Manufacturing And Distribution Agreement

Exhibit 10.18


Manufacturing and Distribution Agreement
----------------------------------------


This Manufacturing and Distribution Agreement ("Agreement") is entered into as of January 2, 2001 (the "Effective Date") by and between A.S.V., Inc., ("ASV") a Minnesota corporation with a principal place of business at 840 Lily Lane, Grand Rapids, Minnesota 55744 and Polaris Industries Inc., ("Polaris") a Delaware corporation with a principal place of business at 2100 Highway 55, Medina, MN 55340, (each a "Party" and collectively, the "Parties").


WHEREAS, ASV is the developer and manufacturer of certain light utility all surface loaders called RC-30 All Surface Loaders, and related accessory work tools;


WHEREAS, Polaris desires to obtain the right to manufacture and distribute such RC-30 All Surface Loaders and work tools, under the Polaris brand name, and ASV desires to grant Polaris such manufacturing and distribution rights, all on the terms and conditions set forth herein;


NOW, THEREFORE, the Parties agree as follows:


ARTICLE 1
DEFINTIONS


All capitalized terms that are not otherwise defined herein shall have the meanings set forth below:


1.1 "Affiliate" means any person (individual, corporation, partnership,
--------- limited liability company or other entity) that directly or indirectly controls, is under common control of or is controlled by either Party to this Agreement. "Control" means the ownership, direct or indirect, of fifty percent (50%) or more of the voting shares or capital of such person.


1.2 "ASV Manufacturing Technology" means those patents, copyrights, trade
---------------------------- secrets, designs, drawings, know-how or any other intellectual property (excluding the ASV Trademarks) owned or licensed (with right of sublicense) by ASV during the term of this Agreement which cover or are otherwise necessary for the manufacture of the Vehicles.


1.3 "ASV Trademarks" means those trademarks, trade names and logos of ASV
-------------- listed on, and the trade dress for the ASV Vehicle described on, Exhibit A
--------- hereto, as such Exhibit may be amended from time to time in ASV's sole discretion.


1.4 "ASV Vehicle" means the version of the Vehicles branded with the ASV
----------- Trademarks.


1.5 "Confidential Information" means all trade secrets, confidential
------------------------ knowledge, and proprietary data of any kind or nature whatsoever relating to this Agreement, or the businesses of either Party and its Affiliates. Confidential Information also shall include any information prepared or developed by a Party in connection with this Agreement, which reflects, interprets,


evaluates, includes or is derived from the Confidential Information of another Party. Confidential Information shall include, but not be limited to, technical specifications, diagrams, discoveries, economic models, pro forma and other financial information, designs, business opportunities, cost and pricing data, records, customer lists, and engineering, manufacturing, and marketing know-how. Without limiting the foregoing, Confidential Information of ASV shall be deemed to include the ASV Manufacturing Technology. Confidential Information does not include information which (i) was generally known or available to the public at the time of its disclosure hereunder, or which after such disclosure became generally known or available to the public, provided that such disclosure was made or occurred through no fault of the Receiving Party or its Affiliates, or its or their officers, directors, or employees; (ii) was in the possession of the Receiving Party prior to its disclosure hereunder; (iii) was known by the Receiving Party at the time of its disclosure hereunder or was independently developed at any time by the Receiving Party without reference to the Disclosing Party's Confidential Information; (iv) is required to be furnished pursuant to law or legal process; or (v) is rightfully obtained, subsequent to its disclosure hereunder, by the Receiving Party or its Affiliates from a third party who is lawfully in possession of such information and who is not under an obligation of confidentiality to the Disclosing Party.


1.6 "Disclosing Party" means a Party that discloses Confidential
---------------- Information hereunder.


1.7 "Manufacturing Costs" means, to the extent actually incurred by a
------------------- Party hereunder in accordance with generally acceptable accounting principles, (i) the direct costs of materials; (ii) the direct labor costs, and (iii) the overhead allocated at such Party's overhead application rate and to the extent agreed by the Parties.


1.8 "Polaris Trademarks" means those trademarks, trade names and logos of
------------------ Polaris listed on, and the trade dress for the Polaris Vehicle described on, Exhibit B, as such Exhibit may be amended from time to time in Polaris' sole - --------- discretion.


1.9 "Polaris Vehicles" means the version of the Vehicles branded with the
---------------- Polaris Trademarks.


1.10 "Products" means collectively, the Vehicles and the Work Tools.
--------


1.11 "Receiving Party" means a Party that receives Confidential Information
--------------- hereunder.


1.12 "Vehicles" means the RC-30 All Surface Loader line of light utility
-------- all surface loaders, more particularly described on Exhibit C.
---------


1.13 "Work Tools" means those interchangeable portions attached to the
---------- Vehicles and designed to accomplish different tasks (e.g., bucket, snow blower, mower, post hole digger, etc.).


ARTICLE 2
PRODUCTS


2.1 Product Scope.
-------------


(a) The Parties shall initially manufacture and market hereunder two branded versions of the Vehicles: Polaris Vehicle and the ASV Vehicle. The Polaris Vehicle and the ASV Vehicle will incorporate the same functionality and have the same specifications; however, the Polaris Vehicle will bear the Polaris Trademarks in the manner that Polaris deems appropriate and the ASV Vehicle will bear the ASV Trademarks in the manner that ASV deems appropriate.


(b) Upon mutual written consent of the Parties, versions of the Vehicles bearing other (third party) brands may be distributed in the future.


2.2 Product Improvements.
--------------------


(a) The Parties will from time to time discuss improvements and enhancements to the Vehicles and Work Tools, and may decide to develop such improvements or enhancements jointly or through one of the Parties. Such agreed improvements and enhancements will be included in Polaris' manufacturing and distribution rights hereunder and ASV will retain the right to use such improvements and enhancements in its own business. Polaris and ASV will share equally the costs related to developing these mutually agreed product improvements and enhancements including tooling.


(b) Polaris may also make improvements and enhancements at its own expense to the Polaris Vehicle with ASV's prior consent. Such improvements and enhancements will be made available for both the ASV and Polaris Vehicles.


(c) Ownership of the intellectual property relating to such improvements and enhancements shall determined in accordance with Article 8 below.


2.3 New Products. The Parties may mutually agree to add to the Products
------------ contemplated by this Agreement certain additional light utility all surface loaders models (***) that may be developed by ASV or Polaris during the term of this Agreement.


ARTICLE 3
DISTRIBUTION RIGHTS


3.1 Polaris Distribution Rights. ASV hereby grants to Polaris the
--------------------------- worldwide exclusive right to distribute the Polaris Vehicle and Work Tools through the Polaris domestic and international dealer and distributor network as it exists currently or as it may evolve during the term of this Agreement. In addition, as between ASV and Polaris, Polaris shall have the


_____________________ *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.


worldwide exclusive right to distribute the Vehicles and Work Tools to national rental centers (as defined herein); provided, however, that the Parties acknowledge that ASV's dealers may themselves resell the Vehicles to national rental centers and provided, further that, after the third anniversary of the Effective Date, the Parties shall review the national rental center exclusivity to determine if Polaris is adequately marketing to this sector. As used herein, the term national rental centers shall mean (1) United Rental Center; (2) Nations Rental Center; (3) Rental Service Corporation (RSC); (4) Hertz Rental Center; (5) National Equipment Services (NES), and (6) Prime Rentals.


3.2 ASV Distribution Rights. ASV shall retain the worldwide exclusive
----------------------- right to distribute the ASV Vehicles and Work Tools (other than To Polaris' distribution network and directly to the national rental centers as set forth in Section 3.1). All rights not expressly granted to Polaris hereunder are retained by ASV.


3.3 Other Distribution Rights. Polaris and ASV shall each have the right
------------------------- to distribute their respective Vehicles and Work Tools to all other rental centers and the commercial and military markets. In addition, Polaris and ASV each retain the right to distribute other utility and commercial products.


ARTICLE 4
DISTRIBUTION OF POLARIS VEHICLES


4.1 Distribution Obligations. Polaris shall use its best efforts to
------------------------ commercialize the Polaris Vehicle on a worldwide basis and will at all times maintain an adequate, trained sales and support staff to promote the Polaris Vehicle and Work Tools. At least 30 days prior to January 1 of the applicable year, Polaris will provide ASV an annual marketing plan for the Polaris Vehicle and Work Tools for ASV's review and comment.


4.2 Vehicle Sales in 2003. The parties acknowledge and agree that there
--------------------- may be a certain sales level at which it is not economically prudent for the parties to continue the relationship contemplated herein. In light of the foregoing, the parties agree that if Polaris fails to distribute *** (***) Polaris Vehicles during 2003, ASV shall have the right to terminate this Agreement by giving Polaris written notice thereof, which notice shall be delivered not later than January 31, 2004 and shall be effective thirty (30) days after delivery thereof to Polaris.


ARTICLE 5
MANUFACTURE AND SUPPLY


5.1 Manufacturing Rights for Vehicles. Initially, ASV shall manufacture
--------------------------------- both the ASV Vehicle and the Polaris Vehicle. Polaris shall have the right to assume the manufacturing of the ASV Vehicle and the Polaris Vehicle; provided that Polaris provides ASV twelve months'


_________________ *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.


written notice of its intention to begin manufacturing the Vehicles and subject to a reasonable transition to be mutually agreed by the Parties. As used in this Agreement, the term "Manufacturing Party" shall refer to whichever Party is manufacturing Vehicles at such time, and the term "Purchasing Party" shall refer to whichever Party is purchasing Vehicles from the Manufacturing Party at such time.


5.2 Purchase and Supply of Vehicles. The Manufacturing Party shall
------------------------------- manufacture its own requirements of its Vehicle, and shall manufacture and supply the Purchasing Party with such Purchasing Party's Vehicle, in quantities the Purchasing Party may order from time to time (subject to limitations to be negotiated by ASV and Polaris). The Manufacturing Party shall provide sufficient manufacturing capacity, including tooling, to manufacture the Vehicles in accordance with the agreed specifications and in sufficient quantities to meet the Purchasing Party's orders. If the demand for the ASV Vehicles and Polaris Vehicles exceeds the supply, notwithstanding the Manufacturing Party's efforts to provide sufficient manufacturing capacity, the Manufacturing Party shall allocate supplies of the Vehicles between itself and the Purchasing Party on a pro rata basis based on the Parties' sales forecasts for the applicable period.


5.3 Forecasts. The Purchasing Party shall submit to the Manufacturing
--------- Party, at least ninety (90) days in advance of the first applicable month, a written forecast of its requirements for such Purchasing Party's Vehicles (and Work Tools, as applicable) for the following twelve (12) month period, with the initial forecast being attached hereto as Exhibit D. The Purchasing Party shall
--------- update such forecasts in writing on a monthly rolling basis. The first three (3) months of such updated forecasts shall be binding on the Parties, and the remaining nine (9) months shall be the Purchasing Party's non-binding best estimate of its purchases of its Vehicles (and Work Tools, as applicable) for such period.


5.4 Purchase Orders. The Purchasing Party shall submit to the
--------------- Manufacturing Party, at least ninety (90) days in advance of the requested ship date, written or electronic purchase orders for purchases of the Purchasing Party's Vehicles (and Work Tools, as applicable) in quantities consistent with its firm forecasts; and the Manufacturing Party shall accept such purchase order ...