Exhibit
10.5
Form
of Engine Distribution Agreement
ENGINE DISTRIBUTION AGREEMENT
This
Engine Distribution Agreement (the “Agreement”) is
made as of _______________, by and between Hydrogen Engine
Center Inc., an Iowa corporation (“HEC”), which
has an office at 602 East Fair Street, Algona, Iowa 50511, and
_____________________________________ a ___________________
(“Distributor”), which has an office at
___________________________. HEC and the Distributor are
referred to in this Agreement from time to time individually
as a “Party” and together as the
“Parties.”
Background:
A.
HEC
is in the business of designing, developing, manufacturing,
distributing and selling internal combustion engines fueled by
either gaseous or liquid fuels.
B.
HEC
wishes to appoint the Distributor as one of its distributors
of the Engines, and the Distributor wishes to be HEC’s
distributor of the Engines (as defined in Section
1.1).
C.
HEC
wishes to have the Distributor market, distribute, and sell
the Engines using the Licensed Trademarks.
D.
HEC
is the owner of the Licensed Trademarks and has agreed to
license the use of the Licensed Trademarks to the Distributor
in accordance with the terms and conditions of this
Agreement.
E.
Capitalized
terms used in this Agreement and not defined in the body of
this Agreement are defined in Exhibit A to this
Agreement.
NOW,
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Article I
Appointment
1.1
Appointment. Effective
as of ____________________ (the “Effective Date”), HEC
appoints the Distributor as a distributor of HEC’s Oxx
Power
TM brand
internal combustion engines fueled by either gaseous or liquid
fuels (the “Engines”). This appointment is valid only
for the assigned territory or market segment defined on Exhibit D
(the “Territory”) and the Distributor hereby accepts
such appointment. The Distributor acknowledges that it may sell,
deliver or otherwise distribute Engines only in the Territory,
except as provided for in Section 2.5.
Article II
Obligations of the Distributor
2.1
Organization of the Distributor.
(a)
The
Distributor will use its best efforts to solicit sales of the
Engines, to service customers for the Engines, and to promote
the goodwill, Trademarks and interest of HEC.
(b)
The
Distributor will establish and maintain a level of
representation for the Engines reasonably satisfactory to HEC,
by:
(i)
employing
such reasonable numbers of individuals who have been
adequately trained in the marketing and sales of the Engines
as well as adequate numbers of service technicians who have
successfully completed HEC training in the installation,
startup, repair, field service and maintenance of the
Engines;
(ii)
maintaining
such premises, facilities and equipment for sales, stocking
and servicing of the Engines as are, in HEC’s reasonable
opinion, adequate for the Distributor’s sales targets,
sales plans and marketing strategies as set forth in Section
2.4. The Distributor will ensure that full service support is
provided to the customers purchasing Engines from it,
regardless of the location of the customer. This full service
support will include Engine start-up at the customer
location(s), warranty registration, warranty repairs, and
normal repairs and maintenance, including field service. This
full service support will be provided by the Distributor
directly, by its Dealers (as defined in Section 2.13) (if
any), or through another HEC distributor, subject to the prior
approval of both the customer and the other
distributor.
(c)
The
Distributor will establish and maintain adequate financial and
credit resources needed to perform its obligations under this
Agreement.
2.2
Promotion. The
Distributor will (a) promote in every reasonable manner and at its
expense, to the satisfaction of HEC, the sale of the Engines and
(b) immediately pass to HEC details of any complaints received from
customers or others relating to the Engine.
2.3
Competing Products. If
the Distributor markets or sells Competing Products, the
Distributor will demonstrate, to HEC’s satisfaction, its
ability and strategy to market both brands successfully and without
detrimental effect to the HEC brand(s). The Distributor will
provide HEC’s with fourteen days written notice in advance of
any agreement to market and/or distribute additional brands of
Competing Products. If the Distributor does not satisfy HEC’s
concerns regarding Competing Products, then HEC shall have the
right to terminate this Agreement.
2.4
Sales Targets. Each
year, HEC, after consulting with the Distributor, will set sales
targets for the Distributor and the Distributor will develop and
present marketing strategies and sales plans to achieve the sales
targets. The Distributor will comply with HEC’s policies
concerning sales and service policies, procedures and systems,
marketing programs, advertising and sales promotion, and such other
requirements as HEC may, from time to time, establish. HEC shall
provide reasonable notice to the Distributor of such policies and
any changes to such policies.
2.5
Sales Out Of Territory/Market. The
Distributor agrees to the following provisions for out-of-territory
sales, both for instances when the Distributor is making the sale
to a customer outside the Distributor’s Territory and for
instances where other HEC distributors are making sales to
customers within the Distributor’s Territory.
(a)
A
distributor will not, directly or indirectly, solicit orders
for the Engines, advertise the Engines, maintain any branch
for the marketing of the Engines, or keep any inventory of the
Engines, outside of the distributor’s Territory.
However, if a potential customer outside the Territory
contacts the distributor, then the distributor will notify HEC
and choose to either:
(i)
let
HEC refer that customer to the distributor assigned to the
customer’s Territory, if such a distributor
exists.
(ii)
make
the sale and manage the customer account and interaction
related to the sale. If this option is chosen, HEC will
provide the distributor responsible for the customer’s
Territory, if any, with an “out of territory” fee
equal to either 5% of list price and that distributor will
handle installation, startup and warranty/repair service of
the Engine. The distributor making the sale will reimburse HEC
for the “out of territory” fee.
(iii)
if
there is no distributor responsible for that Territory, make
the sale, manage the customer account and provide the customer
with full service support under the terms of this
Agreement.
(b)
In
situations where the customer or customer business unit has
multiple locations that involve two or more
distributor’s assigned Territories, then the customer
account and sales will be handled by the distributor
responsible for the Principal Location of the customer or
customer business unit (if that is the level making the
purchasing decisions). The “Principal Location” of
a customer is defined as having two or more of the following
functions (the requisitioning activity issuing the purchase
order, the engineering activity qualifying the Engine for use
by the customer, and using location where the Engine(s) will
be installed). In instances where affected distributors cannot
agree on the customer’s Principal Location, HEC will
decide.
Where
the multiple-location or multiple-market customers result in
one distributor making the sale and some of the Engines then
being shipped to and installed in other distributors’
Territories, the distributor making the sale will be
responsible for managing the customer account and for handling
the Engine installation and startup at the customer’s
using locations (including responsibility for sending the
completed warranty registration card to HEC) and may
subcontract the installation and startup tasks to the
distributor responsible for the customer’s using
location by negotiating mutually-acceptable terms. HEC will
provide the distributor responsible for the customer’s
using location with an “out of territory” fee
equal to 2% of list price for the Engines involved and that
distributor will be responsible for the Engine’s ongoing
product warranty service, routine service and
maintenance.
2.6
The Distributor to Act as Principal. The
Distributor will:
(a)
in
all correspondence and other dealings relating directly or
indirectly to the sale or disposition of the Engines indicate
that it is acting as principal and not as an agent of HEC,
and
(b)
not
incur any liability on behalf of HEC or in any way pledge or
purport to pledge HEC’s credit or accept any order or
make any contract binding upon HEC or give or make or purport
to give or make any warranty or representation on behalf of
HEC.
2.7
Inspections and Reports.
(a)
The
Distributor will provide HEC with such statements, forms,
reports, estimates and other information regarding its
financial condition, inventory, sales, future requirements,
and other matters as HEC may reasonably request from time to
time. Such reports will include, but not necessarily be
limited to, the Distributor’s quarterly financial
statements, annual audited financial statements, warranty
registrations for new product installations, warranty repair
reporting and tracking, and marketing and sales plans and
results.
(b)
The
Distributor will permit and enable HEC’s authorized
representatives to have access to the premises of the
Distributor for the purpose of inspecting the equipment and
facilities and the work carried out there in connection with
the sale and servicing of Engines and inspecting and checking
inventory of the Engines and the inventory records applicable
thereto.
(c)
The
Distributor will report immediately to HEC in writing of any
actual or anticipated Change of Control.
2.8
Applications Engineering. The
Distributor will have a number of qualified engineers (or other
qualified technicians acceptable to HEC) on staff or otherwise
available on short notice to provide applications engineering
services for customers, including customizing the Engine by adding
accessories without modifying the content, configuration or
performance of the Engine as it is provided by HEC.
2.9
Standards of Performance. The
Distributor will
(a)
maintain
standards of performance for the Engines and the provision of
ancillary services related to the sales and service of the
Engines (including warehousing and stocking capabilities,
technical support, delivery, customer training and
information, warranty, and repair services) as are reasonably
acceptable to HEC; and
(b)
comply
with all procedures and policies set by HEC regarding
standards
of
performance.
2.l0
Sales and Service Performance.
(a)
If
the Distributor is not, as determined in good faith by HEC, at
any time providing sales or service coverage for the Engines
(including at its own facility(ies) or at customer locations)
in a responsive and highly professional manner (including with
respect to regular maintenance and repairs, warranty service,
factory-authorized startup procedures, maintaining service
parts inventories, liaison with HEC’s suppliers, and, if
applicable, oversight of sub-distributors, agents or dealers),
then HEC will have the right
notwithstanding
anything to the contrary in this Agreement and without
prejudice to any other of its rights under this Agreement, to
serve notice on the Distributor requiring the Distributor at
its sole expense to remedy the defects or omissions in the
sales or service coverage, as applicable, specified in the
notice within sixty (60) days of the date of the
notice.
(b)
If
the Distributor fails to remedy all or any of the specified
defects or omissions within the sixty (60) day period, then
HEC will have the option, in its sole discretion, to (i)
terminate this Agreement, or (ii) exclude from this Agreement
such one or more of the Engines and/or geographic regions
and/or market segments in respect of which the specified
defects or omissions have not been remedied by the Distributor
within such sixty day period. HEC will also have the option,
in its sole discretion; to extend such sixty (60) day period
if the Distributor has defined a corrective action plan which
is satisfactory to HEC and is making satisfactory progress in
implementing that plan.
2.11
Indemnification. The
Distributor will indemnify and save harmless HEC from and against
any and all actions, suits, investigations, proceedings or claims
of every kind and any and all expenses, losses, damages or
liabilities (collectively, the “Liabilities”) as and
when incurred, insofar as such claims or Liabilities arise out of
or are based, directly or indirectly, upon: (i)
any action or inaction of the Distributor, its permitted assigns,
and their respective directors, officers, employees, and agents,
with respect to the Engines or their use; (ii) claims, excluding
claims arising from the breach by HEC of the provisions of this
Agreement, by third parties arising out of or relating to the
Distributor’s use of the Engines or the operation of its
business; (iii) representations or statements that HEC did not
authorize explicitly; or (iv) any
breach by the Distributor of the provisions of this
Agreement.
2.12
Insurance.
(a)
The
Distributor shall maintain in force at all times during the
term of this Agreement commercial general liability insurance,
including coverage for bodily injury, property damage,
personal injury or death, with a minimum combined single limit
for bodily injury and property damage of at least $2,000,000
per occurrence and in the aggregate; commercial automobile
liability for all owned, non-owned and hired automobiles with
bodily injury and property damage limits of at least
$2,000,000. Such policies shall provide coverage for the
negligent or other wrongful acts of the Distributor as well as
any agents or resellers associated with
Distributor.
(b)
The
Distributor shall provide to HEC a certificate of insurance
reasonably acceptable to HEC showing (i) the amount of
coverage, policy number and date of expiration of the policy,
(ii) that the policy names “Hydrogen Engine Center,
Inc., its subsidiaries and assigns, agents, officers, and
directors” as “additional insureds” for the
coverage and as a “loss payee”
[as their interests may appear] ,
and (iii) that thirty days prior written notice must be given to
HEC before any modification, lapse or cancellation of the policy.
Except in instances in which (i) Liability arises out of defects in
Engines that exist at the time of the shipment by HEC and (ii) the
Distributor was unaware of such defects prior to the occurrence
giving rise to such Liabilities, the Distributor, on behalf of
itself and its insurers, hereby waives any right of subrogation
against HEC for Liabilities imposed on the Distributor or its
insurers. Distributor’s insurance policy shall contain a
corresponding waiver of subrogation.
2.13
Compliance With Laws: USA Export Controls
(a)
Distributor shall comply with all applicable laws, including
but not limited to export control laws, anti boycott laws and
the Foreign Corrupt Practices Act, which prohibits certain
payments to third parties, in connection with its marketing,
distribution, and sale of the Engines, including obtaining (at
it's own expense) any and all governmental approvals and
authorizations that may be required. Further, Distributor
shall, at is own expense, take any measure required within the
Territory to declare, record, file, notify, authenticate, or
otherwise render valid this Agreement.
(b)
Without limiting the foregoing, Distributor agrees not to
export, re-export, or permit the re-exportation of the Engines
to any country now or hereafter included in the US Department
of Commerce's list of countries to which exportation of the
Engines is or may be restricted or prohibited, unless that
exportation or re-exportation is specifically authorized by a
special license issued by the U.S. Office of Export
Administration. This provision shall not be interpreted to
expand the definition of "Territory" set forth in Section 1.1
of this Agreement in any way.
2.14
Miscellaneous Covenants.
(a)
The
Distributor will not alter, secure, remove, conceal or
otherwise interfere with any markings or nameplates or other
indication of the source of origin of the
Engines.
(b)
HEC
recognizes that the Distributor may use agents, dealers or
sub-distributors (together, the “Dealers”) to
assist it with its sales of the Distributor’s products
containing Engines. However, unless HEC consents in writing to
such arrangements and unless any such Dealer signs such
acknowledgments or agreements as HEC requires, the HEC
obligations, warranties, trademark licenses and other
responsibilities contained in this Agreement shall remain
solely with the Distributor and the Dealer shall have no
rights with respect to HEC.
If
HEC consents to such arrangements and the Dealer signs such
acknowledgments or agreements as HEC requires, the Distributor
will not be released from any of its obligations under this
Agreement. The Distributor shall be responsible for monitoring
and ensuring that the Dealers comply with all of the terms and
conditions of this Agreement which apply to the
Distributor.
Article III
Obligations of HEC
3.1
HEC’s Assistance. HEC
will assist the Distributor in the marketing of the Engines
by:
(a)
ensuring
that sales brochures, catalogues, service manuals, and other
literature relative to the Engines are made available at
reasonable cost to the Distributor according to the types and
quantities of the Engines purchased by the Distributor from
HEC;
(b)
providing
a recommended stocking level and mix of Engines for the
Distributor’s initial stocking (“Recommended
Initial Stocking Package”), as well as the recommended
stocking level for new Engines or Engine products subsequently
introduced by HEC (“Recommended New Product Stocking
Package”), which recommendations the Distributor will be
free to accept or reject;
(c)
acquainting
the Distributor with such new methods of selling and new
applications for the Engines as may be recommended by
HEC;
(d)
providing
factory training for service technicians at no cost for the
first six months after the Effective Date; and
(e)
making
available, at a reasonable cost to the Distributor, factory
training for the Distributor’s staff in the marketing
and servicing of Engines in accordance with the programs and
subject to the conditions established from time to time by
HEC.
3.2
Warranty.
(a)
HEC
warrants that, subject to the limitations in Section 3.3
below, at the time of delivery by HEC to the Distributor, the
Engines will be in conformance with HEC’s specifications
and will be substantially free of defects resulting from
defective materials or workmanship (the
“Warranty”). The Warranty will be effective for
the period (the “Warranty Period”) as defined on
Exhibit B and will be subject to the other provisions set
forth in Exhibit B, which exhibit may be revised by HEC from
time to time with advanced written notice to the Distributor.
Subject to Section 3.3, if the Distributor or its customer
discovers any such defect within the Warranty Period, then HEC
shall reimburse the Distributor for the cost of repairs in
accordance with Exhibit B.
(b)
The
Warranty shall only apply if the Engine is operated and
maintained in accordance with HEC specifications, operating
instructions, and maintenance schedule. In addition, it will
only apply if all maintenance and repairs are performed by
qualified service technicians using HEC authorized parts and
materials.
3.3
Warranty Exclusion and Limitations
(a)
THE
WARRANTY IS THE SOLE WARRANTY MADE BY HEC WITH RESPECT TO THE
ENGINES, IS EXCLUSIVE, AND IS GIVEN AND ACCEPTED IN LIEU OF
(I) ANY AND ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND (II) ANY OBLIGATION,
LIABILITY, RIGHT, CLAIM OR REMEDY IN CONTRACT OR TORT, WHETHER
OR NOT ARISING FROM THE NEGLIGENCE, ACTUAL OR IMPUTED OF
HEC.
(b)
The
Warranty shall not apply to any Engines if an Engine or any
part of a
Engine:
(i)
is
damaged by misuse, accident, negligence or failure to maintain
the Engines as specified by HEC;
(ii)
has
been altered, modified or in any way changed after delivery of
the Engine by HEC, unless such alteration, modification, or
change has been authorized in writing by HEC;
(iii)
is
installed, modified, operated or disassembled contrary to the
procedures specified by HEC; or
iv)
is
used in combination with items, articles or materials not
authorized by HEC.
(c)
In
addition, the Warranty is subject to the following
limitations:
(i)
HEC’s
responsibility, and the Distributor’s exclusive remedy,
under the Warranty is limited to the repair or replacement of
defects in materials and workmanship as set forth
below.
(ii)
THE
WARRANTY IS THE ONLY WARRANTY APPLICABLE TO THE ENGINES. THE
WARRANTY EXCLUDES ALL OTHER EXPRESS ORAL OR WRITTEN WARRANTIES
AND ALL WARRANTIES IMPLIED BY LAW WITH RESPECT TO THE ENGINES,
INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
(iii)
The
Warranty is for the benefit of, and shall be enforceable by or
on behalf of, the Distributor only, and not by any other
person or entity.
(iv)
Every
claim under the Warranty for a particular Engine shall be
deemed waived by the Distributor unless such claim is made in
writing to HEC within sixty days after the expiration of the
Warranty Period.
(d)
HEC
is not responsible for any indirect, incidental or
consequential damages resulting from the breach of this or any
other express or implied warranty with respect to the
Engines
3.4
Indemnification. Within
the limitations of the Warranty, HEC will indemnify and save
harmless the Distributor from and against any and all actions,
suits, investigations, proceedings or claims of every kind and any
and all Liabilities as and when incurred, insofar as such claims or
Liabilities arise out of or are based, directly or indirectly, upon
any breach by HEC of the provisions of this Agreement or caused by
defects in the HEC products as supplied by HEC to the Distributor;
provided, however, that under no circumstances shall HEC have any
indemnification obligations to the Distributor if any Engine is
altered, modified, or improved in any way after delivery by
HEC.
3.5
Modification of Warranty. No
agreement varying or extending the Warranty or the remedies set
forth in this article will be binding upon HEC unless in writing
and signed by a duly authorized officer of HEC.
Article IV
Terms and Conditions of Ordering and Purchase
4.1
Notice of Requirements. The
Distributor will give to HEC at least [90] [please confirm]days
notice of its requirements for Engines in every month of this
Agreement.
4.2
Orders. All
orders for Engines required by the Distributor must be dispatched
by the Distributor to HEC in writing or by electronic data
transmission.
4.3
Acceptance/Rejection of Orders. Each
order may be accepted or rejected by HEC. No order placed will be
deemed accepted until a formal acceptance has been dispatched to
the Distributor by HEC in writing or by electronic data
transmission. HEC is under no obligation to accept all or any
orders tendered by the Distributor.
4.4
Conditions of Sale. Each
order placed by the Distributor for the purchase of a Engine and
accepted by HEC will (whether or not expressly stated in the order
or acceptance) be deemed to have been so accepted upon and subject
to the terms and conditions of this Agreement, including
HEC’s standard terms and conditions of sale (including
warranty) current at the time of accepta
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