Manufacturing And Supply Agreement

EXHIBIT 10.13


CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN PORTIONS ** indicates that confidential information has been omitted and filed separately
with the SEC in an application for confidential treatment.


MANUFACTURING AND SUPPLY AGREEMENT


THIS MANUFACTURING AND SUPPLY AGREEMENT (this "Agreement") is made and entered into on the 20th day of December 2004, by and between:


PRECISION ENGINE PRODUCTS CORP., a corporation organized and existing under the laws of the State of Delaware, U.S.A. and having its principal office at 2919 Commonwealth Boulevard, Tallahassee, FL 32303 U.S.A. (hereinafter referred to as "PEPC")


And


EQUATORIAL ENTERPRISES LIMITED, a Public Limited company organized and existing under the laws of the India and having its registered office at Equatorial Forum, 14 Mumbai-Pune Road, Wakdewadi, Pune 411 003, INDIA (hereinafter referred to as "Equatorial").


BACKGROUND


1. PEPC wishes to have the Products (as defined in Section 2.4)
manufactured for it.


2. Equatorial is a precision manufacturer and wishes to make the Products
for ultimate sale to PEPC.


3. Equatorial believes that is has, and PEPC has concluded that Equatorial
has the necessary technical and managerial capability to perform as
required by this Agreement.


AGREEMENTS


The parties agree as follows:


1. GENERAL


As per the terms and conditions of this Agreement, Equatorial will
manufacture the Products for sale to PEPC and PEPC will buy the
Products from Equatorial.


2. PRE-PRODUCTION OBLIGATIONS


The parties will generally cooperate to advance the purpose of this
Agreement, which is the manufacture and supply of the Products.


2.1 Technical Information Sharing


a. While Equatorial has, on its own, developed the
general technical know-how, skill, expertise and
capability required to manufacture the Products, the
exact dimensions and mechanical properties required
by PEPC for the Products will be provided to
Equatorial by PEPC in the form of drawings and other
relevant technical information to enable Equatorial
to make the Products to PEPC's specific requirements
and specifications. PEPC may also provide to
Equatorial specifications, designs, drawings and
other information related to the purchase,
manufacture, modification and/or installation of
tooling and equipment.


b. All such information provided by PEPC shall be
considered Proprietary Information for purposes of
Section 4 and shall remain the property of PEPC and
may be used by Equatorial solely to make and sell
Products to PEPC, and not for any other purpose.
Without limiting the generality of the foregoing,
Equatorial shall not use such information provided by
PEPC, directly or


indirectly, for the purpose of developing, designing,
making, processing, testing or supplying any product
to any party other than PEPC.


c. It is, however, expressly agreed that the technical
know-how, skill, expertise and capability developed
by Equatorial without use of information provided by
PEPC or other PEPC Proprietary Information or
proprietary rights will remain Equatorial's property
and Equatorial is free to use the same as they deem
fit, subject to the express provisions of this
Agreement.


2.2 Tooling Orders


PEPC will issue tooling and equipment Purchase Orders to
Equatorial pursuant to which certain tooling and equipment
necessary for the manufacture of the Products will be
purchased/made by Equatorial and paid for, in whole or in
part, by PEPC. Such tooling and equipment ("Contract Tooling
and Equipment") will be owned by PEPC. Equatorial will
maintain a complete and accurate inventory of all Contract
Tooling and Equipment. All Contract Tooling and Equipment
shall be marked "Owned by Stanadyne- PEPC" and shall be used
by Equatorial solely to manufacture Products exclusively for
PEPC, and may not be used to make product for any other person
or entity or for any other purpose. Equatorial shall not copy
or reproduce the Contract Tooling and Equipment unless
authorized by PEPC in writing. PEPC's ownership of Contract
Tooling and Equipment shall be perpetual and in no event shall
title or other rights to the same revert to Equatorial. Upon
any expiration or termination of this Agreement, all Contract
Tooling and Equipment shall immediately be returned to PEPC,
and for such purposes Equatorial shall make the Contract
Tooling and Equipment available to PEPC for shipment from
Equatorial's plant, and shall give PEPC and its agents access
to Equatorial's facility for purposes of disassembling and
packing the same. At PEPC's request, Equatorial shall give
such notices and make (or cooperate with PEPC in making) such
recording, filings or registrations as may be appropriate to
protect PEPC's interests in the Contract Tooling and
Equipment. Equatorial will maintain the Contract Tooling and
Equipment in good order and replace worn-out Contract Tooling
and Equipment at their expense. All replacement and substitute
equipment and tooling and all repair parts and components and
normal accessions, even though paid for by Equatorial, shall
be deemed part of Contract Tooling and Equipment and shall be
owned by PEPC and otherwise subject to the terms of this
Section. PEPC and Equatorial agree that the amount to be paid
by PEPC for the Contract Tooling and Equipment is ** (U.S.
Dollars) which will be paid in three installments as follows:
** immediately after signing this Agreement; ** after
successful shipment of ** units of Product pursuant to a
purchase order already submitted to Equatorial; and the
balance of ** the items on the Product list referred to in
SCHEDULE 2.3 that are designated as the top ten priority items
have been produced and qualified. Amounts paid by PEPC to
Equatorial for Contract Tooling and Equipment are
non-refundable.


2.3 Product Qualification.


Based on its prior review and discussions with Equatorial,
PEPC has concluded that Equatorial has developed the technical
know-how, skill, expertise and capability to manufacture the
Products in accordance with the requirements of this
Agreement. However, prior to commencement of commercial
production by Equatorial, PEPC and Equatorial will agree upon
the procedures and documentation to be followed by them to
qualify each item of Product for commercial production.
Equatorial will use diligent best efforts to achieve full
qualification and commercial production capacity with respect
to all Products by January 1, 2005.


2.4 Product Definition


The products covered by this Agreement will consist of the **
listed in SCHEDULE 2.3 to this Agreement (the "Products").


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2.5 Export Licensing


Prior to commercial production and supply of Products,
Equatorial shall obtain all export licenses and permits from
the applicable governmental authorities in India that are
necessary for the manufacture and export of the Products as
contemplated by this Agreement and shall otherwise comply with
all laws and regulations applicable to its activities under
this Agreement.


3. COMMERICAL PRODUCTION AND SUPPY


Once Equatorial and the Products have been qualified for commercial
production, the following shall apply:


3.1 Supply


PEPC will purchase the Products from Equatorial from time to
time pursuant to purchase orders to be submitted by PEPC to
Equatorial on PEPC's standard form. PEPC's standard terms and
conditions of purchase, a copy of which is attached to this
Agreement as SCHEDULE 3.1, shall apply to the purchase and
sale of Products under this Agreement, and any additional,
different or contrary terms and conditions set forth in any
purchase order, acknowledgment, invoice or other instrument or
document issued by Equatorial shall not apply unless agreed to
in writing by both parties. In the event of any inconsistency
between the terms of the main body of this Agreement and the
terms of SCHEDULE 3.1, the terms of the main body of this
Agreement shall prevail. Equatorial agrees to supply PEPC with
the Products in such quantities as are required by PEPC,
subject to mutually acceptable lead time requirements, agreed
minimum and maximum quantity limits and compliance by PEPC
with the requirements of Section 3.2(f).


3.2 Prices, Shipment, Invoicing, Payment Terms


a. The prices for the Products during the initial five
(5) year term of this Agreement shall be as set forth
in SCHEDULE 2.3. Product Prices are stated in and
shall be payable by PEPC in U.S. Dollars. In the
event that PEPC renews this Agreement for additional
one (1) year terms, PEPC and Equatorial will agree to
the prices of the Products for each renewal term. The
pricing calculation, which includes a "base price"
and "upcharge component" is set forth on SCHEDULE
2.3. The "base price" is fixed for the initial 5 year
term, and the "upcharge component" will be adjusted
from time to time by mutual determination of the
parties to reflect changes in raw material costs, all
as further illustrated on SCHEDULE 2.3.


b. All Products will be shipped by marine
transportation. All shipment shall be made C.I.F.
(Incoterms 2000) the seaport of Jacksonville, Florida
or such other destination port as may be agreed by
PEPC and Equatorial. By way of confirmation, the
parties intend by the use of C.I.F. terms that:
Equatorial will deliver the goods to the seaport of
Jacksonville, Florida. Further to the same, all
carriage/freight and insurance to the port of
destination shall be Equatorial's responsibility;
however, charges related to the clearing and
forwarding, customs and taxes if any, and inland
transportation from the destination seaport to PEPC's
warehouse will be borne by PEPC.


c. Equatorial is free to use any seaport from India to
transport the goods to PEPC. Equatorial will work
with the broker of PEPC's choice, who will coordinate
with Equatorial with respect to Product being loaded
on board at the India seaport and also will be PEPC's
broker in the U.S.A.


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d. If PEPC desires the Product to be shipped by an
alternate mode of transportation and/or to an
alternate destination, the additional cost of doing
so shall be borne by PEPC.


e. Product will be packaged according to mutually agreed
upon, sea-worthy packing specifications.


f. PEPC will establish an irrevocable standby letter of
credit for a value of ** (U.S. Dollars) in favor of
Equatorial by a first class international bank.
However, payments for each shipment will be made by
PEPC by wire transfer into a designated account of
Equatorial upon receipt by PEPC of a copy of the
related bill of lading (no bill of lading shall be
presented to PEPC until the Product has been loaded
on the vessel at its departure port). Upon receipt of
payment, Equatorial will forward by courier service
the original bill of lading and related documents to
PEPC for the clearance of the Product. In case
payment is not made by PEPC within 45 days of receipt
of a copy of the bill of lading, Equatorial shall
have right to claim payment against the standby
letter of credit and upon receipt of payment by the
letter of credit bank will forward original documents
to PEPC.


g. Title to all Product shall pass to PEPC when the
Product passes the ship's rail at the port of
departure from India.


3.3 Manufacturing Standards and Quality


Equatorial shall provide and maintain a quality system for the
Products as agreed between PEPC and Equatorial. Such a quality
system shall be finalized before commencement of commercial
production of Products and Product shall not be qualified
until the related quality system is finalized and agreed upon
between the parties.


3.4 Engineering Changes


Engineering changes in Product or process will not be
implemented without prior agreement between PEPC and
Equatorial. Where PEPC requires engineering changes, PEPC will
be responsible for the purchase of all scheduled production
completed or in process at the time of the change. Any price
changes necessitated due to such engineering changes will be
based solely on the cost differential of the design variance
from the original design version and will be agreed upon by
PEPC and Equatorial prior to incorporating such changes.


3.5 Scheduling and Inventory Programs.


a. PEPC will provide to Equatorial delivery schedules
for the Products, setting forth Product quantities
and shipment dates. Once each month, PEPC will
provide to Equatorial a monthly firm schedule
delivery release for the following 3 months, together
with monthly planning forecasts for months 4 through
6. PEPC's responsibility will be limited to the firm
schedule delivery releases for the upcoming 3 months.
Planning forecasts will create no commitment of PEPC
of any kind.


b. Equatorial will maintain the agreed capacity in place
to meet the forecasted demand for Products. For
purposes of determining lead times and establishing
and maintaining capacity, the parties will assume
that PEPC will maintain an inventory of Product
sufficient in PEPC's estimation for approximately 45
days of its requirements.


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c. Equatorial will cooperate with PEPC to attain PEPC
production, inventory, or scheduling objectives for
any PEPC developed "Just In Time" or other continuous
improvement program.


d. Equatorial will commit adequate resources to support
PEPC`s peak demand of ** units of Product per year.
It is understood and agreed that production purchase
order releases will reflect actual demand from PEPC`s
end customer(s) and generally will be only a
percentage of peak demand. Production releases will
reflect the volume fluctuations experienced by PEPC's
end customer's(s') market place.


3.6 Competitiveness.


Equatorial shall make every effort to offer competitive
advantage to PEPC in price, delivery and quality during the
term of this Agreement. PEPC shall make known to Equatorial
its expectations from time to time and will cooperate with and
assist Equatorial to meet these expectations. Both parties
shall cooperate and engage in regular dialogue on all three
issues of price, quality and delivery to ensure that the
competitive advantage is retained at all times. In the event
that PEPC believes that Equatorial has failed to offer
competitive advantage in price, delivery or quality and the
parties are not able to resolve the issues through mutual,
good faith deliberations, then either party may provide
formal, written notice to the other that the deliberations
have failed and may in such written notice elect to terminate
this Agreement effective 60 days after the date of such
written notice.


3.7 Restrictive Covenant.


During the term of this Agreement, Equatorial and its
Affiliates (defined for purposes of this Agreement with
respect to either party as any entity or person controlling,
controlled by or under common control with such party) shall
not, directly or indirectly, supply ** that are competitive
with or that are substitutes for the Products to any person or
entity, anywhere in the world, other than to PEPC under this
Agreement and other than to the existing customers of
Equatorial who were on the list provided to PEPC by Equatorial
pursuant to Equatorial's letter dated December 13, 2004 to
PEPC, to whom Equatorial may supply ** on a continuing basis
consistent with prior practice and for the same, continuing
intended uses and purposes. During the term of this Agreement,
PEPC and its Affiliates (defined for purposes of this
Agreement as any entity or person controlling, controlled by
or under common control with PEPC) will comply with the terms
of that certain letter from PEPC to Equatorial dated December
10, 2004 with respect to the customer list provided to PEPC by
Equatorial, and such December 10, 2004 letter is incorporated
herein by reference. PEPC's breach of such December 10, 2004
letter shall be treated as a breach of this Agreement. During
the term of this Agreement, Equatorial shall not provide
financial, operating, engineering or other assistance of any
kind, and shall not grant licenses or similar rights to any
entity or person who engages in activities that would be
prohibited by this Section 3.7 if engaged in by Equatorial
directly.


4. CONFIDENTIALITY AND PROPERIETARY RIGHTS


4.1 Proprietary information.


a. Each party agrees not to disclose or use any
materials or information of the other party which is
marked "Confidential" or, in the case of orally
conveyed information, which is confirmed as being
confidential in writing within thirty (30) days of
conveyance, including any such materials or
information conveyed prior to execution of this
Agreement ("Proprietary Information") except as may
be necessary to further the performance of this
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