Exhibit 10.21
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement") is made on the 30th day
of January, 2004, by and between Global Energy Group, Inc. ("Global Energy") a
Delaware Corporation having its principal place of business at 0000 Xxxxxxx
Xxxxx, Xxxxxx, XX 00000 and Global Energy Distribution Group, L.L.C., an
Oklahoma Limited Liability Company, whose principal address is 0000 Xxxx 00Xx,
Xxxxx, XX 00000 ("Distributor"). This agreement will become effective only upon
its approval by the Board of Directors of Global Energy. Distributor may void
this agreement if it is not approved by the Board within thirty (30) days after
the date shown above. Reference is made to that certain Agreement for
Distribution of Global Energy Products dated on or about September 26, 2003 (the
"Prior Agreement"). This Agreement supersedes and replaces the Prior Agreement,
effective as of the original date of the Prior Agreement. The Prior Agreement is
hereby terminated and of no further force or effect.
Global Energy has developed new technologies that improve the energy
efficiency of existing products and processes with a focus on thermodynamics,
heat transfer and heat exchange, which are important to the heating,
ventilation, air conditioning, and refrigeration ("HVACR") industries (the
"Technology") exhibiting performance in a wide variety of energy-storage
applications and markets, including those described below. The Technology is now
employed by Global Energy in the design and manufacture of the applications
described below. The term "Products" as used in this agreement means all
products manufactured by Global Energy using the Technology. To date, Global
Energy has completed development of four products with the two principle
products being the EER(+)Plus and Inventor Series 1400 units. The EER(+)Plus is
a retrofit unit, designed to be added to existing air conditioning units to
boost their performance very cost effectively. The Inventor Series 1400 is a
complete unitary packaged air conditioning unit, with Global Energy's patented
technologies incorporated into it. Both of these products utilize generally
wasted condensate water and exhaust air, produced by all standard air
conditioning systems, to provide increased capacity and to reduce power
consumption. This produces improvements in energy efficiency of at least 25%,
compared to typical other new equipment. This efficiency improvement reduces
energy consumption for air conditioning while maintaining the same cooling
level. In May 2002, a sample Inventor Series 1400 unit was certified by the Air
Conditioning and Refrigeration Institute ("ART'), the independent industry group
which certifies the energy efficiency ratings of air conditioning units. Global
Energy's 7.5-ton unit was rated 13.5 EER. Current plans call for Global Energy
to offer both the EER+ product and the Inventor Series 1400 units in several
cooling sizes.
The parties wish to jointly develop the Products, and believe that Distributor's
relationships with potential purchasers of the Products and with sources of
capital to support the manufacture and distribution of the Products will
contribute to rapid growth of sales of the Products to the benefit of both
parties.
Therefore the parties agree to the following:
1. Distribution Rights: Subject to any rights previously granted
to third parties and scheduled on Exhibit A, Global Energy grants to Distributor
an exclusive, worldwide right to distribute the Products.
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Reference is made to the License Agreement of even date herewith
between the parties (the "License Agreement"). The License Agreement shall not
be or become effective, and Distributor shall have no rights thereunder, except
during any period during which Distributor is exercising its rights under
Section 11 or Section 17 of this Agreement, to manufacture Products or have them
manufactured exclusively for Distributor by a third party.
2. Term. The term of this Agreement shall be one year, subject to
automatic renewal at the end of each one-year term for successive additional
one-year terms if Distributor's sales of Products during the then preceding year
have aggregated at least $50,000. Notwithstanding the foregoing, at such time as
Global Energy Acquisition Group, L.L.C. ("GEAG"), an Oklahoma limited liability
company, shall have entered into the Funding Agreement (as described below) with
Global Energy and GEAG's investment in Global Energy (including loans to and
purchases of capital stock from Global Energy) shall be at least $500,000, the
initial term of this Agreement shall be automatically extended to five years,
which will automatically renew for an unlimited number of additional five-year
terms so long as Distributor continues to exercise all commercially reasonable
efforts to distribute the Products. If Distributor fails to exercise all
commercially reasonable efforts to market and distribute the Products, Global
Energy may terminate the exclusivity provisions of this Agreement by giving
six-months written notice of termination of exclusivity. This agreement will
terminate six months after such notice is given unless Distributor undertakes
all commercially reasonable efforts to market and distribute the Products within
the six-month period. Provided, however, Global Energy cannot terminate this
agreement on the basis of Distributor's failure to exercise all commercially
reasonable efforts to market and distribute the Products if conduct by Global
Energy that is inconsistent with the intent of this agreement contributes to
Distributor's failure to exercise all commercially reasonable efforts in any
material way. If Distributor's sales of Products exceeds 75% of the Sales Goal
of each year during the term of this Agreement, it will be presumed that
Distributor is using all commercially reasonable efforts to distribute the
Products. Distributor may terminate this Agreement by providing six (6) months
prior written notice to Global Energy.
For the purposes of this Agreement, "Funding Agreement" shall mean an
agreement between Global Energy and GEAG that requires GEAG to purchase from
Global Energy shares of Global Energy's capital stock for at least $2,500,000 in
the aggregate. Notwithstanding anything herein to the contrary, unless and until
such time as (i) Global Energyy and GEAG shall have entered into the Funding
Agreement, and (ii) GEAG shall have purchased at least $500,000 in Global
Energy's capital stock as contemplated by the Funding Agreement, this Agreement
and all rights of Distributor hereunder shall be and remain nonexclusive. If,
after the Funding Agreement becomes effective, GEAG fails to make any investment
required to be made by it under or pursuant to the Funding Agreement, this
Agreement and all rights of Distributor hereunder shall become and thereafter
remain nonexclusive. During any period of time during which the rights of
Distributor hereunder shall be nonexclusive, Global Energy shall then be
permitted to engage other distributors and otherwise arrange for sales of its
products and other products incorporating its intellectual property, under terms
similar to or different from those under this Agreement and in the same or
different territories.
3. Territory: This territory in which Distributor has the right
to market and sell the Products is worldwide.
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4. Products: Distributor's distribution rights include all
Products currently in production and all Products developed or manufactured by
Global Energy in the future. Global Energy and Distributor will cooperate in
assessing demand and performance requirements for each of Products. Global
Energy will, upon the reasonable request of Distributor, use commercially
reasonable efforts to design and manufacture Products that satisfy such demand
and performance requirements; provided, however, Global Energy will have no
obligation under this sentence until Global Energy and distributor have agreed
on the allocation and payment of the cost of design, testing, retooling, etc. to
be incurred in complying with Distributor's request. If Global Energy is
unwilling or unable to undertake the design of a new Product or redesign of an
existing Product, Distributor can engage a third party to undertake the task. In
that event, Global Energy will have the first opportunity to manufacture the
newly designed or redesigned Product, but, if Global Energy declines that
opportunity, Distributor can engage a third party to manufacture the Product.
5. Market Research: Distributor and Global Energy will cooperate
in researching markets proposed to be served by Distributor for the purpose of
identifying pricing, performance and other product parameters necessary to
establish sales projections and production priorities for the markets and each
will share such data with the other on a prompt and regular basis; provided that
Distributor will pay expenses involved in such research to the extent they are
owed to third parties. Distributor and Global Energy each agree to communicate
its market research and sales projections information to the other on a schedule
mutually agreed for the purpose of coordinating Global Energy production
capability and priorities and Distributor's sales commitments.
6. Product Certifications: Distributor and Global Energy will
cooperate and coordinate efforts to obtain, at Global Energy's expense,
certifications for the Products which Distributor in its discretion determines
to be necessary or desirable to support Distributor's sale of the Products.
7. Production Planning: Distributor acknowledges that it
understands Global Energy's current production capabilities, as well as the
considerable capital cost of expanding its production capabilities to satisfy
increases in sales of the Products. Accordingly, as soon as practicable and in
any case within thirty (30) days after this agreement becomes effective,
Distributor and Global Energy will agree upon projections of anticipated sales
of the Products in the markets for the initial five-year term of this Agreement
(as they may be adjusted by agreement of the parties from time to time, the
"Sales Goals"). The parties will meet quarterly to discuss the Sales Goals, and
based on those discussions, will revise the Sales Goals for the remainder of
each five-year term of this Agreement to reflect reasonably achievable goals for
each market. At least eighteen months prior to the end of each five-year term of
this Agreement, the parties will establish initial Sales Goals for the next
succeeding five-year term of this Agreement.
Global Energy agrees to use commercially reasonable efforts to complete
capital improvements to its production facilities during each year of the term
of the Agreement which are adequate to support the manufacture of the volume of
Products required to meet the Sales Goals.
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8. Distributor Assistance: Distributor agrees to assist Global
Energy in accomplishing timely expansion of its production capability to meet
the demand for Global Energy's Products required by this Agreement by working
with Global Energy to develop sales and manufacturing plans to support Global
Energy's expansion of production capability for the Products, by introducing
Global Energy to sources of capital known to Distributor and, if Distributor
develops or acquires any independent capabilities to manufacture the Products,
making available any excess production capability of such facility beyond that
required for the manufacture of Products for sale to the markets for the
manufacture of products for other markets served by Global Energy. Subject to
the confidentiality provisions of this agreement, Global Energy agrees to
support such Distributor efforts with detailed technical and cost information
relating to all matters required to increase expeditiously production capability
for the Products.
9. Global Energy Assistance: Global Energy, at its sole expense,
will provide a reasonable number of products required for customer
qualifications and usage specifications and industry certifications in the
markets. Global Energy will provide Distributor with technical, marketing, sales
and field support as reasonably necessary to assure that the Products are
performing for users within their specifications established by Global Energy
and to maintain customer satisfaction with the Products. The products and
support required under this section will be provided as promptly as practicable
by Global Energy.
10. Distributor's Duties: In addition to the foregoing, with
respect to each target market Distributor also agrees to:
a. Organize, train and maintain a competent sales force
that is consistent with the Sales Goals and the volume of Products made
available to Distributor by Global Energy.
b. Provide finished-goods inventory warehousing,
distribution services, credit extension, billing and other facilities
and services as may be required to support sales of the Products in
each of the markets in a manner that is consistent with the Sales
Goals, the volume of Products made available to Distributor by Global
Energy, and reasonable commercial practices.
c. Comply in a commercially reasonable manner with legal
requirements pertaining to the conduct of its business and refrain from
illegal, deceptive, misleading or unethical acts and practices, in each
case to the extent that failure to do so would have a material adverse
effect upon sale of the Products or the business reputation of Global
Energy or the Products.
d. Provide weekly report to Global Energy regarding
potential and actual sales activity, including Product models,
quantities, and expected order date.
11. Orders: Global Energy will exert all commercially reasonable
efforts to supply Products to Distributor in the quantities ordered by
Distributor in accordance with this agreement. To the extent it can do so
without defaulting on earlier delivery commitments to third parties, Global
Energy will give priority to Distributor's orders. In any event, as long as
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Distributor is current in its payments to Global Energy, Global Energy will not
fill any order placed by a third party while a Distributor order is pending if
filling the third-party order would prevent Global Energy from delivering
Products under the Distributor order on time.
Each time Distributor places an order with Global Energy under this
agreement, Global Energy must promptly determine whether it can fill the order
within a timely fashion, which could be as long as eight weeks but generally
will be more quickly. If Global Energy determines that it cannot, it must then
given written notice of that fact to Distributor within ten business days after
receiving the order. The notice must state the extent to which Global Energy is
unable to fill the order and must specify the reasons for that inability. To the
extent Global Energy's inability to perform is caused by a lack of production
capacity (as distinguished from a bona-fide shortage of materials, energy, or
labor), it will be regarded as a "capacity shortage".
If the total of all capacity shortages that occur in any one calendar
quarter exceeds 10% of the total of all Products ordered by Distributor under
this agreement during such quarter (based on aggregate dollar amount) (a "Major
Shortage"), then Distributor will be authorized, under the License Agreement, to
manufacture Products or have them manufactured exclusively for Distributor by a
third party to meet all or any part of Distributor's requirements for Products.
Global Energy's obligation to accept and deliver orders for Products is
conditioned upon Distributor's adherence to such reasonable and customary credit
and payment terms and conditions as Global Energy and Distributor may agree upon
from time to time.
Global Energy agrees to provide semi-monthly reports to Distributor of
its progress in completing each order for Products and any developments which
would adversely affect its ability to accept or timely fill Distributor's
orders. Global Energy and Distributor will cooperate in developing an online
"supply chain management system" that will allow Distributor and Distributor's
customers to monitor Global Energy's manufacturing and inventory status with
respect to all orders for Products by Distributor.
12. Minimum Orders: The parties agree to establish a Basic
Ordering Agreement (a "BOA") relating to Distributor's purchase of Products for
each year during the term of this Agreement. Accordingly, simultaneously with
the effectiveness of this Agreement, the parties are entering into a BOA (the
"Initial BOA"). Distributor and Global Energy will cooperate in establishing a
revised BOA for each year during the term of this Agreement at least 90 days
prior to the anniversary date of this Agreement which will be applicable to the
next succeeding year. Each subsequent BOA will be in substantially the same form
of the Initial BOA, except to the extent that the parties specifically agree
otherwise.
13. Product Prices: The price to Distributor of each Product line
will be determined from time to time by a BOA. The initial agreed prices are set
forth in the Initial BOA.
14. Payment: Distributor will pay Global Energy for Products in
accordance with the BOA that applies to the Products purchased.
15. Shipment: Products will be shipped FOB the manufacturing plant
loading dock to destinations designated by Distributor. The Products will be
prepared for shipment at Global
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Energy's expense in accordance with good commercial practice. Risk of loss or
damage during transfer, use, handling, storage or disposal of Products will pass
to Distributor once Global Energy releases the Products to a shipper designated
by Distributor.
16. Product Alterations: Distributor and Global Energy will
cooperate in establishing packaging and labeling for the Products. Distributor
agrees not to repackage or otherwise alter or modify the packaging or labeling
of the Products without prior notice to and written consent of Global Energy,
which will not be unreasonably delayed or withheld. It is an objective of the
parties to sell the Products for use or sale by mass merchandisers, common
carriers, manufacturers of products using the Products and others who may
request that the packaging and labeling of the Products be modified to meet
their more distinctive brand names for the Products ("Private Labeling"). Global
Energy agrees to implement such Private Labeling requirements as Distributor and
Global Energy agree upon from time to time, provided Global Energy is given
reasonable prior notice and specifications for the Private Labeling. Private
Labeling will be implemented at no additional cost to Distributor provided such
Private Labeling does not produce material additional costs to Global Energy; if
Global Energy determines at the time of any request for Private Labeling that
material additional costs will be incurred, it will promptly notify Distributor.
Global Energy and Distributor will then cooperate in establishing an equitable
basis for sharing such additional costs or passing them on to the customer.
17. Alternative Source Products: If Global Energy refuses, becomes
unable, or persistently fails:
a. to exert commercially reasonable efforts to supply
Products to Distributor in quantities ordered by Distributor in
accordance with this agreement;
b. to exert commercially reasonable efforts to deliver
Products to Distributor in quantities ordered by Distributor in
accordance with applicable Sales Goals and BOA's; or
c. to exert commercially reasonable efforts to minimize
its cost of goods sold consistent with producing Products that meet the
quality standards of both Global Energy and Distributor,
then, Distributor may notify Global Energy of Distributor's intent to obtain an
alternate source of Products. Such notice must specify the refusal, inability,
or failures upon which it is based. If Global Energy then fails or refuses to
fully cure each specified refusal, inability, or failure within thirty (30) days
after the date of such notice, Distributor will then be entitled, in addition to
its other rights under this agreement, to exercise the right under the License
Agreement to manufacture Products or have them manufactured exclusively for
Distributor by a third party.
18. Intellectual Property: Global Energy grants to Distributor for
the term of this Agreement a non-exclusive, worldwide, royalty-free right and
license to use and reproduce the trademarks, trade names and service marks owned
by Global Energy and associated with the Products within the markets (the
"Licensed Marks") and to copy, reproduce and use copyrighted material furnished
by Global Energy to Distributor ("Copyrighted Material"); provided that the same
are used only in connection with the marketing, distribution, sale and service
of Products.
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Use of the Licensed Marks is strictly conditioned upon Distributor's use of the
Licensed Marks in accordance with the terms and conditions of this Agreement.
Distributor may market Products under one or more trade names selected by it
pursuant to the private labeling terms set forth in Section 16 and provided that
Global Energy consents to such name, which consent will not be unreasonably
withheld or delayed.
Any modifications or improvements made to the Products or the Licensed
Marks by or at the request of Distributor, including any patentable inventions
or other intellectual property enhancements, shall become the property of Global
Energy.
19. [Intentionally Omitted].
20. Representations and Warranties:
a. Global Energy represents and warrants to Distributor
that, except as Distributor is otherwise advised in writing: (i) the
Products do and will conform with all warranties and performance and
testing data provided by Global Energy to Distributor prior to or after
the date of this Agreement, whether such testing data is developed by
Global Energy or third parties; (ii) the Products sold to Distributor,
the Licensed Marks and the Copyrighted Material do not and will not
infringe upon any copyrights, trademarks, patents or any other rights
of any person; (iii) Global Energy has all requisite corporate power
and authority to enter into and perform its obligations under this
Agreement, including its exhibits, each of which has been duly
authorized, validly executed and delivered and constitutes a binding
and enforceable obligation of Global Energy; (iv) the execution,
delivery and performance of this Agreement by Global Energy does not
violate or conflict with any applicable law, rule, regulation, or any
order or judgment to which Global Energy is a party or by which it is
bound; (v) Global Energy is in compliance with all laws, rules,
regulations and ordinances of any governmental authority which are
applicable to the manufacture, storage and sale of the Products.
b. Distributor represents and warrants to Global Energy
that: (i) Distributor has all requisite corporate power and authority
to enter into and perform its obligations under this Agreement,
including its exhibits, each of which has been duly authorized, validly
executed and delivered and constitutes a binding and enforceable
obligation of Distributor; (ii) the execution, delivery and performance
of this Agreement by Distributor does not violate or conflict with any
applicable law, rule, regulation, or any order, judgment or agreement
to which Distributor is a party or by which it is bound; (iii)
Distributor is in compliance with all laws, rules, regulations and
ordinances of any governmental authority which are applicable to the
purchase, storage and sale of the Products; and (iv) Distributor will
not falsely represent the performance capabilities of the Products as
documented by Global Energy.
21. Product Warranties:
a. Global Energy agrees that it is solely responsible
for warranty claims made with respect to the Products which are within
the terms of its standard product warranties as may be in effect from
time to time pursuant to the terms of this Agreement
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("Warranty Claims"). Global Energy agrees to indemnify and hold
harmless Distributor from all Warranty Claims. Distributor agrees that
it will not make any warranties concerning the Products other than
those authorized by Global Energy in its standard product warranty.
b. The parties will within ninety (90) days of the date
of this Agreement agree upon the terms of a warranty plan for dealing
with Warranty Claims which will provide Distributor and its customers
with reasonable procedures for submitting and being reimbursed for
Warranty Claims.
c. Global Energy has provided Distributor copies of its
current standard product warranties applicable to the Products subject
to this Agreement. Global Energy may modify the terms of its standard
product warranties from time to time by providing not less than 90 days
prior written notice to Distributor of such modifications, provided
that such standard product warranties remain competitive with the terms
and coverages of product warranties offered by manufacturers of
products that compete with the Products. Global Energy and Distributor
will cooperate in establishing specifications, recommended uses and
standard product warranties for individual lines of Products as new or
special uses of the Products are identified by the Distributor and its
customers, and Global Energy agrees to provide to Distributor for
delivery to its customers standard warranties reflecting such
additional specifications and recommended usages on a reasonably prompt
and responsive basis. To the extent that one or more material customers
of Distributor request special or modified warranty terms, Global
Energy will cooperate with Distributor in commercially reasonable
efforts to satisfy such customer(s) as to such requests.
22. Nature of Relationship: Distributor and Global Energy agree
that their relationship is one of independent contractors and that neither has
any authority to obligate the other party in connection with any order,
contract, sales agreement or credit agreement or otherwise, and Distributor will
not make any warranties concerning the Products except those provided by Global
Energy and shall not otherwise act or be considered as an employee or agent of
Global Energy. On the other hand, the relationship intended to be created by
this agreement demands high standards of commercial reasonableness, candor, and
good faith. When any circumstance arises under which this agreement requires,
contemplates, or implies the need for the consent or agreement of a party, that
consent or agreement will not be unreasonably withheld or delayed. When any
circumstance arises under which this agreement requires, contemplates, or
implies the need for the parties to reach agreement on issues where their
interests or opinions diverge, the parties will negotiate continuously,
candidly, and in good faith until an agreement based on principles of commercial
reasonableness is reached.
23. Books and Records: Distributor will provide Global Energy with
monthly reports of its sales and inventory within thirty (30) days after the end
of each month with respect to Products for which Distributor holds exclusive
marketing rights.
24. Exports: The parties hereto are subject to United States laws
and regulations controlling exports, and any exports hereunder must comply with
any applicable United States export laws and regulations. Export of commodities
to certain foreign countries may also require
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a license or permission from relevant United States agencies. Distributor agrees
that it will not engage in exports without obtaining all necessary and
applicable Governmental approvals and then only in compliance with all
applicable laws.
25. Assignment: Distributor may not assign this agreement or any
of its rights or obligations hereunder without the prior written consent of
Global Energy, which consent will not be unreasonably withheld.
26. Confidentiality: Each party agrees to protect information
identified by either party as confidential in accordance with any
Confidentiality Agreement entered into between the parties.
27. Opportunity to Cure Defaults. Upon any breach of or default
under this Agreement by any party, no action shall be taken with respect thereto
against the breaching or defaulting party unless and until such breach or
default remains uncured thirty (30) days after written notice thereof to the
party in breach or default.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
Global Energy Group, Inc. Global Energy Distribution Group, L.L.C.
By: _______________________ By: ____________________________________
Name: _____________________ Name: __________________________________
Title: ____________________ Title: _________________________________
Date: _____________________ Date: __________________________________
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EXHIBIT A TO DISTRIBUTION AGREEMENT
Distribution Agreement
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