of defects in
materials and workmanship, suitable for use in residential and commercial decking
applications, and will comply with all Quality Assurance manuals submitted by AERT in
connection with AERT’s obtaining of building code and other relevant industry
acceptances and/or evaluations.
	 
	 	U.	 	AERT shall retain the services of an independent, third party quality assurance
service (such as PFS) to monitor the quality of AERT’s production. Any reports
submitted by such service shall be

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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	 	 	available to WBM on a reasonable request basis. Such requests for records and
related Quality Assurance information will be mailed to WBM within five (5) business
days after receipt by AERT.
	 
	 	V.	 	With respect to claims, the following describes the general procedure for
handling claims:

	 	1)	 	AERT and WBM recognize that quick and fair resolution is critical
in the event of claims.
	 
	 	2)	 	In the event of any claim, WBM and AERT will use the following
process to resolve it quickly and effectively:

	 	(a)	 	WBM Customer Service Center representatives will
inspect and submit such claim on the then current AERT claim form.
	 
	 	(b)	 	Pictures must be provided before an AERT
representative will personally inspect the claim.
	 
	 	(c)	 	[**].
	 
	 	(d)	 	[**].
	 
	 	(e)	 	[**].
	 
	 	(f)	 	[**].

	 	W.	 	AERT will buy back from WBM and WBM’s customers (at delivered cost) any
products that, because of failure to conform to AERT’s warranties, cannot be sold at
full value. A buy back shall not limit any other obligations of AERT; provided,
however, that notwithstanding the foregoing, in no event shall AERT be liable for any
liabilities, costs, expenses or damages, including, without limitation, any buy back
obligation as a result of such products not having been properly stored, transported,
handled, installed, maintained, repaired or having been modified or altered.
	 
	 	X.	 	AERT shall be liable for and shall defend, indemnify and hold WBM and its
contractors, agents, and employees harmless from and against all liabilities, costs,
expenses and charges, including reasonable attorneys’ fees, and any and all claims,
suits, actions, demands and proceedings of whatsoever nature and kind, as may be
instituted or made against WBM, its contractors, agents and employees, arising from or
relating to the quality of or any defect in material or workmanship of any products
purchased by WBM from AERT which exists at the time of delivery to the transportation
company or that develops under normal use or any negligent or willful act or omission
of AERT its contractors, agents or employees (excluding any claim alleging negligent or
faulty installation, maintenance or repair of such products). In the event of any
litigation brought against WBM and arising out of and in any way connected with any of
the above events or claims, against which AERT agrees to defend WBM, AERT shall
vigorously resist and defend such litigation through counsel of its choice and WBM
shall fully cooperate therewith.
	 
	 	Y.	 	WBM shall be liable for and shall indemnify and hold AERT and its contractors,
agents and employees harmless from and against all liabilities, costs, expenses and
charges, including reasonable attorneys’ fees, and any and all claims, suits, actions,
demands and proceedings of whatsoever nature and kind, as may be instituted or made
against AERT, its contractors, agents or employees, arising from or relating to any
negligent or willful act or omission of WBM, its contractors, agents or employees. In
the event of any litigation brought against AERT and arising out of and in any way
connected with any of the above events or claims, against which WBM agrees to defend
AERT, WBM shall vigorously resist and defend such litigation through counsel of its
choice and AERT shall fully cooperate therewith.
	 
	 	Z.	 	AERT shall obtain and maintain insurance coverage as specified in the Insurance
Requirements described in Exhibit F.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	AA.	 	EXCEPT AS PROVIDED IN THIS SECTION 9 AND IN SECTION 10, AERT HEREBY EXPRESSLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, QUALITY, CONDITION,
TITLE, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
CHOICEDEK® PRODUCTS OR THEIR OPERATION OR PERFORMANCE. NOTWITHSTANDING ANYTHING HEREIN
TO THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR BUSINESS
INTERRUPTIONS) RESULTING FROM OR ARISING OUT OF THIS AGREEMENT, ANY ORDER OR THE
PERFORMANCE OF ANY WORK OR SERVICES, HOWEVER SAME MAY BE CAUSED, INCLUDING THE
NEGLIGENCE OR FAULT OF ANY PARTY OR PARTIES AND WHETHER OR NOT WITHIN THE CONTEMPLATION
OF THE PARTIES BEFORE, AFTER OR ON THE EFFECTIVE DATE OF THIS AGREEMENT AND/OR THE
APPLICABLE ORDER.
	 
	 	J.	 	The liability of AERT, if any, and WBM’s sole and exclusive remedy for damages
for any claim of any kind whatsoever with respect to any ChoiceDek® Products,
regardless of legal theory, shall not be greater than the actual purchase price for
such product, except with respect to AERT’s indemnification obligations, if any, under
section 9.f as to claims of third parties.

	10.	 	Patents and Patent Indemnity.

	 	A.	 	AERT presently holds 16 U.S. and Canadian Patents on recycling plastic and decking
materials including: U.S. Patent 5759680
	 
	 	B.	 	AERT will use commercially reasonable efforts to obtain additional U.S. and
Canadian Patents on decking materials.
	 
	 	C.	 	AERT represents and warrants that, to the best of its knowledge, its products
and processes do not infringe any intellectual property rights (including, but not
limited to, patent rights, trademark rights and copyrights) of any third party which
are effective in the Lowe’s Territory. AERT will indemnify, defend and hold harmless
WBM from and against any claims that any such products or processes so infringe.
AERT’s obligations pursuant to this Section 10 shall not apply to the extent
that there would have been no infringement or misappropriation but for the use of the
ChoiceDek® Products or process relating thereto in combination with the equipment,
materials, processes or methods of WBM, or modifications to the ChoiceDek® Products or
related processes by or at the request of WBM. If AERT believes that the ChoiceDek®
Products may or are involved in any infringement claim or action, AERT shall, at its
own expense, use commercially reasonable efforts to: (1) procure for WBM the right to
continue using such product; or (2) modify the product to become non-infringing; or (3)
replace the product with equally suitable, compatible and functionally equivalent
non-infringing product at no additional charge to WBM. WBM shall have the right to
participate, at its own cost and expense, in the defense of any suit or proceeding
identified in Section 10 through counsel of its own choosing.

	11.	 	Code Evaluations and Approvals.

	 	C.	 	AERT is committed to secure necessary code and relevant industry usage evaluations
or approvals (as example: National Evaluation Reports or other evaluations that meet
the requirements of model building codes and the International Building Code) so that
ChoiceDek® Products manufactured by AERT may be competitively marketed.
	 
	 	D.	 	AERT will utilize internal and commercially reasonably available external
resources to provide product and technical data required for various testing and
evaluation processes.
	 
	 	E.	 	WBM will make the services of its Weyerhaeuser Technology Center and a
professional engineer [**] reasonably available to support AERT’s code evaluation
processes. AERT will reimburse WBM

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THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

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	 	 	 	for WBM’s reasonable cost (including loaded salary costs) of providing these services
to AERT on mutually agreed upon projects.
	 
	 	F.	 	AERT will also be using outside approved and certified testing laboratories for
the testing and evaluation processes.
	 
	 	G.	 	Application submittal and other costs associated with securing code evaluations
and/or approvals will be mutually agreed upon in good faith during the annual planning
and review session conducted by WBM and AERT representatives during the fourth quarter
of each Contract Year.

	12.	 	“Pass-Through” Obligations.

	 	G.	 	As a result of programs that WBM enters into with customers, WBM may be expected to
meet specific shipping and/or delivery requirements and/or restrictions as a basis for
doing business with that customer. AERT, in its role as the manufacturer of the
ChoiceDek® Products, to the extent commercially reasonable, agrees to satisfy any
lawful requirements of these programs applicable to the manufacturer of such ChoiceDek®
Products; provided that the foregoing shall not apply to any ChoiceDek® Products which
are not decking products.
	 
	 	H.	 	All requirements of such agreements and expectations that WBM passes through to
AERT will be mutually agreed upon in good faith by WBM and AERT in writing.
	 
	 	I.	 	[**].

	13.	 	Notices.
	 
	 	 	Any notices required or permitted
to be given hereunder shall be in
writing and sent by to the party
receiving notice by (i) US registered
mail, return receipt requested, postage
prepaid, (ii) reputable overnight
courier service (such as FedEx or
Airborne) for next business day a.m.
delivery, all fees prepaid, or (iii) by
fax transmission with telephone
verification of receipt, as follows:
	 
	 	 	To WBM:      [**]
	 
	 	 	To AERT:      [**]
	 
	 	 	Notices given by US registered mail shall be deemed given three (3) business days after
mailing. Notices given by overnight courier shall be deemed given on the first business day
after delivery to the courier in time for next business day a.m. delivery. Notices given by
fax shall be deemed given the first business day after the sender obtains telephone
verification of receipt.
	 
	14.	 	Governing Law.
	 
	 	 	This Agreement shall be governed by and construed under the laws of the State of
Washington, without giving effect to its conflicts of laws and rules.
	 
	15.	 	Collateral Assignment.
	 
	16.	 	WBM acknowledges that AERT is obligated to assign its rights to payments hereunder to a
lender, bank or trustee, including, without limitation an assignment to Regions Bank (the
“Trustee”), as trustee under an Indenture of Trust, dated as of October 1, 1999, as amended
(the “Indenture”) between the City of Springdale, Arkansas, the First National Bank of
Springdale, as trustee, which trustee has been succeeded to in interest by the Trustee, and
WBM acknowledges and consents to such collateral assignment. Following notice to WBM of any
such assignment, this Agreement may not be amended or modified without the express written
consent of the

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

9

 

	 	 	Trustee or any successor trustee. In addition, WBM consents to references to this Agreement
in any official statement, limited offering memorandum, reoffering memorandum or similar
document prepared in connection with the remarketing or sale of the City of Springdale,
Arkansas, Industrial Development Revenue Bonds (Advanced Environmental Recycling
Technologies, Inc. Project) Series 1999A, issued and secured pursuant to the Indenture.
	 
	17.	 	Execution of Counterparts.
	 
	 	 	This Agreement may be executed in counterparts, each of which will be considered an
original agreement, but all of which shall constitute one and the same instrument.
	 
	18.	 	Miscellaneous.

	 	A.	 	This Agreement does not make either party the employee, agent or legal
representative of the other for any purpose whatsoever. Neither party, nor any of its
directors, officers, partners, shareholders, associates, employees, agents or
affiliates is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the other party. In
fulfilling its obligations pursuant to this Agreement, each party, shall be acting as
an independent contractor.
	 
	 	B.	 	Neither party shall have the right to assign or otherwise transfer its rights
or obligations under this Agreement except with the prior written consent of the other
party. Any prohibited assignment shall be null and void. Except as expressly set
forth in this Agreement, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
	 
	 	C.	 	This Agreement, including the exhibits attached hereto and incorporated as an
integral part of this Agreement, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all previous agreements by and
between AERT and WBM, other than the Reload Agreement, as well as all proposals, oral
or written, and all negotiations, conversations or discussions heretofore had between
the parties related to this Agreement. All of the terms, provisions and conditions of
the Reload Agreement are hereby ratified and confirmed and shall remain unchanged and
in full force and effect. The 2001 Agreement shall terminate effective on the
12th day of October, 2004.
	 
	 	D.	 	This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by written amendment signed
by the parties hereto.
	 
	 	E.	 	This Agreement is confidential and no party shall issue press releases or
engage in other types of publicity of any nature, dealing with the commercial and legal
details of this Agreement without the other party’s prior written approval. In such
event, the publishing party shall furnish a copy of such disclosure to the other party.
	 
	 	F.	 	In the event that any of the terms of this Agreement are in conflict with any
rule of law or statutory provision or are otherwise unenforceable under the laws or
regulations of any government or subdivision thereof, such terms shall be deemed
stricken from this Agreement, but such invalidity or unenforceability shall not
invalidate any of the other terms of this Agreement and this Agreement shall continue
in force, unless the invalidity or unenforceability of any such provisions hereof does
substantial violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this Agreement.
	 
	 	G.	 	Any of the terms, covenants or provisions of this Agreement may be waived only
by a written instrument signed by the party to this Agreement entitled to the benefit
thereof waiving compliance. No waiver by such party of any term, covenant or provision
contained in this Agreement, in any one

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

10

 

	 	 	 	or more instances, shall be construed as a further or continuing waiver of any such
term, condition or provision or a waiver of any other term, covenant or provision set
forth in this Agreement.

	 	 	 	 	 	 	 	 	 
	WEYERHAEUSER COMPANY	 	 	 	ADVANCED ENVIRONMENTAL RECYCLING
	 	 	 	 	 	 	TECHNOLOGIES, INC.
	 
	 	 	 	 	 	 	 	 
	By

	 	/s/ David T. Still
	 	 	 	By
	 	/s/ Joe G. Brooks
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Print
Name  David T. Still

	 	 	 	Print Name  Joe G. Books
	 
	 	 	 	 	 	 	 	 
	Title

	 	V.P. Building Materials
	 	 	 	Title
	 	Chairman

	 	 	 	 	 
	CONSENT GIVEN:	 	 
	 
	 	 	 	 
	REGIONS BANK as Trustee	 	 
	 
	 	 	 	 
	By

	 	/s/ Bill Barber	 	 
	 	 	 	 	 
	 
	 	 	 	 
	Print Name Bill Barber	 	 
	 
	 	 	 	 
	Title Vice President	 	 

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH

THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

11EXHIBIT 10.1

                          PROLIANCE INTERNATIONAL, INC.
                       NONQUALIFIED STOCK OPTION AGREEMENT
                         (DIRECTOR'S REPLACEMENT OPTION)

     This Agreement (this "Agreement") is made as of July 22, 2005 (the "Date of
Grant"), by and between Proliance International, Inc., a Delaware corporation
(the "Company"), and [Optionee] (the "Optionee") who (1) is a member of the
Company's Board of Directors and (2) is not an employee of the Company or its
subsidiaries.

1.   Grant of Stock Option. Subject to and upon the terms, conditions, and
     restrictions set forth in this Agreement and in the Proliance
     International, Inc. Equity Incentive Plan (the "Plan"), the Company hereby
     grants to the Optionee as of the Date of Grant a stock option (the
     "Option") to purchase [      ] Common Shares (the "Optioned Shares"). The
     Option may be exercised from time to time in accordance with the terms of
     this Agreement. The price at which the Optioned Shares may be purchased
     pursuant to the Option will be $[ the exercise price of the option under
     the 1995 Nonemployee Directors Stock Option Plan that this Option is
     replacing], subject to adjustment as hereinafter provided (the "Option
     Price"). The Option is intended to be a nonqualified stock option and will
     not be treated as an "incentive stock option" within the meaning of that
     term under Section 422 of the Internal Revenue Code, or any successor
     provision thereto.

2.   Term of Option. Subject to earlier termination provided in Section 6
     hereof, this Option will expire on the later to occur of the third
     anniversary of the Date of Grant and the date that the option under the
     1995 Nonemployee Directors Stock Option Plan that this Option is replacing
     would expire (i.e.,      ) (the "Expiration Date").

3.   Right to Exercise.

     a)   Subject to Section 6 hereof, the Option will be immediately
          exercisable in full from time to time prior to the expiration date
          hereof.

     b)   To the extent the Option is exercisable, it may be exercised in whole
          or in part. The Optionee will be entitled to the privileges of
          ownership with respect to Optioned Shares purchased and delivered to
          the Optionee upon the exercise of all or part of the Option. If the
          Optionee subsequently becomes an employee of the Company while
          remaining a member of the Company's Board of Directors, the Option
          will not be affected thereby.

4.   Option Nontransferable. The Option granted hereby will be neither
     transferable nor assignable by the Optionee other than by will or by the
     laws of descent and distribution and may be exercised, during the lifetime
     of the Optionee, only by the Optionee, or in the event of his or her legal
     incapacity, by his or her guardian or legal representative acting on behalf
     of the Optionee in a fiduciary capacity under state or foreign law and
     court supervision. In the event the Option is exercisable after the
     Optionee's death as permitted by this Agreement, this Option may be
     exercised by the Optionee's executor or administrator or by the distributee
     or legatee to whom this Option was transferred by will or the laws of
     descent and distribution.

                                       27

5.   Notice of Exercise; Payment.

     a)   To the extent then exercisable, the Option may be exercised by written
          notice to the Secretary of the Company stating the number of Optioned
          Shares for which the Option is being exercised and the intended manner
          of payment.

     b)   Payment equal to the aggregate Option Price of the Optioned Shares for
          which the Option is being exercised will be tendered in full with the
          notice of exercise in cash in the form of currency or check or other
          cash equivalent acceptable to the Company. The Optionee may also
          tender the Option Price by (i) the actual or constructive transfer to
          the Company of nonforfeitable, nonrestricted whole shares of the
          Company's common stock ("Common Shares") that have been owned by the
          Optionee for more than six months prior to the date of exercise or
          (ii) any combination of the foregoing methods of payment, including a
          partial tender in cash and a partial tender in nonforfeitable,
          nonrestricted Common Shares. Nonforfeitable, nonrestricted Common
          Shares that are transferred by the Optionee in payment of all or any
          part of the Option Price will be valued on the basis of the last sales
          price of the Common Shares on the principal national securities
          exchange on which the Common Shares are traded or quoted (the "Market
          Value Per Share") on the date the notice of exercise is received by
          the Company (or if no sale of Common Shares was made on that date, on
          the next preceding date on which there was a sale). Fractional Common
          Shares may not be issued by the Company and any such fractional Common
          Share will be eliminated.

     c)   If permitted by applicable law, the requirement of payment in cash
          will be deemed satisfied if the Optionee makes arrangements that are
          satisfactory to the Company with a broker to sell on the exercise date
          a sufficient number of Optioned Shares that are being purchased
          pursuant to the exercise, so that the net proceeds of the sale
          transaction are at least equal to the amount of the aggregate Option
          Price plus payment of any applicable withholding taxes, and pursuant
          to which the broker undertakes to deliver to the Company the amount of
          the aggregate Option Price plus payment of any applicable withholding
          taxes on a date satisfactory to the Company, but not later than the
          date on which the sale transaction will settle in the ordinary course
          of business.

     d)   As a further condition precedent to the exercise of the Option, the
          Optionee will comply with all regulations and requirements of any
          regulatory authority having control of, or supervision over, the
          issuance of Common Shares and in connection therewith will execute any
          documents that the Compensation Committee in its sole discretion deems
          necessary or advisable. The date of the Optionee's written notice will
          be the exercise date.

6.   Termination of Agreement.

     a)   Subject to Section 6(b) and Section 6(c), this Agreement and the
          Option granted hereby will terminate automatically and without further
          notice on the earliest of the following dates:

          i.   three years after the Optionee's cessation of service as a member
               of the Company's Board of Directors for any reason; or

          ii.  the Expiration Date.

                                       28

     b)   Notwithstanding anything to the contrary herein, if upon the
          Optionee's cessation of service as a member of the Company's Board of
          Directors the Optionee becomes an employee of, or senior management
          consultant to, the Company and/or its subsidiaries, this Agreement and
          the Option will not terminate pursuant to Section 6(a)(i) until (i) if
          the Optionee permanently ceases to render employment or consulting
          services to the Company and/or its subsidiaries for any reason other
          than cessation by reason of death, the third anniversary of the date
          of such cessation of services and (ii) if the Optionee ceases to
          render employment or consulting services on account of his or her
          death, the third anniversary of the date of the cessation of the
          Optionee's services; provided, however, that in no event may this
          Option be exercised beyond, and the Option will terminate upon, the
          Expiration Date.

     c)   If the Optionee dies prior to the date provided in Section 6(a), or if
          cessation of service is due to the Optionee's death, this Option may
          be exercised at any time within such period by the Optionee's executor
          or administrator or by his or her distributee to whom this Option may
          have been transferred by will or by the laws of descent and
          distribution.

7.   No Right to Continue. None of the Plan, the granting of the Option or any
     other action taken pursuant to the Plan will constitute or be evidence of
     any grant or understanding, express or implied, that the Optionee has a
     right to continue as a director for any period of time or at any particular
     rate of compensation.

8.   Taxes and Withholding. To the extent that the Company or any of its
     subsidiaries is required to withhold federal, state, local or foreign taxes
     in connection with the exercise of the Option, and the amounts available to
     the Company or such subsidiary for such withholding are insufficient, it
     will be a condition to the exercise of the Option that the Optionee makes
     arrangements that are satisfactory to the Company or such subsidiary for
     the payment thereof. The Optionee may elect to satisfy all or any part of
     any such withholding obligation by (a) surrendering to the Company a
     portion of the Optioned Shares that are issued or transferred to the
     Optionee upon the exercise of the Option, and the Optioned Shares so
     surrendered by the Optionee will be credited against any such withholding
     obligation at the Market Value per Share of such shares on the date of such
     surrender or (b) utilizing the broker assistance arrangement provided in
     Section 5.

9.   Compliance with Law. The Company will make reasonable efforts to comply
     with all applicable federal and state securities laws; provided, however,
     that notwithstanding any other provision of this Agreement, the Option will
     not be exercisable if the exercise thereof would result in a violation of
     any such law.

10.  Adjustments. The Compensation Committee may make or provide for such
     adjustments in the Option in light of any stock split, subdivision of
     shares or other change in the Company's capital structure as provided in
     the Plan. In the event of any such transaction or event, the Compensation
     Committee, in its discretion, may provide in substitution for the Option
     such alternative consideration as it may determine to be equitable and may
     require in connection therewith the surrender of the Option.

11.  Availability of Common Shares. The Company will at all times until the
     expiration of the Option reserve and keep available, either in its treasury
     or out of its authorized but unissued Common Shares, the full number of
     Optioned Shares deliverable upon the exercise of the Option.

12.  Amendments. Any amendment to the Plan will be deemed to be an amendment to
     this Agreement to the extent that the amendment is applicable hereto;
     provided, however, that no amendment will impair the rights of the Optionee
     under this Agreement without the Optionee's consent.

                                       29

13.  Severability. In the event that one or more of the provisions of this
     Agreement is invalidated for any reason by a court of competent
     jurisdiction, any provision so invalidated will be deemed to be separable
     from the other provisions hereof, and the remaining provisions hereof will
     continue to be valid and fully enforceable.

14.  Relation to Plan. This Agreement is subject to the terms and conditions of
     the Plan. In the event of any inconsistency between the provisions of this
     Agreement and the Plan, the Plan as interpreted and construed by the
     Compensation Committee will govern. Capitalized terms used herein without
     definition will have the meanings assigned to them in the Plan. The
     Compensation Committee acting pursuant to the Plan, as constituted from
     time to time, will, except as expressly provided otherwise herein, have the
     right to determine any questions which arise in connection with the Option
     or its exercise. Except as set forth in the Plan, all other terms of this
     Option will be governed by the terms of the 1995 Nonemployee Directors
     Stock Option Plan.

15.  Successors and Assigns. Without limiting Section 4 hereof, the provisions
     of this Agreement will inure to the benefit of, and be binding upon, the
     successors, administrators, heirs, legal representatives and assigns of the
     Optionee, and the successors and assigns of the Company.

16.  Governing Law. The interpretation, performance and enforcement of this
     Agreement will be governed by the laws of the State of Delaware, without
     giving effect to the principles of conflict of laws thereof. Each party to
     this Agreement hereby consents and submits himself, herself or itself to
     the jurisdiction of the courts of the State of Delaware for the purposes of
     any legal action or proceeding arising out of this Agreement.

17.  Notices. Any notice to the Company provided for herein will be in writing
     to the Company and any notice to the Optionee will be addressed to the
     Optionee at his or her address on file with the Company. Except as
     otherwise provided herein, any written notice will be deemed to be duly
     given if and when delivered personally or sent by registered mail or
     electronic means of communication, and addressed as aforesaid. Any party
     may change the address to which notices are to be given hereunder by notice
     to the other party as herein specified (provided that for this purpose any
     mailed notice will be deemed given on the third business day following
     deposit of the same in the mail).

                            [SIGNATURE PAGE FOLLOWS]

                                       30

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer and Optionee has also executed this
Agreement in duplicate, as of the day and year first above written.

                                         PROLIANCE INTERNATIONAL, INC.

                                         By:
                                             -------------------------
                                             Name:
                                             Title:

The undersigned Optionee hereby acknowledges receipt of an executed original of
this Stock Option Agreement and accepts the Option granted hereunder, subject to
the terms and conditions of the Plan and the terms and conditions set forth
herein.

                                         ------------------------------

                                       31

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