Frame Development and Purchase Agreement between MTU Friedrichshafen GmbH and LOrange GmbH

Exhibit 10.1



Frame Development and Purchase Agreement







between











MTU Friedrichshafen GmbH

Maybachplatz 1

88045 Friedrichshafen, Germany



- hereinafter referred to as "MTU" -





and







L'Orange GmbH

Porschestr. 8, 70435 Stuttgart

Germany



- hereinafter referred to as "L'Orange" -















- L'Orange and MTU hereinafter referred to individually
as a "Party" or collectively as the "Parties" -

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Preamble

(A)    MTU is one of the world’s leading manufacturers of large diesel and gas engines and complete propulsion systems.

(B)    L'Orange develops and manufactures fuel injection technology systems to be used in diesel and gas engines.

(C)    Pursuant to a share purchase agreement between, among others, MTU and Woodward Aken GmbH, notarial deed no. 223/2018 of the notary public Dr. Oliver Habighorst, Frankfurt am Main, dated 8 April 2018, MTU sold and Woodward Aken GmbH purchased all of the shares in L'Orange ("Transaction"). Notwithstanding closing of the Transaction, the Parties intend to continue their close and mutually beneficial business partnership whereby L’Orange develops, manufactures, sells and delivers to MTU systems, products and/or components in accordance with the terms of this Agreement.

(D)    MTU’s objectives of obtaining high quality products and services under this Agreement in a cost effective and timely manner are hereby acknowledged by L’Orange.

(E)    L'Orange's objectives of obtaining long-term development and purchase commitments with respect to fuel injection technology systems to be used in diesel and gas engines by MTU and its Affiliates are hereby acknowledged by MTU.



Now therefore,  the Parties enter into this Frame Development and Purchase Agreement.

1.    Definitions

1.1    "ABC Legislation" shall mean:

1.1.1    in respect to each Party, any legislation enacted in the country in which it is incorporated or carries out business, or in any other jurisdiction where the Agreement is performed, to enforce or implement either the United Nations Convention Against Corruption (being the subject of General Resolution 58/4 of 31 October 2003 of the General Assembly of the United Nations) or the OECD Convention on combating Bribery of Foreign Public Officials in International Business Transactions adopted on 21 November 1997; and

1.1.2    the United Kingdom Proceeds of Crime Act 2002, the United Kingdom Bribery Act 2010 and the United States Foreign Corrupt Practices Act 1977 (15 U.S.C. Section 78dd-1, et. Seq.) as amended, the German Money Laundering Act and

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any other legislation relating to anti-bribery, corruption and anti-money laundering matters applicable to this agreement.

1.2    [***] shall have the meaning set out in Section 16.4.2;

1.3    "Adjustment Period" shall have the meaning set out in Section 16.4.2;

1.4    "Affiliate" shall mean, in relation to any Person, any other Person which, directly or indirectly, Controls, is Controlled by or is under common Control with, such Person, provided, however, that for the purpose of this Agreement, Bergen Engines AS, Hordvikneset 125, NO-5108 Hordvik, Norway, shall not be considered an Affiliate of MTU; for the avoidance of doubt, any joint venture of MTU or its Affiliates shall be considered an Affiliate within the meaning of this definition;

1.5    "Aftermarket" shall mean the secondary market of the medium and high speed reciprocating fueled products industry, concerned with the installation, maintenance and support of equipment, as well as [***], after the sale of the MTU products by or on behalf of MTU and/or its Affiliate as the original equipment manufacturer (OEM) to its customers;

1.6    [***];

1.7    "Agreement" shall mean this Frame Development and Purchase Agreement;

1.8    "Agreed Performance Standard" shall have the meaning as set out in Section 29.1.2;

1.9    "Background IP" shall have the meaning as set out in Section 3.5.3;

1.10    "Baseline Performance Standard"  shall have the meaning as set out in Section 29.1.2;

1.11    "Breakthrough Foreground IP" shall mean Foreground IP that substantively contributes to a material improvement in one or more product attributes including injection volumes, multiple injection characteristics, injection pressures, injection quality control systems, and needle opening and closing, but not including cost attributes;

1.12    "Bid Summary" shall have the meaning as set out in Section 3.1.3(iii);

1.13    "Code of Conduct" shall have the meaning as set out in Section 20.1;

1.14    "Competitor" shall mean any direct competitor of MTU, any Affiliate of such direct competitor and/or its or their joint ventures.

1.15    "Competitor Change in Control" shall mean [***].

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For the avoidance of doubt, a Competitor Change in Control shall not include such changes listed above that relate to a change in control of Woodward, Inc.

1.16    "Confidential Information" shall have the meaning as set out in Section 24.1;

1.17    "Contractual Services" shall mean Product manufacturing, sale and delivery including Development Services;

1.18    "Control" of a Person shall mean the power, directly or indirectly:

1.18.1    to vote 50% (fifty percent) or more of the securities having ordinary voting power of that Person;

1.18.2    to appoint or remove 50% (fifty percent) or more of the directors (or persons performing similar functions) of such Person; or

1.18.3    to direct or cause the direction of the management and policies of such Person, in each case whether by contract or otherwise,

and "Controls" and "Controlled" shall be interpreted accordingly;

1.19    "Current Exclusive Rights Products" shall mean any Products supplied, or as of the Effective Date intended to be supplied, by L'Orange to MTU or its Affiliates for application on any MTU Engine existing as of the Effective Date;

1.20    "Disclosing Party" shall have the meaning as set out in Section 24.1;

1.21    "Dispute" shall have the meaning as set out in Section 28.1;

1.22    "Development Contract" shall have the meaning as set out in Section 4.1.2;

1.23    "Development Order"  shall have the meaning as set out in Section 4.1.2;

1.24    "Development Results" shall have the meaning as set out in Section 3.2.3;

1.25    "Development Services" shall have the meaning as set out in Section 3.1.1;

1.26    "Effective Date" shall have the meaning as set out in Section 26.1;

1.27    "End Product" shall mean the product into which the MTU Engine is implemented into and that is sold to the end customer;

1.28    [***];

1.29    "Foreground IP" shall have the meaning as set out in Section 3.5.1;

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1.30    "Foreign Trade Regulations" shall have the meaning as set out in Section 19.1;

1.31    "Future MTU Engines" shall have the meaning as set out in Section 3.1.1;

1.32    [***];

1.33    [***];

1.34    "Government Authority" shall mean any (a) nation, region, state, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal), (d) multinational organisation or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature;

1.35    "Government Official" shall mean any person who would constitute a:

1.35.1    "foreign public official" as defined in the United Kingdom Bribery Act 2010; or

1.35.2    "foreign official" as defined in the United States Foreign Corrupt Practices Act (15 U.S.C. Section 78dd-1, et. Seq.), as amended.

1.36    "Guarantees" shall have the meaning as set out in Section 29.1;

1.37    "Intellectual Property Rights" shall mean all rights in and to all patents, utility models inventions and improvements or discoveries, copyrights, trade secrets, design rights and Know-How;

1.38    "KCDs" shall have the meaning as set out in Section 4.1.5;

1.39    "Know-How" shall mean non-patented, practical information resulting from knowledge, experience or testing which is secret, not generally known or easily accessible, and substantial, including but not limited to information contained in drawings and associated technical information, plans, descriptions, process data, test reports, projects schedules and other technical information;

1.40    "KPIs" shall have the meaning as set out in Section 4.2.2;

1.41    "Liability Cap" shall have the meaning as set out in Section 11.1;

1.42    "Losses" shall have the meaning as set out in Section 3.6;

1.43    [***];

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1.44    "Management Board" shall have the meaning as set out in Section 28.2;

1.45    "Minimum Term" shall have the meaning as set out in Section 26.2;

1.46    "MRF" or "Monthly Rolling Forecast" shall have the meaning as set out in Section 5.1.1;

1.47    "MTU Claim Basis" shall have the meaning as set out in Section 29.1;

1.48    "MTU Engines" shall mean medium and high speed reciprocating diesel, gas and dual fueled engines by MTU or its Affiliates;

1.49    "New Agreement" shall have the meaning as set out in Section 27.1.1(i);

1.50    [***] shall mean:

1.50.1    any New Products for any application on any Future MTU Engine that is or has come into development by MTU at any time prior to the [***] year anniversary following the Effective Date and is

(i)    [***];

(ii)    [***]; or

(iii)    [***]; and

1.50.2    [***].

1.51    "New Products” shall have the meaning as set out in Section 3.1.1;

1.52    "Order" shall have the meaning as set out in Section 4.1.2;

1.53    "Other New Products" shall mean all New Products that are not [***];

1.54    "Person" shall mean an individual or an entity, including a company, corporation, limited liability company, limited liability partnership, general or limited partnership, consortium, joint venture, trust, association or other business or investment entity, or any Government Authority;

1.55    "Plant" shall mean the plant operated by L'Orange at Rudolf-L'Orange-Straße 1, 72293 Glatten, Germany;

1.56    "Product Prices" shall have the meaning as set out in Section 16.1.1;

1.57    [***];

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1.58    "Product Specifications" shall have the meaning as set out in Section 4.1.1;

1.59    "Products"  shall mean any gaseous and liquid fuel injection systems, injectors, pumps and other associated parts and components, as specified and defined through its respective fit, form and function, being Current Exclusive Rights Products and New Products that are supplied or to be supplied by L'Orange under this Agreement;

1.60    "Purchase Contract" shall have the meaning as set out in Section 4.1.2;

1.61    "Purchase Orders" shall have the meaning as set out in Section 4.1.2;

1.62    "Receiving Party" shall have the meaning as set out in Section 24.1;

1.63    "Release Schedule" shall have the meaning as set out in Section 3.2.2;

1.64    [***];

1.65    [***];

1.66    [***];

1.67    "Representative" shall in respect of a Person mean:

1.67.1    the Affiliates of that Person; and

1.67.2    the directors, officers, employees, temporarily contracted personnel, agents, contractors and subcontractors of that Person or of any Affiliate of that Person.

1.68    "Revised Bid"  shall have the meaning as set out in Section 3.1.3(iii);

1.69    "Series [***]"  shall mean the next generation (as may be renamed from time to time) of [***];

1.70    "SPA" shall have the meaning as set out in Section 26.1;

1.71    "Specified Product Issues" shall have the meaning as set out in the SPA;

1.72    "Superior Proposal" shall have the meaning as set out in Section 3.1.3(iii);

1.73    [***] shall have the meaning set out in Section 16.4.1;

1.74    "Transaction" shall have the meaning as set out in the Preamble;

1.75    "TSA" shall mean the Transitional Services Agreement between, among others Rolls-Royce Power Systems AG, MTU and L'Orange dated 1 June 2018; and

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1.76    "Working Day" shall mean any day other than (i) Saturday, (ii) Sunday or (iii) a bank holiday at MTU's seat or at the Plant.

2.    Scope of the Agreement

This Agreement sets forth terms and conditions for the delivery of the Products by L'Orange to MTU and/or its Affiliates and for the associated exclusivity rights as well as for the development of New Products and for the associated tender and/or exclusivity rights.

3.    Product Development and Manufacturing

3.1    Development of New Products

3.1.1    From time to time, MTU will develop new MTU Engines ("Future MTU Engines") which will require, among other components, complementary fuel injection systems. In such circumstances, MTU shall invite L’Orange to – depending on the category of such new fuel injection product assigned to it by this Agreement – either submit an offer or participate in a tender process, as described below, for services relating to the development ("Development Services") of such fuel injection products to be introduced after the Effective Date and to be used in Future MTU Engines (all such fuel injection products for Future MTU Engines, "New Products"). For the avoidance of doubt, Future MTU Engines shall also include MTU Engines which are in development at the time of Effective Date.

3.1.2    With regard to [***], MTU shall invite L’Orange to, and L'Orange shall, submit a qualified offer (qualifiziertes Angebot) for the Development Services. The Parties shall negotiate and agree in good faith on the terms (including the price) of the Development Services. If the Parties cannot agree on the price for such Development Services, L'Orange will determine the price based on its standard development pricing schedules and allocated resources and time, consistent with past practices. MTU shall be entitled to review the underlying basis for the price determination via an audit in accordance with Section 23. In the event the audit does not confirm a reasonable price determination by L'Orange, Section 28.6 shall apply.

3.1.3    With regard to Other New Products, MTU shall invite L’Orange, and L'Orange shall be entitled, to participate in a tender process as set out below.

(i)    Following an invitation to participate in a tender, L'Orange may submit a qualified offer (qualifiziertes Angebot) for the Development Services. 

(ii)    Except as provided under Section 3.1.3(iii), MTU shall be free to award Development Services relating to Other New Products to the party that

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submitted the best bid. If MTU awards the tender to L'Orange, MTU shall source such Other New Product exclusively from L'Orange in accordance with Section 4.1.4, unless provided otherwise in this Agreement.

(iii)    [***]. 

3.1.4    The Development Services will be conducted in accordance with the specifications provided by MTU, be state of the art (Stand der Technik) and, unless otherwise specified in this Section 3, be in line with the provisions of the development terms and process set out by the Parties. The Parties will agree on the exact scope and time schedule for the Development Services separately. 

3.2    Release and Acceptance of New Products

3.2.1    Each New Product shall be released by L'Orange and accepted by MTU in accordance with the provisions herein.

3.2.2    The Parties shall agree in writing on a release schedule ("Release Schedule") for the release of each New Product containing milestones, necessary tests, inspections as well as other procedures to be conducted by the Parties in order to ensure that New Products conform with the agreed design specifications. The deliverables shall be specified for each milestone. 

3.2.3    L'Orange will present MTU with the results of the Development Services ("Development Results") for final inspection and approval in due time so that the Release Schedule can be met. If the Development Results meet the agreed design specifications, MTU will notify L’Orange of the same in writing, in which case L’Orange shall declare the series release of the New Product. If MTU accepts the Development Results with reservations as to any reasonable determination that the agreed design specifications have not been met, MTU will notify L’Orange of the same in writing, following which L'Orange shall remedy the Development Results without undue delay and at its costs in order to reach the series release. MTU may not refuse acceptance of the Development Results in the case of non-material deviations from the agreed design specifications.

3.3    Changes during Product Development 

3.3.1    Any changes or modifications that L’Orange wishes to implement regarding the design specifications for New Products that become subject to this Agreement shall be approved by MTU in advance. Such approval shall not be unreasonably withheld, conditioned or delayed.

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3.3.2    MTU reserves the right to request changes to the New Products, which shall be accepted by L'Orange to the extent they are technically feasible (including design and production feasibility) and subject to the following cost mechanism.

(i)    MTU will submit such change request to L'Orange in writing following which L'Orange shall evaluate the change request and its impact on the New Products and respond to such request within a reasonable period of time, but in any event within three (3) weeks from receipt of such change request. Such response shall include a reasonable, good faith determination of the estimated development costs associated with such change request. Upon MTU’s request, L’Orange will provide further substantiation and support for such estimated development costs.

(ii)    The Parties thereafter shall enter into good faith negotiations to reach agreement as to the development costs for such change request. In the event the Parties are unable to reach agreement, the development costs for such change request shall be based on L’Orange’s standard development pricing schedules (with appropriate allocated resources and time) consistent with L’Orange’s general practices. Notwithstanding the foregoing, in the event MTU continues to dispute or question the development costs associated with such change request, MTU shall be entitled to submit the matter to audit pursuant to Section 23. In the event the audit does not confirm a reasonable determination of the development cost by L'Orange, Section 28.6 shall apply. Following the decision of the neutral expert or auditor on the reimbursement of the increase in development costs for a change request, MTU shall be entitled to cancel its change request at its sole discretion (subject to reimbursement of any costs that have been reasonably incurred by L'Orange up to the cancellation date in connection with such change request).

(iii)    [***].

(iv)    If the Parties have already agreed on the purchase prices for such New Products prior to a change request by MTU and the change request would impact the recurring costs for such New Products, the corresponding purchase prices for such New Products will be, (i) in the case of Other New Products, adjusted based on an increase or decrease (as the case may be) in price by the same percentage as the respective increase or decrease in recurrent cost, consistent with past practice and subject to MTU’s audit rights pursuant to Section 23, and (ii) in the case of [***], adjusted in accordance with Section 16.1.2. In the event the Parties cannot reach an agreement on the amounts of such price increase within one (1) month after the evaluation of the respective impact by L'Orange was received by MTU, Section 28.6 shall apply.

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3.4    Warranty during the Release Period

The release period shall serve the Parties to gain operational experience and to start the series production. The warranty rights applicable to New Products during the release period will be as provided in the co-development process with customers, unless otherwise specified and agreed to by the Parties in the respective Development Contract.

3.5    Licenses to Foreground IP and Background IP

3.5.1    For purposes of this Agreement,  "Foreground IP" shall consist of all Intellectual Property Rights that are created or conceived by a Party solely to the extent that such Intellectual Property Rights are created or conceived exclusively in the course and scope of that Party’s performance of this Agreement. Foreground IP shall be owned by the Party that created or conceived it, and each Party shall be free in using their respective Foreground IP for their own purpose without limitation, except for such limitations that are provided for explicitly in this Agreement. 

3.5.2    L'Orange hereby grants to MTU and its ordering Affiliates and MTU hereby accepts (also on behalf of its ordering Affiliates), a non-exclusive, global, perpetual (and surviving this Agreement), irrevocable, non-transferable, sublicensable license to use any Foreground IP of L'Orange in connection with any OEM development activities, the integration or use of any Products in the MTU Engines and any Product support in connection with the MTU Engines, including but not limited to repair, maintenance or [***]; provided, however, such license shall be sublicensable by MTU or its ordering Affiliates solely to the extent it exclusively applies to Products sold by L'Orange. Nothing in the foregoing shall obligate L’Orange to provide or license any Know-How and Confidential Information of L'Orange, except where this is necessary for MTU, its ordering Affiliate or sublicensee to make full use of the Product sold by L'Orange, in which case it shall automatically be part of the license granted. The Parties agree that the license granted under this Section 3.5.2 is fully paid up, including for future known or unknown usage rights, by payment of the charges to L'Orange as set out in this Agreement. 

3.5.3    In addition, each Party grants to the respective other Party, who accepts this, a non-exclusive, non-sub-licensable, non-transferrable, royalty-free license to use the Intellectual Property Rights, owned or controlled by that Party, in existence at the date of this Agreement ("Background IP"), for the term and the conduct of the performance owed under this Agreement to the extent it is required for the fulfillment of the obligations under this Agreement. L'Orange further grants to MTU and its ordering Affiliates and MTU hereby accepts (also on behalf of its ordering Affiliates) a non-exclusive, royalty-free, global, perpetual (and surviving this Agreement), irrevocable,

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non-transferable, sublicensable license in L'Orange's Background IP, solely to the extent this is required for purposes of using and exploiting the Development Results in connection with any OEM development activities, the integration or use of Products in the MTU Engines and any Product support in connection with the MTU Engines, including but not limited to repair, maintenance or [***]; provided, however, such license shall be sublicensable by MTU solely to the extent it exclusively applies to Products sold by L'Orange. Nothing in the foregoing shall obligate L’Orange to provide or license any Know-How and Confidential Information of L'Orange, except where this is necessary for MTU, its ordering Affiliate or sublicensee to make full use of the Product sold by L'Orange, in which case it shall automatically be part of the license granted.

3.5.4    [***].

3.5.5    Other than as provided in the preceding paragraph, L'Orange shall be free to use its Foreground IP, including any Breakthrough Foreground IP, for its own purposes, including but not limited to the development of products for its customers, other than MTU, provided that such products are not identical with or equivalent in all material aspects of form, fit and function to the Products supplied by L’Orange hereunder. For the avoidance of doubt, L’Orange shall be free to use any ideas, concepts and/or information in which at the time of use there are no Intellectual Property Rights; such ideas, concepts and/or information which are not subject to Intellectual Property Rights and that L'Orange shall thus be free to use may e.g. include information disclosed in any published patent (or patent application) owned by MTU or any of its Affiliates unless such idea, concept and/or information is covered by any of the patent claims in force at the time of such use. 

3.5.6    By way of clarification, both Parties are free in using their respective Background IP for their own purpose without limitation.

3.6    Indemnification

3.6.1    L'Orange shall defend, indemnify and hold MTU and its Affiliates harmless from and against any damages, losses, charges, liabilities, proceedings, payments, judgments, settlements, assessments, deficiencies, taxes, interest, penalties and costs and expenses (including reasonable attorneys' fees and expenses) (collectively, "Losses"), arising from any claim or allegation by a third party against MTU or any of its Affiliates to the extent that claim or allegation alleges that the normal and specified use of a Product, as well as any Foreground IP developed or owned by L'Orange and licensed to MTU in accordance with the provisions of this Agreement, infringes, misappropriates, or otherwise violates the Intellectual Property Rights of a third party within the territories of the European Economic Area and/or the United States of

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America, irrespective of L'Orange's fault (Verschulden), provided that (a) MTU promptly notifies L’Orange in writing of such, (b) L’Orange is given complete control of the defense of such, including the right to defend, settle and make changes in the Products for the purpose of avoiding infringement and (c) MTU provides L’Orange with reasonable information and assistance and takes no action in conflict with or inconsistent with L'Orange's position in such matter, provided however that L'Orange may not admit any wrongdoing of MTU in any settlement or defense without the prior written consent of MTU; further, in addition to any remedies MTU may have against L'Orange under this Agreement, if the Products, or any portion thereof, become the subject of a claim or allegation or if in L’Orange's opinion such is likely to become the subject to such a claim or allegation, L’Orange may cease the delivery of such Products pending resolution thereof and if the Products or the use thereof is enjoined, or if in L’Orange’s opinion is likely to be enjoined, L’Orange may at its option and expense (a) procure for MTU the right to continue using the Products, or applicable portion thereof, (b) modify or replace such in whole or in part to make such non-infringing, or (c) if neither of the forgoing is practical, refund to MTU an equitable portion of the amount paid by MTU to L’Orange for the specific Products, or portions thereof, so affected. Section 29.1 below shall remain unaffected. 

3.6.2    With regard to territories not covered by the aforementioned indemnification, L'Orange shall use its reasonable endeavors to ensure that the normal and specified use of a Product, as well as any Foreground IP developed or owned by L'Orange and licensed to MTU in accordance with the provisions of this Agreement, shall not infringe, misappropriate, or otherwise violate the Intellectual Property Rights of a third party.

3.7    Joint Development

The Parties may, from time to time, agree on pursuing jointly certain development projects. Such joint development projects shall be agreed on, in particular with respect to IP ownership and use or, to the extent not predetermined in this Agreement. pricing, between the Parties separately and shall not be subject to this Agreement.  For the avoidance of doubt, this Section 3.7 shall not limit or restrict L'Orange's rights including but not limited to exclusivity rights granted under this Agreement in respect of jointly developed Products.

4.    Purchase and Supply of Products and Services

4.1    Scope

4.1.1    L'Orange shall provide to MTU and its Affiliates, as the case may be, Products to be supplied by L’Orange hereunder, which shall be reflected in Annex 1,  as may be amended from time to time as further described in this Section 4.1.  The supply of

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Products shall be in accordance with the agreed specifications ("Product Specifications"), as amended from time to time.  Any co-governing standards set out in Product Specifications and as mutually agreed on by the Parties from time to time may be accessed by L'Orange via MTU's webpage at http://www.mtu-online.com/mtu/einkauf/downloads/index.de.html.

4.1.2    The terms of this Agreement shall apply exclusively to any individual contract on the development of New Products ("Development Contract") or to any individual contract on the sale of Products ("Purchase Contract") based on individual orders by MTU as accepted by L'Orange ("Development Orders" or "Purchase Orders" as the case may be), whether or not this Agreement or its terms are expressly referenced in the Development Order or Purchase Order (together, "Order").

4.1.3    Any deviating or additional terms, in particular the Parties' general terms and conditions, shall not apply, even if they have not been expressly rejected by the other Party or any Affiliate placing or accepting an Order under this Agreement and even if the other Party or any Affiliate placing or accepting an Order under this Agreement, having knowledge of such deviating or additional terms, performs its obligations under a Development Contract or Purchase Contract without reservation.

4.1.4    Exclusivity Requirements During the Minimum Term.

a)    During the first five (5) years of the Minimum Term, MTU shall (itself or through its Affiliates) procure 100% (one hundred percent) of its and its Affiliates' demand requirements for Current Exclusive Rights Products and [***] and, in each case, all associated services and related [***] process' demand, exclusively from L'Orange.

b)    During the last ten (10) years of the Minimum Term, MTU shall (itself or through its Affiliates) procure no less than [***] of its and its Affiliates' demand requirements for each Current Exclusive Rights Product and [***] and, in each case, all associated services and related [***] process’ demand, exclusively from L’Orange. For the avoidance of doubt, the [***] minimum demand requirements under this Section 4.1.4b) shall apply individually (by part number) with respect to each Current Exclusive Rights Product and [***].

4.1.5    With regard to New Products, in the event L’Orange fails to meet key development standards pertaining to development milestones, key customer deliverables (“KCDs”), targets and/or quality gates that have been agreed between the Parties with a specific reference to this Agreement as being of relevance for maintaining the exclusivity for the relevant New Products and continues to fail those, after being provided timely and adequate notice of such failure, to address such failure within a reasonable time,

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MTU’s exclusivity requirements of Section 4.1.4 shall cease to apply with respect to such New Products and MTU shall be entitled to award the development to a third party.  For the avoidance of doubt, nothing in this Section 4.1.5 shall in any manner affect any of L’Orange’s rights with respect to (i) any New Product not specifically being subject of such failure, or (ii) any of the provisions of Section 16.

4.1.6    With regard to Other New Products, in the event L’Orange, fails to meet key performance standards pertaining to KPIs that have been agreed between the Parties with a specific reference to this Agreement as being of relevance for maintaining the exclusivity for the relevant Other New Products and continues to fail, after being provided timely and adequate notice of such failure, to address such failure within a reasonable time, MTU’s exclusivity requirements of Section 4.1.4 shall cease to apply with respect to such Other New Products and MTU shall be entitled to award the development to and/or source the Other New Product from a third party.  For the avoidance of doubt, nothing in this Section 4.1.6 shall in any manner affect any of L’Orange’s rights with respect to (i) any Other New Product not specifically being subject of such failure, and (ii) any of the provisions of Section 16. 

4.1.7    Should MTU (itself or through its Affiliates) fail to purchase its and its Affiliates' demand pursuant to this Section 4.1, due to reasons not caused by L'Orange's inadequate performance or fault, L'Orange shall be entitled to a contractual penalty (Vertragsstrafe) in the amount of [***]% ([***] percent) of the respective value, which shall be paid in addition to any remedies L'Orange may have against MTU, such as specific performance (Erfüllungsanspruch) or damage claims. In accordance with Section 23, MTU shall maintain complete and accurate records to sufficiently reflect the purchases hereunder.

4.2    Performance Standards

Subject to Section 29.1.2:

4.2.1    L'Orange shall provide the Contractual Services in a professional and workmanlike manner by using skill and care of a highly qualified provider of such services. 

4.2.2    Annex 3 and Annex 5 set out certain current key performance indicators ("KPIs") by which the performance of L'Orange will be measured. The KPIs will be mutually agreed on by the Parties on an annual basis. 

4.2.3    Subject to acceptable lead times and order volumes within the forecasts under this Agreement, L'Orange shall implement appropriate measures to ensure an average reliability level for adherence to agreed dates and quantities of at least 95 points for all deliveries to MTU measured on a monthly basis. If L'Orange falls short of this 95-percent point target in three (3) consecutive calendar months, it shall, together with

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MTU if necessary, determine the causes and initiate further measures in order to achieve the minimum target (improvement of supplier's logistical capabilities).

4.2.4    Until such time as the agreed reliability targets are met, L'Orange shall establish a reasonable buffer with a defined range of coverage, without charging additional costs.

4.2.5    L’Orange will endeavor to continuously improve its average reliability level for all deliveries to MTU.

4.3    Exclusivity

L'Orange will deliver Products to be supplied by L’Orange hereunder and used for OEM sales to MTU on an exclusive basis. The Products to be provided for the Aftermarket sales, including spare parts, will be sold by L'Orange to MTU on a non-exclusive basis. For the avoidance of doubt, MTU or any of its Affiliates, for which MTU shall be responsible, shall not use, within the Aftermarket, any Products supplied by L’Orange hereunder and designated as being for OEM sales. MTU shall maintain complete and accurate records to sufficiently reflect the uses hereunder.

4.4    MTU Affiliates

The Affiliates of MTU are entitled to place Purchase Orders and conclude Purchase Contracts subject to the conditions of this Agreement. The conclusion of individual Purchase Contracts by the Affiliates of MTU shall leave MTU's obligations under this Agreement unaffected. MTU shall not be liable for obligations assumed by the Affiliate of MTU under individual Purchase Contracts.

5.    Capacity, Forecast, Order Process

5.1    Capacity

Subject to Section 29.1.2:

5.1.1    L'Orange shall hold available sufficient capacity for the provision of Products to be supplied hereunder. L'Orange shall at least be able to deliver the quantities of each specific Product forecasted by MTU for the next twelve (12) forecasted weeks in the monthly rolling forecast as defined in Section 5.2 (the "Monthly Rolling Forecast" or "MRF") plus a buffer of additional 15% (fifteen percent).

5.1.2    In case L'Orange does not have sufficient capacity in any relevant plant to fulfil all of its customers' requirements and if L'Orange thus needs to allocate capacity in the Plant, it shall treat MTU no less favorably than any other customer of L'Orange and shall allocate capacity accordingly to fulfil MTU's requirements. For the avoidance of doubt,

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this shall not release L'Orange from any other obligation or liability it may have under this Agreement.

5.2    Forecast

At the latest on the last Working Day of a calendar month, MTU will provide L'Orange with a non-binding Monthly Rolling Forecast for MTU's estimated demand of Products to be supplied hereunder for the twelve (12) months following the next calendar month. The MRF shall only contain Products that are needed by MTU on a regular basis.

L'Orange shall confirm in writing within seven (7) Working Days of receipt of a MRF the quantities of Products that L'Orange is able to deliver within the first twelve (12) forecasted weeks. If no such confirmation is received by MTU within the applicable period, the MRF shall be deemed to be accepted by L'Orange and the Product quantities concerned shall be assumed to be available to MTU taking into account the replenishment lead time.

5.3    Order Process

5.3.1    If MTU requests L'Orange to provide Contractual Services other than Development Services, it will issue an Order via EDI or such other format as agreed in writing between the Parties. The Parties may enter into a separate EDI agreement to further specify the details.

5.3.2    The required Products indicated in the MRF for the first six (6) weeks of the MRF shall be deemed to have been ordered by way of a binding order and are subject to daily call-offs or Kanban orders as follows:

(i)    The purpose of daily call-offs is to control on a day-to-day basis the dispatch of goods by L'Orange. The schedule line of daily call-offs within the defined horizon will not be subsequently changed. Daily call-offs do not need to be confirmed and will be deemed accepted unless rejected by L'Orange within one (1) Working Day.

(ii)    Kanban orders may be used for selected materials that are continuously consumed. Kanban orders are placed daily at agreed times and contain specific order quantities for the following day based on actual consumption. Kanban orders are deemed accepted unless rejected by L'Orange within three (3) hours of receipt provided that such Kanban order has been received prior to 2 pm local time at the Plant.

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The same applies to the required Products indicated in the MRF for the weeks seven (7) through twelve (12) of the MRF, provided, however, that MTU may deviate from such forecasted amounts by +/- 10% (ten percent).

5.3.3    L'Orange may reject an Order (including daily call-offs and Kanban orders) only if such Order is not within the volumes set out in the MRF plus a flexibility range of 15%. Unless otherwise specified for certain kinds of Orders, L'Orange shall accept or reject an Order via EDI or such other format as agreed in writing between the Parties. Except for daily call-offs and Kanban orders, if L'Orange fails to notify MTU within three (3) Working Days after receipt of an Order, such Order shall be deemed to be accepted by L'Orange.

6.    Change Request for Products

MTU may from time to time after a product enters serial production request reasonable changes in the Products, which shall be accepted by L'Orange to the extent they are technically feasible (including design and production feasibility) and subject to the following cost mechanism.

(i)    MTU will submit such change request to L'Orange in writing following which L'Orange shall evaluate the change request and its impact on the Products and respond to such request within a reasonable period of time, but in any event within three (3) weeks from receipt of such change request. Such response shall include a reasonable, good faith determination of any development costs and any impact on recurring pricing associated with such change request. Upon MTU’s request, L’Orange will provide further substantiation and support for such estimated costs.

(ii)    The Parties thereafter shall enter into good faith negotiations to reach agreement as to any development costs and recurring cost changes for such change request. In the event the Parties are unable to reach agreement, (A) the development costs for such change request shall be based on L’Orange’s standard development pricing schedules (with appropriate allocated resources and time) consistent with L’Orange’s general practices; and (B) the changes to recurring production costs shall be determined based on past practice, and in either case (A) or (B) subject to MTU’s audit rights pursuant to Section 23.  In the event the Parties cannot reach an agreement on the amounts of such increase in development costs and recurring cost changes within one (1) month after the evaluation of the respective impact by L'Orange was received by MTU, Section 28.6 shall apply.

(iii)    [***].

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7.    Terms of Delivery

7.1    Products shall be delivered FCA, L'Orange's Plant in Glatten (Incoterms 2010). L'Orange shall give timely notice to the forwarding companies commissioned by MTU and timely nominated by MTU that the Products are ready to be picked up. 

7.2    Subject to Section 29.1.2, L'Orange shall supply the Products in the agreed quantity and quality on the date specified in the respective Purchase Contract (or Order, as the case may be), which shall take into account the applicable lead times. The agreed delivery dates specified in the individual Purchase Contract are binding and shall be understood as dates on which the Products shall be received by MTU according to the Incoterm agreed (i.e., in case of FCA to be picked up in Glatten by a forwarding company chosen by MTU). 

7.3    The specific lead and delivery times for Products are set out in Annex 1. Further details on the delivery of Products are set out in Annex 4.  The delivery times set out in Annex 1 are standard delivery times calculated from the date of L'Orange's receipt of the Order until delivery of the Products to MTU or such other destination as specified in the Order, subject to the proviso that the Products have been cleared (released) for series production.

8.    Packaging Requirements

8.1    Products shall be packed and labeled in a manner sufficient to ensure the safety and good condition of the Products in transit in accordance with all applicable laws, regulations and conventions. Standard delivery specifications are included in Annex 4.

8.2    In addition to the standard delivery specifications, special packaging requirements must be observed for certain Products, which the Parties will agree to separately in individual Purchase Contracts. These special requirements usually relate to, among other things, the quantity and position of the Products per load carrier, particular packaging materials and preservation requirements.

8.3    MTU will report any alleged non-compliance with the prescribed delivery conditions to L'Orange in the form of a logistics quality report, which will, in the case of actual non-compliance, be incorporated in L'Orange's supplier evaluation.

8.4    Where load carriers / containers are provided by MTU, L'Orange shall, if commercially reasonable, participate in MTU's container management system. MTU and L'Orange will enter into a separate agreement regarding the terms of L'Orange's participation in the container management system.

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8.5    Delivery notes, invoices and other paperwork shall include specific information (such as order number, part number, position and, for replacement orders pursuant to claims for defect, the inspection report number). The Products shall also be labeled for delivery and packaged in the agreed quantity. The binding address for delivery is indicated in the individual Purchase Contract (or Order).

9.    Delay

Subject to Section 29.1.2:

9.1    If L'Orange becomes aware of a possible delay in the provision of Products, including deliveries of Products, L'Orange shall immediately (unverzüglich) - at the latest three (3) Working Days after L'Orange has become aware of the possible delay - inform MTU thereof and shall notify MTU of the corresponding estimated delivery date in writing. For the avoidance of doubt, such note shall not release L'Orange from any claims MTU may have in case of delay.

9.2    In case of delay with the delivery of Products due to the fault (Verschulden) of L'Orange, L'Orange shall pay to MTU a contractual penalty (Vertragsstrafe) [***]. The contractual penalty shall be accounted against any damage claims or other rights MTU may have in addition. Section 341 para. 3 BGB shall not apply; however, a claim of MTU to a contractual penalty under this Section 9.2 shall expire if it has not been asserted in writing within one month after delivery of the Products affected by the relevant delay. 

10.    Quality of Products, Claims for Defects

Subject to Section 29.1.2:

10.1    The Products shall comply with the Product Specifications, otherwise the Products are deemed to be defective.

10.2    Notwithstanding Section 10.1, a Product shall not be deemed to be defective if the Product fails due to normal wear and tear, the Product was modified or repaired by unauthorized Person, in case of non-compliance with storage, maintenance, inspection or operating instructions or in case of operation outside the intended use.

10.3    In case of defects to the Products MTU will be entitled to the claims for defects under statutory law unless otherwise provided in this Agreement; claims related to defects in title (Rechtsmangel) and/or violation of third party Intellectual Property Rights are restricted to the territory of the European Economic Area and the United States of America. However, the right to price reduction (Minderung) of the individual Purchase Contract shall be excluded.

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10.4    The limitation period for claims for defects is [***].  

10.5    In case of defects, L'Orange shall send to MTU a statement in the form of an 8D report on the immediate action taken in response to reported defects within 48 (forty-eight) hours after receiving the notice of defects. The report shall be sent by e-mail to ***@***. L'Orange shall also advise MTU in the form of an 8D report of the cause of the defect or perpetrator identified by it and the action initiated to permanently cure the reported defects within fifteen (15) Working Days of receiving the notice of defects or the defective Product (whichever occurs first). The report shall be sent by e-mail to ***@***.

10.6    To the extent technically and commercial feasible, L'Orange shall rectify material defects in Products which have been distributed to MTU's customers or end consumers, upon mutual agreement by the Parties, either at the location of the Product or the place of performance, and will do so without delay and free of charge by repair or replacement of defective parts.

10.7    [***].

10.8    [***].

10.9    In the event of defects in quality, L'Orange shall, at MTU's reasonable request, inspect the stock of Products at MTU's warehouse. If reasonably requested to do so, L'Orange will advise MTU within 48 (forty-eight) hours of who will conduct the stock inspection and at what time. In order to ensure the availability of the materials it requires for production and assembly, MTU may (at L'Orange's costs) engage a suitable third party to conduct the stock inspection if L'Orange or a third party engaged by L'Orange fails to commence the stock inspection within a reasonable time or at all. The stock inspection may also include other Products which could potentially be affected by the same defect in quality as the Product originally notified as defective.

10.10    [***]

10.11    Products which cannot be used by MTU because of defects will be returned to L'Orange only after consultation with L'Orange.

10.12    If the use of the Products leads to a breach of Intellectual Property Rights of a third party, then as a general rule L'Orange shall, at its own expense, procure a right for MTU to continue using the Products, or modify the Products in a manner reasonable for MTU so that the Intellectual Property Rights are no longer breached, provided that such breach occurred after the Effective Date. If this is not possible on commercially reasonable conditions or within a reasonable period of time, MTU is, in addition to any

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remedies MTU may have against L'Orange in connection with this Agreement, entitled to withdraw from the individual Purchase Contract.

10.13    The Parties undertake to inform each other immediately of defects in title that become known and alleged rights violations, and to give each other the opportunity to take mutually agreed action against such claims. However, L'Orange may defend such claims at its sole reasonable discretion, in which case MTU shall provide reasonable support in defending such claims.

10.14    MTU will reimburse L'Orange for the costs incurred by L'Orange as a result of unsubstantiated complaints.

11.     Limitation of Liability

11.1    L'Orange's annual liability for any claims by MTU under this Agreement is limited to a total amount of [***] ("Liability Cap"). 

11.2    L'Orange's liability under this Agreement resulting from business interruption, loss of business, revenue, profit, goodwill, business opportunity, anticipated earnings or savings or unforeseeable or atypical damages, costs, expenses or losses shall be excluded unless and to the extent such damages are covered by the amounts, if any, actually paid to L'Orange under its insurance policies. In case such damages are, in fact, so covered, L'Orange shall be liable for such damages under this Agreement to the extent of the amounts actually paid to L'Orange under its insurance policies with respect to such damages. L'Orange shall be in this respect obliged to make commercially reasonable efforts to receive such actual payments under the respective insurance coverage. For the avoidance of doubt, nothing in this Section 11.2 shall in any way oblige L'Orange to obtain insurance coverage exceeding the coverage agreed on in Section 22.

11.3    For the avoidance of doubt, the limitations of liability under Sections 11.1 and 11.2 shall not apply to any liability due to willful misconduct.

11.4    To the extent that L'Orange is not liable under this Agreement, MTU shall defend, and indemnify L'Orange from and against any third party claims and hold harmless L'Orange against MTU's and its Affiliates claims with regard to Losses. Subject to Section 11.5, the foregoing obligation to indemnity (not however, the obligation to hold harmless), shall only apply to the extent such damages are caused by MTU's and/or its Affiliates fault (Verschulden) and subject to the limitations on liability set out Sections 11.1 and 11.2.

11.5    Indemnification in relation to [***].

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12.    Quality Assurance

Subject to Section 29.1.2:

12.1    L'Orange shall have an adequate quality management system in place and act in line with it. L'Orange shall comply with the quality assurance requirements (quality assurance standard MTQ 5003 and standard production and assembly specification MMN 332) set out in Annex 5. In order to ensure L'Orange's long-term compliance with the quality management standards, the Parties intend to enter into a separate quality management agreement substantially in accordance with the template provided in Annex 5 within six (6) months from the Effective Date of this Agreement.

12.2    L'Orange shall be responsible for the inspection of outgoing Products in accordance with Annex 5. The inspection duties of Section 377 of the German Commercial Code (HGB) shall apply only with respect to identity, quantity and any evident damages, or losses during transport. To the extent MTU - without acknowledgement of any legal obligation to conduct inspection beyond the scope defined in the foregoing sentence - becomes aware of any defects upon delivery of Products in accordance with Section 7.1, MTU will immediately (unverzüglich) notify the corresponding transport person and L'Orange of such defect, damage or loss.

13.    Product recall 

13.1    Where an authority or government agency with the power to order a recall of the Products has notified MTU or L'Orange in writing that, or where MTU or L'Orange has a reasonable reason to assume that the Products:

(i)    pose a potential safety risk or could create or cause dangerous situations, including the risk of serious injury or death; or

(ii)    have a material fault, material defect or are otherwise of material impaired quality; or

(iii)    do not comply with material statutory or other applicable requirements and standards; and

(iv)    to the extent deemed reasonably advisable or necessary on these grounds, the Products concerned must be recalled and/or repaired;

L'Orange and MTU will immediately inform one another of the situation and of the underlying facts and circumstances.

13.2    Except in cases where a recall is unavoidable because it has been legally ordered by the competent authority or government agency or is time-critical due to the safety risk

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deriving from the defect, the Parties shall discuss in good faith and agree whether a recall of the Products concerned is appropriate.

13.3    If a recall is required pursuant to statutory provisions, or where the Parties agree that a recall is appropriate, L'Orange will promptly develop a plan or plans for implementing corrective measures, which will include, among other things, reasonable measures that are necessary and required pursuant to the statutory provisions or other requirements and standards applicable in the specific case. L'Orange will present such plans for corrective measures to MTU for its review and approval prior to their implementation.

13.4    MTU and L'Orange will work together and jointly ensure that the plans for corrective measures are reasonable and acceptable to both Parties before their implementation. To enable identification of the Products, L'Orange will provide MTU with usable delivery data and identifying features as and when reasonably requested.

13.5    MTU may at any time itself take any corrective measures and, if either (i) legally ordered by the competent authority or government agency, or (ii) reasonably required, send information to the competent authorities and government agencies involved. In such cases, L'Orange shall reasonably cooperate with MTU accordingly and offer its reasonable support.

13.6    Where it is established that the recall was caused by fault, material defect or other material quality impairment or material failure to comply with quality standards or statutory or other applicable requirements and provisions for which a Party is responsible, that Party will, at its own expense, and depending on the other Party's reasonable election, either carry out all of the repairs and adjustments necessary as part of the recall, or, provided that the recall was caused by fault (Verschulden), reasonably compensate the other Party for all reasonable costs incurred as a result of or in connection with the other Party carrying out the repairs and adjustments itself. The foregoing does not apply if a Party is not responsible for the cause for the recall.

13.7    Each Party will consult the other before notifications relating to potential safety concerns associated with the relevant products are released to the public, the media or authorities and government agencies. However, there shall be no obligation to consult if prior consultation would prevent timely notification of safety concerns under the relevant statutory provisions.

14.    [***] and Component Supplies

14.1    [***].

14.2    Prior to the Effective Date, L'Orange obtained supplies of certain components for its products, including without limitation [***], from MTU or its Affiliates. The Parties wish

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to continue such supply also in the future. The supply shall be based on individual orders placed by L'Orange, at the prices applicable between L'Orange and the respective supplier during the calendar year 2017 and, in other aspects, subject to German statutory laws. Deviating from the currently applicable terms or German statutory law, the supplies from MTU or its Affiliates to L'Orange shall be subject to the warranty limitation period applicable between the Parties under this Agreement at the time the order for such components is issued. Prices for such components shall be adjusted upwards or downwards by the same percentage as prices for the Products, for which such components are used, change after the Effective Date.

15.    Spare Parts

L'Orange will supply the spare parts for Products during the entire lifetime of the End Product series and for a period of [***] years after serial production of the particular End Product has been stopped. In the case of Products intended for military or rail use, L'Orange will supply the spare parts for Products during the entire lifetime of the End Product series and for a period of [***] years after serial production of the particular End Product has been stopped, provided that corresponding obligations exist in MTU's customers' contracts and MTU has informed L'Orange about the Products concerned at the end of the serial production.  

All parts or Products delivered to and/or ordered by MTU's warehouse in Überlingen, including [***], shall be considered spare parts and thus being determined for the Aftermarket. No parts or Products that have not been ordered by or delivered to MTU's warehouse in Überlingen shall be used as spare parts.

The usual ratio of spare parts among Products ordered by MTU from L'Orange will be measured during a calendar year. MTU will report to L'Orange the ratio of spare parts among the Products ordered and delivered on an annual basis in January. Should L'Orange have any reasonable basis to so request (such reasonable basis shall include, by way of illustration only and without limitation, the ratio of spare parts among the Products ordered fall by more than [***]% ([***] percent) below the usual ratio), L'Orange will be entitled to request and receive detailed documentation confirming that no Products not determined in accordance with the foregoing paragraph as spare parts have been sold to the Aftermarket.  For the avoidance of doubt, this provision shall be without prejudice to, and in no way shall affect, either Party’s rights pursuant to Section 23.

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16.    Prices, Invoices, Payment and Adjustments

16.1    Product Prices 

16.1.1    The current prices for Products, including but not limited to spare parts, are set out in Annex 1, as amended from time to time to include prices for Products as referred to in Section 3.1.4, as adjusted in accordance with this Section 16.1 (such prices for Products, "Product Prices").

16.1.2    The Product Prices for (i) Current Exclusive Rights Products, to the extent the Product Prices are not set out in Annex 1 upon signing of this Agreement, and (ii) [***], shall be determined so as to achieve the gross margins ((sales - cost of goods sold) / sales) achieved by L’Orange during calendar year 2017 for similar Products sold by L’Orange to MTU for, as applicable, OEM and for Aftermarket [***]; provided, however, that if such Product has not substantially achieved mature volumes, gross margins shall be as planned at maturity.

16.1.3    In the event pricing for Products to be sold hereunder as of the Effective Date is not reflected in Annex 1, the pricing established pursuant Section 16.1.2 shall be made applicable retroactively as of January 1st, 2018; provided that, in the case of Aftermarket sales, retroactive pricing from January 1, 2018 through the day prior to the Effective Date shall not take into consideration the [***].

16.1.4    The Product Prices are exclusive of applicable VAT and shall be paid in Euro.

16.1.5    The Product Prices for any Product that is or becomes subject to this Agreement, shall be subject to the following annual price adjustment for each calendar year beginning with calendar year 2019 based on the below [***] escalation formula; [***].

16.1.6    L’Orange and MTU will work together toward continuous improvement (VA/VE) objectives on an ongoing basis to endeavor to offset labor and material inflation that face the relevant markets, supply base and industries. [***].

16.2    Invoices

16.2.1    Each invoice of L'Orange to MTU shall in all respects comply with the requirements of a proper invoice.

16.2.2    L'Orange shall send each invoice to the address indicated in the corresponding Order or as otherwise notified by MTU.

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16.3    Payment Terms

16.3.1    MTU shall pay invoices for Contractual Services within [***] after receipt of the corresponding invoice in accordance with Section 16.2 and after provision of the corresponding Contractual Services by L'Orange.

16.3.2    Payment shall not be deemed an acceptance of Contractual Services, including Products, by MTU.

16.4    Aftermarket [***]

16.4.1    For purposes of this Section 16.4

[***] shall mean [***].

[***]

[***] shall mean

(i)    For FY2018, [***]

(ii)    For FY2019, [***]

(iii)    For FY2020, [***]

(iv)    For FY2021, [***]

(v)    For FY2022, [***]

(vi)    For FY2023, [***].

16.4.2    [***].

16.4.3    [***].

16.4.4    [***].

16.4.5    [***]

17.    Offset Agreements 

L'Orange agrees that the individual Purchase Contracts (Orders) are placed with respect to MTU's offset obligations worldwide. Therefore, the procurements and activities done based on such individual Purchase Contracts (Orders) may be reported as offset in each order country by MTU or MTU's customer. L'Orange will endeavor to assist MTU in connection with the recognition process reasonably necessary for MTU

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to fulfill the requirements of offset of the respective country and its current offset policy. MTU's offset management will inform L'Orange about the country and such country’s valid offset policy.

18.    Compliance, Environmental Protection

18.1    L'Orange shall comply with all applicable local and European statutory laws, regulations, directives (in particular but not limited to the EU "New Approach and Global Approach" Directives, REACH or Machinery Directive and its German implementation) and other official requirements, such as safety standards and guidelines of public authorities, trade associations and professional associations as well as any applicable safety, workers' protection and health and environmental regulations and to obtain all necessary permits required to fulfill its obligations under this Agreement.

18.2    L'Orange shall ensure that all components and materials included in the Products comply at the time of their delivery with all applicable statutory and official requirements relating to constituent substances, chemical work and material safety and environmental protection within the European Economic Area and/or the United States of America. L'Orange shall ensure that the Products comply with the legal requirements that must be met so that the Products are legally allowed to be implemented into End Products and marketed to end customers within the territory of the European Economic Area and/or the United States of America. 

18.3    L'Orange shall inform MTU without undue delay (unverzüglich) in the case L'Orange becomes aware that, following the Effective Date, any Product sold by L’Orange hereunder does no longer comply with the requirements set out in Section 18.2.

18.4    L'Orange may retain performance towards MTU if it would violate such requirements set out in Section 16.1 for reasons not due to L'Orange's fault or responsibility.

19.    Export Control and Foreign Trade Data Regulations

19.1    L'Orange acknowledges and agrees that the Products and Contractual Services provided hereunder may be subject to the export control laws and regulations of the United States, EU and national legislation. This includes but is not limited to the Export Administration Regulations (EAR), German Global Trade Regulations (Aussenwirtschaftsgesetz / Verordnung), EU Dual-Use-Regulation and sanctions regimes of the U.S. Department of Treasury or Office of Foreign Asset Controls. For all Products to be delivered and Contractual Services to be provided L'Orange shall comply with all applicable export control, customs and foreign trade regulations ("Foreign Trade Regulations") and shall, at MTU's expense, obtain all necessary export licenses, unless MTU or any party other than L'Orange is required to apply for

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the export licenses pursuant to the applicable Foreign Trade Regulations. In any case, L'Orange shall, to a reasonable extent and at no cost to MTU, provide all necessary documents, specifications, certificates etc. that are required by law. MTU shall provide assistance in properly identifying this documentation.

19.2    L'Orange shall advise MTU in writing (including fax and email) as early as possible but not later than five (5) weeks prior to the agreed delivery date of any information and data required by MTU to comply with all Foreign Trade Regulations for the Products and Contractual Services applicable in the countries of export and import as well as re-export in case of resale. MTU shall provide reasonable assistance in properly identifying this information and data required.

19.3    MTU's and L'Orange' obligation to fulfill this Agreement and any individual order resulting therefrom is subject to the proviso that the fulfillment is not prevented by any impediments arising out of national and international foreign trade and customs requirements or any embargos or other sanctions.

20.    Code of Conduct

20.1    L'Orange shall implement procedures that demonstrate its commitment to the Rolls-Royce Supplier Code of Conduct as set out in Annex 6 ("Code of Conduct"). L'Orange shall use its commercially reasonable efforts to communicate these principles to its suppliers and encourage them to implement practices consistent with these principles. L'Orange will further endeavor to convey these principles in an appropriate manner to its employees.

20.2    MTU reserves the right, upon reasonable written notice, to review the L’Orange ethics program, and L’Orange shall provide reasonable support to MTU in the conduct of any such review.

21.    Anti-Bribery and Corruption

21.1    Each Party makes the following warranties to the other Party on the date of this Agreement:

21.1.1    that this Agreement, the relationship created hereby and its activities hereunder and including any services rendered on its behalf by any third party in relation to the activities undertaken pursuant to this Agreement, do not and will not violate applicable laws, including but not limited to the ABC Legislation, or put the other Party in violation of any such laws;

21.1.2    that its Representatives and any other Person acting on its behalf have not, in respect of the subject matter of this Agreement authorised, offered, promised, paid or

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otherwise given anything of value, any benefit or any financial or other advantage to or for the use or benefit of:

(i)    any Government Official;

(ii)    any director, officer, employee, agent or representative of any commercial organisation or private individual; or

(iii)    any other Person, entity or third party intermediary while knowing or having reason to know that all or any portion of such payment, thing of value or advantage would be offered, promised, paid or given to any of the Persons described in Section 21.1.2,

for the purpose of improperly influencing any act, inaction or decision by such Person in order to obtain or retain business, direct business to any Person or secure any other advantage;

21.1.3    that its Representatives and any other Person acting on its behalf have not, in respect of the subject matter of this Agreement engaged in any other conduct which would constitute an offence under the ABC Legislation; and

21.1.4    that neither it nor any Person acting on its behalf, including without limitation any of its current or former directors, officers or employees, whether directly or indirectly, in connection with the subject matter of this Agreement, will carry out any of the acts described in Section 21.1.

Each Party will procure compliance with the provisions of Section 21.1 by any Person acting on its behalf, including its Representatives, in relation to this Agreement.

22.    Insurance

22.1    L'Orange shall maintain at least the following insurances, each with an insurance coverage of [***] per occurrence and of [***] per aggregate:

(i)    commercial general liability insurance inclusive of coverage for public liability and product liability; and

(ii)    property insurance covering business interruption coverage.

22.2    L'Orange shall give immediate written notice to MTU in the event of a cancellation, material variation of terms, default or any other change to the insurance coverage L'Orange has to maintain according to this Section 22 that may affect MTU's interest.

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23.    Audit

23.1    Upon 15 (fifteen) Working Days prior notice, each Party or any accountant nominated by such Party shall have the right to audit any place where the other Party performs work in connection with this Agreement and has the right to audit, examine and inspect all or any portion of the other Party’s records and documents related to and relevant for this Agreement on the audited Party’s property as such auditing Party may reasonably require for the purpose of verifying the other Party’s compliance with its obligations under this Agreement. Such audit shall be made during the usual business hours.

23.2    The audited Party shall provide competent personnel with sufficient knowledge of any books, documents and records and shall reasonably assist the auditing Party or the accountant during the audit.

23.3    The audit shall generally be conducted at the auditing Party’s cost, except in cases where the audit reveals that the audited Party has been in breach of obligations under this Agreement to the disadvantage of the auditing Party; in such case the audited Party shall bear the respective costs for the audit. The audited Party shall also bear the costs of event-related audits in cases where the audit has been conducted due to repeated deliveries of defective Products, provided, however, that in such case the audited Party shall pay to the auditing Party a lump sum fee of EUR 2,000 per event-related audit.

23.4    If the audit reveals that the audited Party is in breach of obligations under this Agreement, the audited party shall immediately take all actions reasonably necessary to remedy such breach and to be in compliance with the obligations under this Agreement. Further, if the audit reveals that the auditing Party can be held responsible for defects of Products due to faulty manufacturing, an 8D Report will be generated by the auditing Party, applied and provided to MTU.

24.    Confidentiality and Publications

24.1    The Parties shall keep confidential all documents, information, Know-How and data furnished by or on behalf of a Party ("Disclosing Party") to the other Party ("Receiving Party") and which the Disclosing Party orally or in writing marks or designates as or are of the nature such that they may be presumed to be 'confidential' and which are made available to them or of which they gain knowledge on the basis of the co-operation under this Agreement ("Confidential Information"). This also applies to the existence and the content of this Agreement, MTU Intellectual Property Rights (in this case MTU as Disclosing Party) and L'Orange Intellectual Property Rights (in this case L'Orange as Disclosing Party). The Parties shall treat the Confidential Information in the same way as its own confidential information, but at least with the

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due care of a prudent businessman. This obligation shall apply for 10 (ten) years after this Agreement has terminated.

24.2    Any disclosure by a Receiving Party of the Disclosing Party's Confidential Information to third parties requires the Disclosing Party's prior written consent. Disclosure of Confidential Information to directors, officers, employees, temporarily contracted personnel, agents, contractors and subcontractors is permitted only within the scope required for the performance of the obligations incumbent on the Parties under this Agreement.

24.3    Confidential Information shall not include and the foregoing obligations shall not apply to any information:

(i)    which had been known to the Receiving Party before the latter received the same from the Disclosing Party;

(ii)    which the Receiving Party developed itself independently without recourse to or use of the information of the Disclosing Party;

(iii)    which the Receiving Party lawfully obtained from third parties who to the knowledge of the Receiving Party (a) were not subject to any confidentiality undertaking towards the Disclosing Party and (b) such third parties in turn did not acquire the information through the infringement of protective provisions in favor of the Disclosing Party;

(iv)    which became known to the Receiving Party without violation of these provisions or any other regulations on the protection of business secrets of the Disclosing Party or are or were publicly known; or

(v)    which the Receiving Party must disclose based on statutory, official or judicial order; in this case the Receiving Party shall inform the Disclosing Party prior to the disclosure and shall restrict as far as possible the scope of such disclosure.

24.4    Upon the Disclosing Party's request or after termination of this Agreement, the Receiving Party shall promptly either return to the Disclosing Party all Confidential Information received by the Receiving Party or destroy such Confidential Information and confirm in writing to the Disclosing Party that the Confidential Information has been destroyed. For the sole purposes of (i) evidencing compliance with this Agreement in the case of disputes in connection with this Agreement and (ii) complying with legal obligations, the Receiving Party may maintain a secure file containing a single copy of the Confidential Information returned to the Disclosing Party.

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24.5    All publications in connection with the subject matter of this Agreement require the respective other Party's prior written consent.

25.    [***], Force Majeure 

25.1    [***].

25.2    If L'Orange is hindered in its performance of its contractual obligations due to force majeure such as mobilisation, war, terrorism, unrest, fire, flood or other unforeseeable circumstances for which L'Orange is not responsible, such as strikes or lock-outs, disruptions in operations, shortage of transportation, difficulties in procuring raw materials or inadequate deliveries to L'Orange by its suppliers, the agreed delivery periods shall be extended in each case by the duration of the hindrance plus a reasonable start-up period, but by three months at the most. L'Orange shall not be responsible for the foregoing circumstances even where such circumstances occur during an already existing default. L'Orange shall notify MTU of the circumstances of the hindrance as well as the probable duration of the delay and take reasonable steps to mitigate the consequences of the force majeure event.

If the hindrance lasts for two (2) months or longer, each Party may rescind the affected Order.

26.    Term and Termination

26.1    This Agreement shall commence on the closing date of the transaction contemplated by the Sale and Purchase Agreement in relation to the Transaction ("SPA") (such date, the "Effective Date"), subject to the condition precedent (aufschiebende Bedingung) that closing under the SPA took place.

26.2    This Agreement shall have an indefinite term. It may be terminated by either Party by 18 (eighteen) months' prior notice, but in no event with effect prior to 31 December 2032 ("Minimum Term") (in which case the termination notice has to be served by 30 June 2031 the latest). In the event that the Minimum Term is not extended, the terms and conditions of this Agreement shall remain applicable to any performance of obligations under this Agreement. 

26.3    The right to termination for good cause (Kündigung aus wichtigem Grund) shall not be affected. For MTU, such good cause exists only if:

(i)    L'Orange repeatedly and continuously is in material non-compliance with Product Specifications; provided that in all cases L'Orange shall have the right to cure this breach within a reasonable period, which shall reflect commercially reasonable technical capacities and resources of L'Orange required to cure this

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breach; in particular, given the importance of the long-term development and purchase commitments by MTU and its Affiliates towards L'Orange under this Agreement, (a) the reasonable period to cure this breach shall be no less than twelve (12) months, (b) MTU shall provide all reasonable efforts in supporting L’Orange’s efforts to cure such breach, and (c) for so long as such breach remains uncured, on a quarterly basis the matter must be elevated to each Party’s respective highest principal officer. 

(ii)    L'Orange finally ceases to provide Contractual Services to MTU;

(iii)    a Party becomes insolvent, an application to initiate insolvency proceedings against a Party has been filed, any such application has been rejected due to lack of assets, any executions against a Party have been fruitless or any execution measures have been initiated against a Party which have not been cancelled within one (1) month (e.g. cancellation of seizure) (in this case, without prejudice to any other termination rights L'Orange may have, termination right also for L'Orange); or

(iv)    a Competitor Change in Control in L'Orange occurs and MTU has a reasonable basis to believe in good faith that the competitor gaining Control in L'Orange will cause a material breach of this Agreement by L'Orange, in which case this subsection (iv) shall apply. Should such Competitor Change in Control occur during the Minimum Term, MTU shall be entitled to exercise its right to terminate this Agreement by serving a termination notice within six (6) months from such Competitor Change in Control becoming effective; such termination notice shall end this Agreement twelve (12) months after having been served. In such case, [***];

(v)    a Competitor Change in Control in L'Orange occurs and MTU does not have a reasonable basis to believe in good faith that the competitor gaining Control in L'Orange will cause a material breach of this Agreement by L'Orange, in which case this subsection (v) shall apply. Should such Competitor Change in Control occur during the Minimum Term, MTU shall be entitled to exercise its right to terminate this Agreement by serving a termination notice within six (6) months from such Competitor Change in Control becoming effective; such termination notice shall end this Agreement twelve (12) months after having been served. In such case, MTU shall be obliged to compensate L'Orange for the fair market value of the future business lost by such termination. For this purpose, the fair market value of the future business lost shall be established by using valuation methodology and inputs (net present value of future cash flows, discount rates, EBITDA multiples, etc.) that are comparable to methodologies and inputs for

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the valuation that are reasonable for M&A transactions of a similar business within the applicable industry. In such case, [***].

26.4    Termination notices have to be in writing.

26.5    In case of termination of this Agreement by either Party, except for cases in which L'Orange terminated this Agreement due to good cause, L'Orange shall immediately provide reasonable assistance to enable MTU to continue the provision of Contractual Services within due time. L'Orange shall in particular allow MTU to place final purchase Orders and provide any documentation, technical assistance and training as well as license any L'Orange IP rights required for the provision of Contractual Services. Except for cases in which L'Orange terminated this Agreement due to good cause, L'Orange will after termination of this Agreement further deliver Products to MTU based either on individual purchase orders or on a separate transition agreement to be concluded, until MTU has found a new supplier, but in no event longer than 12 (twelve) months after this Agreement has terminated. Such deliveries shall in no event lead to an extension of this Agreement.    

26.6    Upon termination, either Party shall without undue delay (unverzüglich) return to the other Party all Confidential Information, Know-How as well as Background IP, unless provided otherwise in this Agreement.

26.7    The termination shall have no effect on already concluded individual Purchase Contracts.

27.    Competitor Change in Control

27.1    In the event (and only in the event) of a Competitor Change in Control, the following shall automatically become effective immediately upon the Competitor Change in Control:

27.1.1    [***]

27.1.2    [***].

27.1.3    [***].

27.1.4    [***].

27.1.5    [***].

27.2    In deviation from Section 27.1, Section 27.1.5 shall apply immediately prior to Competitor Change in Control and L'Orange shall notify MTU about such upcoming

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Competitor Change in Control in writing reasonably prior to such Competitor Change in Control, to enable MTU to exercise its right under Section 27.1.5(iv).

28.    Dispute Resolution

28.1    Any dispute or controversy arising out of or in relation to this Agreement including its existence, validity or termination ("Dispute") shall be settled amicably by negotiation between the Parties within 30 (thirty) days from the date of written notice of either Party of the existence of such Dispute.  

28.2    Failing such amicable settlement, all Disputes shall be escalated by either Party to the "Management Board" consisting of representatives of both Parties at least of vice president level. Such Dispute shall be settled amicably by negotiations between the members of the Management Board within 30 (thirty) days from the date of the written notice of escalation.

28.3    Failing such amicable settlement by the Management Board, all Disputes shall be finally settled in accordance with the Arbitration Rules of the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtbarkeit e.V. (DIS)) without recourse to the ordinary courts of law. Temporary relief (Einstweiliger Rechtsschutz) before the courts of the competent jurisdiction shall remain unaffected. If temporary relief is sought before the ordinary courts, the courts of Munich, Germany, shall have jurisdiction.

28.4    The place of arbitration is Munich, Germany. The arbitral tribunal consists of three arbitrators and the chairman shall be eligible for the office of a judge in Germany. The language of the arbitral proceedings is English. The arbitral tribunal shall also determine the costs of the arbitration proceeding, including reasonable attorney fees, and decide upon their allocation among the Parties.

28.5    The Parties undertake to keep confidential (i) all awards obtained in the arbitration, (ii) all materials submitted or created for the purposes of the arbitration and (iii) all other documents produced by a Party, in each case of (i) to (iii) except and to the extent that information or documents are (x) already lawfully in the public domain, or (y) disclosure thereof may be required by a Party to comply with mandatory law or to protect or pursue a legal right or to enforce or challenge an award granted in legal proceedings before a court.

28.6    Solely with respect to those instances in which this Agreement refers to this Section 28.6 and in the event in such instances the Parties could not otherwise reach an agreement on a reasonable price determination or reasonable cost determination or other value determination required in this Agreement, such reasonable determination of price, cost or other value in accordance with the principles agreed between the

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Parties for the relevant price, cost and/or other value shall be conducted by an independent and neutral expert or auditor (Sachverständiger oder Wirtschaftsprüfer) mutually agreed on by the Parties. Should the Parties not be able to agree on a neutral expert or auditor within ten (10) days, each Party shall have the right to refer the matter to the Chamber of Industry and Commerce Bodensee-Oberschwaben (IHK Bodensee-Oberschwaben) to determine the respective expert or auditor. The neutral expert or auditor shall make its decision in accordance with Section 317 of the German Civil Code (BGB) and the respective decision shall be binding and final unless it shows manifest errors. Any costs and expenses incurred by the neutral expert or auditor shall be borne equally by the Parties. 

29.    Miscellaneous

29.1    No Breach of Agreement

29.1.1    Any claims of MTU or any of its Affiliates against L'Orange under this Agreement ("MTU Claim Basis") shall be excluded to the extent the facts relating to the MTU Claim Basis, (i) constitute a previous or continuing course of action that qualifies as a breach of the representations, warranties, guarantees, covenants or indemnification obligations (collectively, "Guarantees") provided by MTU pursuant to the SPA or this Agreement, or (ii) are caused by a breach of the TSA (during its term) by MTU or its Affiliates; in each case, such exclusions shall apply without regard to any applicable limitations in the SPA or the TSA that may preclude the enforcement of such Guarantees or corresponding claims under the TSA such as, without limitation, expiry of limitation period, de-minimis amount, threshold, caps, and disclosure schedules.

29.1.2    To the extent (i) this Agreement imposes on L'Orange any performance obligations in connection with Sections 4.2, 5.1, 7.2, 9, 10 and 12 ("Agreed Performance Standard"), and (ii) L'Orange’s actual performance during the last 12 months prior to the Effective Date would have constituted a breach of such Agreed Performance Standard, L’Orange shall for the first six (6) month period following the Effective Date be held only to the standard of L’Orange’s actual performance during the 12 month period prior to the Effective Date ("Baseline Performance Standard"). L'Orange shall thereafter endeavor to achieve the Agreed Performance Standard as soon as reasonably practicable, at improvement rates consistent with past performance improvement rates that L'Orange has demonstrated, or such greater improvement rates as can be reasonably expected by MTU (e.g., such as those reflected on mutually agreed scorecards), until the Agreed Performance Standard is achieved. 

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29.2    Entire Agreement

This Agreement represents the entire provisions relating to the subject matter of this Agreement and replaces all previous provisions agreed between the Parties in respect of the subject matter of this Agreement, in particular the frame agreement between MTU und L'Orange (Rahmenvereinbarung) dated 30 July 2010 (document 20100205_Rahmenvereinbarung_L'O_MTU_12.doc). For the avoidance of doubt, any orders placed by MTU with L'Orange before the Effective Date and regarding the subject matter of this Agreement shall remain unaffected. Annexes form an integral part of this Agreement. No oral side agreements have been made.

29.3    Written Form Requirement

Amendments and modifications to or cancellation of this Agreement including its Annexes shall be made in writing in order to be valid. This shall also apply to the cancellation of this written-form requirement. For the avoidance of doubt, email and fax shall not be sufficient to comply with this written-form requirement.

29.4    Severability

Should any provision of this Agreement be or become, either in whole or in part, void, ineffective or unenforceable, then the validity, effectiveness and enforceability of the other provisions of this Agreement shall remain unaffected thereby. Any such invalid, ineffective or unenforceable provision shall, to the extent permitted by law, be deemed replaced by such valid, effective and enforceable provision as most closely reflects the economic intent and purpose of the invalid, ineffective or unenforceable provision regarding its subject-matter, scale, time, place and scope of application. The aforesaid rule shall apply mutatis mutandis to fill any gap that may be found to exist in this Agreement.

29.5    Notices

To the extent notifications or other declarations to the other Party have to be made in writing, email and fax shall be sufficient to comply with this written-form requirement.

29.6    Assignment

Without the respective other Party's prior written consent, no Party shall, in part or in whole, assign its rights and obligations under this Agreement. However, each Party may assign its contractual position (i.e. its rights and obligations as a whole) under this Agreement to its Affiliates upon the other Party's prior written consent; such consent must not be unreasonably withheld or delayed.

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29.7    Assignment of IP Rights 

L'Orange may only assign any item of Foreground IP or Background IP to which a license is granted to MTU under this Agreement to any third party if such assignment does not affect the terms of the respective license granted to MTU, unless MTU agrees otherwise in writing. Any attempted assignment, directly or indirectly, made in breach of this Section 29.7 shall be null and void ab initio, and L'Orange shall indemnify and hold MTU harmless from and against any damage resulting therefrom.

29.8    Subcontracting

L'Orange shall not, without prior written consent of MTU, materially subcontract a substantial portion of the provision of any Contractual Service or parts thereof to third parties. Even if MTU consents to such subcontracting, L'Orange will remain fully responsible for the proper and timely provision of all Contractual Services. For the avoidance of doubt such consent must not unreasonably be withheld or delayed.

29.9    Language

This Agreement, its words and phrases are to be construed under German law paying regard to the use of English as language of convenience for both Parties. Terms in brackets shall have their meaning under German law without recourse to any other law.

29.10    Governing Law

Any and all legal relationships relating to this Agreement shall be governed exclusively by the laws of the Federal Republic of Germany, excluding the UN Convention on Contracts for the International Sale of Goods (CISG).

29.11    Order of Precedence

Except to the extent that any other provision of this Agreement provides to the contrary by express reference to the order of precedence of documents, if there is any inconsistency between this Agreement, any Order or any Annex, the documents will take the following order of precedence:

(i)    the body of this Agreement;

(ii)    the Annexes to this Agreement;

(iii)    accepted Order.

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29.12    Annexes

The following Annexes are part of this Agreement:





 

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Annex 1 to the Frame Development and Purchase Agreement – Price List





[***]













 

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Annex 2a to the Frame Development and Purchase Agreement – [***]





[***]











 

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Annex 2b to the Frame Development and Purchase Agreement – [***]





[***]











 

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Annex 3 to the Frame Development and Purchase Agreement – [***]





[***]











 

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Annex 4 to the Frame Development and Purchase Agreement – MTU’s General Specifications for Delivery





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Annex 1

Bloggs & Sons

Main St. 1 D-77777 Anytown







The delivery contains the following packaging:

2KLT-6428

1KLT-1234



 

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Annex 5 to the Frame Development and Purchase Agreement







Quality Assurance Agreement









between









MTU Friedrichshafen GmbH

Maybachplatz 1

88045 Friedrichshafen



– hereinafter referred to as 'Customer' –









and









Company

Street address/Post Office box

Town, zip/postal code



– hereinafter referred to as 'Supplier' –









Revision

As at:



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Table of Contents:



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0.    Preamble

The Customer and the Supplier are parties to a framework agreement concluded in (hereinafter referred to as the 'framework agreement'), of which the subject is the delivery to the Customer by the Supplier of products individually named in the framework agreement.

Among other things, this framework agreement makes provisions for certain quality management requirements whose purpose is to reduce the costs for defective products and to avoid materials defect liability and product liability claims being made by the Customer's customers.

The aim of this Quality Assurance Agreement is to ensure supply quality on a long-term basis. Supply quality is to be assured through the consistent implementation of quality improvement measures. To this end, maximum defect rates are to be specified, as are the consequences that arise when such defect rates are exceeded.

On the above basis, the parties conclude the following quality assurance agreement:



1.    Object of the contract

1.1    The subject of this quality assurance agreement is the extension of existing quality management requirements regarding component quality and maximum defect rates on Supplier's products which are to be delivered to the Customer in the form of individual parts, engine components or project-specific systems components (so-called 'zero hours products'). It also stipulates the extended applicability of the framework agreement to further products and the legal consequences which arise when the products fail to meet the requirements with respect to the agreed component quality and maximum defect rate.

This quality assurance agreement refers to products delivered against vendor number on the basis of initial sample or batch orders.

All delivery items defined above are hereinafter referred to as 'products'.

2.    General quality assurance provisions

2.1    The Supplier undertakes to manufacture and inspect all products in accordance with the framework agreement specifications and quality assurance standard MTQ 5003 as attached hereto.

Addendum: Since October 1, 2013, the two quality assurance standards MTQ5011 and MTQ5003 have been amalgamated into MTQ5003.

3.    Maximum defect rates

3.1    The maximum defect rates for given products as agreed in the following are calculated on the basis of ppm (parts per million). To take into account changes due to return deliveries, inspections, and investigations, the contract parties shall evaluate and determine the actual defect rates in review meetings that take place at suitable intervals.

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3.2    Inasfar as no other agreement has been reached between the contract parties, and in the context of the Continuous Improvement Process and zero-defect target, all target values named under paragraph 7 of this agreement shall be automatically reduced by     % per year based on the given target value of the previous year on expiry of the specified period.

4.    Calculation of defect rate

4.1    The actual defect rate in ppm that has arisen for a specific product owed under the contract is calculated as follows:

Number of acknowledged defects per calendar year x 1,000,000
Number of incoming units per calendar year

4.2    The number of incoming units is defined as the total number of units supplied to the Customer in one calendar year of an individual product named in this agreement. Not to be included in this number are repeat deliveries effected in connection with QL-reports, or returned parts. To this extent, the Customer's LQA data bank provides the data basis. A comparison with Supplier data shall be effected monthly by the relevant technical departments.

4.3    The number of defects is defined as the total number of a given product on which, in a calendar year, deviations from the contract specifications of the Customer – in particular, from drawings or applicable standards – are identified with respect to one or more of the contractually agreed quality characteristics. Other subsidiary agreements (in the sense of agreements that do not concern the required product properties or specifications) contained in order placement texts shall not be relevant to the determination of the number of acknowledged defects or number of incoming units within the context of this quality assurance agreement. To this extent the data basis shall be provided by the LQA data bank of the customer. A comparison with Supplier data shall be effected monthly by the relevant technical departments.

4.4    Defects are considered to be acknowledged when the Supplier upon formal written notification of the specific defects by the Customer does not provide feedback within 2 weeks of receipt of the QL-report. In the event that no agreement can be reached regarding the acknowledgment of a defect on an individual product, a settlement shall be reached at the end of the year in a routine meeting between the parties or, if necessary, during the year.

4.5    If products for which no defects have been reported by the Customer are recalled by the Supplier for inspection, whereby recall does not affect the production operations of the Customer, the said defects shall not be regarded as acknowledged. The SAP report shall be deleted on re-delivery of the products.

4.6    Assessment of the Supplier's performance by the Customer shall therefore remain unaffected.

4.7    If the Customer has a reasonable basis to believe not only an individual part to be defective, but also the Customer's further stocks of that part, the Customer shall be entitled to inspect the entire stock of the product in question himself or to have the inspection carried out by the Supplier or a third party. The Supplier shall reimburse the Customer with reasonable expenses in connection with such inspection.

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In this case, the number of acknowledged defects is the actual number of defective products counted. If an inspection is carried out at the Supplier's site, whereby the number of defective parts is not known in advance, 100% of the defective products counted shall always be taken as the number of acknowledged defects, insofar as no other agreement is made

5.    Consequences of exceeding the agreed defect rates

5.1    The Supplier takes reasonable measures necessary to ensure that the zero defects target is consistently met.

5.2    If the defect rates exceed the agreed defect rates in two consecutive months, or if a Linecall arises due to a deviation on a contractual product(a Linecall is a malfunction that leads to delays in or to shutdown of the production operations), the Supplier shall implement the measures described in more detail in subparagraphs 5.3 to 5.7. If the average defect rate in ppm or the number of QLreports in a calendar year exceeds the agreed target by more than 10%, the Supplier shall likewise implement the measures stipulated in subparagraphs 5.3- 5.7 at the beginning of the following year.

5.3    A qualified 100% outgoing goods inspection shall be instated at the expense of the Supplier within 10 days after the end of the month. If a 100% outgoing goods inspection has already been instated, this shall be supplemented by a further inspection in accordance with the two-man rule.

5.4    The type, method and location of the inspection(s) shall be based on the causal defect occurrence. If necessary, the inspection part spectrum can be limited to certain models, series or part families after joint inspection by the Supplier and Customer.

5.5    Documentation of the inspection(s) shall be presented to MTU on demand.

5.6    All defects which occur following introduction of the 100% outgoing goods inspection shall be analyzed in a risk assessment (e. g process FMEA) and corrective measures shall be defined. In this case, both the defect cause in the manufacturing process and the cause of the inspection slip are considered. A revision is effected if risk assessments already exist.

5.7    The measures taken as a result of the risk assessment shall be presented to MTU on demand in a quality assurance meeting. Regardless of the exceeding of the agreed defect rate, the Customer is at any time entitled to schedule additional quality assurance meetings and/or visits to the Supplier.

The measures set out in subparagraphs 5.3-5.7 shall continue to be conducted until the defect rate either meets or falls short of the agreed ppm target values for six months consecutively and until the Linecall target values are met with no Linecall registered for the specific defect. Furthermore, the causal weak points in the manufacturing and/or inspection process must be verifiably eliminated by implementing suitable measures, e.g. auditing of the manufacturing process and identification of the weak points.

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6.    Relation to framework agreement

6.1    This quality assurance agreement solely serves as a supplement for or more detailed specification of the terms of the framework agreement, the validity of which remains unaffected. In the event of deviations or discrepancies between this quality assurance agreement and the framework agreement the framework agreement shall prevail.

6.2    If the existing quality assurance agreement affects products that were not previously the subject of the framework agreement, it is agreed that the framework agreement according to subparagraph 6.1 of the existing agreement shall also apply to these products.

7.    [***]

[***].







 

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Evans – LTSA Annex 5 – Attachment to Annex 5 – QAA – MTQ5003-MUNLIB01



Vorwort



Diese Qualitätssicherungsnorm ist Bestandteil des Liefervertrags mit Rolls-Royce Powersys-tems (RRPS) und der Geschäftsbeziehung zwischen Auftragnehmer / Lieferant– nachfolgend AN genannt - und RRPS. Gegenstand der Qualitätssicherungsnorm sind alle vom AN gelieferten Produkte. Der AN sichert zu, alle erforderlichen personellen, organisatorischen, sachlichen und fi-nanziellen Ressourcen einzusetzen, um die Qualität seiner Produkte sicherzustellen.

Die Einhaltung der Regeln dieser Qualitätssicherungsnorm wird RRPS gemeinsam mit dem AN langfristig Vorteile auf dem Markt sichern und ist damit Garant für eine erfolgreiche Partner-schaft.



Preface



This quality assurance standard forms part of the supply contract concluded with RRPS and the business relationships between CONTRACTOR and RRPS.

Subject of the quality assurance standard are all products supplied by the CONTRACTOR. The CONTRACTOR warrants to employ all the human, organizational, material and financial resources required to ensure the quality of the products.

Compliance with the rules of this quality assurance standard will safeguard long-term advantages in the market for RRPS together with the CONTRACTOR and is therefore a guarantee for successful cooperation.





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Global Supplier Code of Conduct



 

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Message from our Chief Executive Officer At Rolls-Royce our strategy focuses on customer, innovation and profitable growth to ensure a sustainable business. This includes being a good corporate citizen in our dealings with customers, suppliers, employees and wider society, wherever we do business around the world. High standards of corporate conduct, ethical behaviour and compliance are critical for Rolls-Royce and our suppliers – our mutual success depends upon it. The Rolls-Royce Board and I have made it clear that Rolls-Royce will not tolerate improper business conduct of any sort. Our zero tolerance approach applies to our own people, and to our suppliers. To ensure you are clear what is expected, we have revised our Global Supplier Code of Conduct. This document replaces our previous Code, issued in 2008. Our Global Supplier Code of Conduct sets out the behaviours, practices and standards we expect to see demonstrated and complied with, all of which are based on our own Rolls-Royce Global Code of Conduct, policies and standards. We expect our suppliers to be ethical, responsible and to fully comply with all applicable laws and regulations. At Rolls-Royce, we have a simple brand promise and set of values – we are ‘trusted to deliver excellence’. We need your support as our suppliers, and that of our broader supply chain, to ensure that together we are able to live up to that promise and continue to be successful. Thank you John Rishton Chief Executive Officer Contents Section 1 Introduction 4 1.1 Purpose 4 1.2 Content, scope and applicability 4 1.3 Asking questions and raising concerns 4 Section 2 Working together 5 2.1 Child and forced labour 5 2.2 Fair pay and benefits 5 2.3 Diversity and inclusion 5 2.4 Collective bargaining 5 Section 3 Running our company 6 3.1 Quality and continuous improvement 6 3.2 Proprietary information 6 Section 4 Conducting our business 7 4.1 Anti-bribery and corruption 7 4.2 Conflicts of interest 7 4.3 Export controls and import obligations 7 4.4 Competitive behaviour and antitrust 7 Section 5 Our place in the world 8 5.1 Health, safety and environment 8 5.2 Community involvement 9 5.3 Lobbying and political support 9 Section 6 Supplier commitment 10 6.1 Communication 10 6.2 Code adherence 10 6.3 Supplier ethical concerns 10

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1 Introduction We set high standards for the way we do business. This helps our customers know that we can be ‘trusted to deliver excellence’. This Global Supplier Code of Conduct (the Code) sets out minimum standards of behaviour and practices we require from our suppliers. We expect our suppliers to adhere to this Code, in addition to the provisions of any commercial terms agreed between Rolls-Royce plc and the supplier. In the event that local law, regulation or rules impose stricter requirements than this Code, suppliers must comply with those requirements. 1.1 Purpose The Code specifies the minimum standards of behaviour Rolls-Royce requires of our suppliers. The requirements identified in the Code are based on the principles of the Rolls-Royce Global Code of Conduct and are mandated through the Rolls-Royce General Conditions of Purchase. The purpose of the Code is to formally communicate the Rolls-Royce requirements and expectations to the global supply chain; it is freely available to view and can be downloaded from the Rolls-Royce Global Supplier Portal: https://suppliers.rolls-royce.com Suppliers are required to adhere and comply with the principles set out in this document. For more information see section 6 – Supplier commitment. 1.2 Content, scope and applicability The Code is applicable to all suppliers and partners who supply product or services related to Rolls-Royce contracts or purchase orders. Suppliers are expected to cascade these principles to their own suppliers in order to ensure alignment across the supply chain. This may involve the establishment of supply chain management processes that integrate the requirements of this Code. 1.3 Asking questions and raising concerns If any employee of a supplier has an actual or potential ethical concern they are encouraged to make Rolls-Royce aware. For more information see section 6.3 – Supplier ethical concerns. 2 Working together At Rolls-Royce, our culture fosters innovation, collaboration and continuous improvement. We support our people in their development and create the right climate for success to make sure everyone can do their best and fulfil their potential. All suppliers must comply with applicable international and national laws and standards in relation to labour practises and human rights. 2.1 Child and forced labour Our principles: What this means for our suppliers: We do not accept child labour or any practice that inhibits the development of children. Suppliers must never use or support practices that inhibit the development of children.  Suppliers must not employ anyone under the age of 15 years or, where it is higher, the mandatory national school leaving age. We believe that all employment should be freely chosen. Suppliers must refrain from using any form of involuntary labour including forced, prison or debt-bonded labour. 2.2 Fair pay and benefits Our principles: What this means for our suppliers: We recognise the need to reward fairly for skill, contribution and performance. Suppliers must ensure that all wages meet local minimum wage requirements. Any overtime shall be voluntary and workers must receive adequate compensation for any overtime worked. Standard working hours must not exceed legal limits and over time must not exceed the maximum allowed by law. 2.3 Diversity and inclusion Our principles: What this means for our suppliers: We treat each other openly, honestly and courteously. Suppliers are expected to promote equal opportunities for all and value diversity. We do not tolerate bullying, harassment or unlawful discrimination of any kind. Harassment or discrimination towards employees, including all forms of physical, verbal or psychological abuse must not be tolerated. 2.4 Collective bargaining Our principles: What this means for our suppliers: The decision on whether to join a trade union or not is an individual choice. Suppliers are expected to respect this choice and the relevant processes and laws on collective representation and consultation where applicable.

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3 Running our company Rolls-Royce engages in dialogue and partnerships to align our business needs with the requirements of our major stakeholders, including customers, governments and industry bodies. Suppliers are expected to behave ethically and appropriately in all dialogue, and to respect the proprietary information of Rolls-Royce and other parties. 3.1 Quality and continuous improvement Our principles: What this means for our suppliers: We make sure that quality is central to all we do. We are committed to continuous improvement by working together and complying with agreed processes across businesses, functions and geographies Suppliers must demonstrate a commitment to quality and, where applicable, comply with the requirements of our SABRe Supplier Management System Requirements (available on the Global Supplier Portal), as modified upon the structure of ISO 9001. Suppliers are encouraged to seek opportunities for continuous improvement throughout their operations. We encourage suppliers to work openly and collaboratively with us to ensure we are continually improving our operations. 3.2 Proprietary information Our principles: What this means for our suppliers: Rolls-Royce is committed to treating all other parties’ confidential, proprietary or trade secret information with integrity. We respect the confidentiality of commercially sensitive information provided to us and we only use it appropriately for legitimate business purposes. Suppliers must safeguard Rolls-Royce proprietary information. Suppliers must neither receive nor supply information unless either already legitimately in the public domain or given with permission. Appropriate non-disclosure or confidentiality agreements should be used to protect proprietary information. 4 Conducting our business High standards of ethical behaviour and compliance with laws and regulations are essential to protecting the reputation and long-term success of our business. We expect suppliers to behave ethically, to comply with legal and industry requirements and seek to implement best practice in their industries. 4.1 Anti-bribery and corruption Our principles: What this means for our suppliers: Rolls-Royce has a zero tolerance policy for bribery and corruption. Suppliers are expected to behave ethically in all business dealings. Suppliers must not offer, give or accept anything of value that may be viewed as, or has the effect of, improperly influencing business decisions. Suppliers must not offer or give gifts or hospitality to any employee that is intended as, or may be viewed as, an attempt to improperly influence business decisions. Suppliers must not make facilitation payments or permit them to be made on behalf of the supplier or Rolls-Royce. Suppliers must comply with all applicable anti-bribery and corruption laws and regulations of the countries in which they operate 4.2 Conflicts of interest Our principles: What this means for our suppliers: We seek to avoid conflicts of interest in our business dealings, but where they do occur we manage them. All suppliers must make Rolls-Royce aware of any potential conflicts of interest as soon as they are known. 4.3 Export controls and import obligations Our principles: What this means for our suppliers: We are committed to compliance with import and export laws, regulations and procedures that apply to our operations globally Suppliers must comply with all relevant export control legislations when exporting goods or technology, and shall plan for and obtain all necessary authorisations and permits to ensure timely and compliant delivery of their products. Where an authorisation or permit so requires, suppliers shall also have in place all the necessary processes to manage access to export controlled goods or technology only by staff or other entities authorised to have such access. Where applicable, this requirement shall be flowed down to any sub-tier suppliers. 4.4 Competitive behaviour and antitrust Our principles: What this means for our suppliers: We conduct our business in compliance with competition (antitrust) laws Suppliers must comply with competition (antitrust) laws in the countries where they operate or sell product or services. Suppliers must not co-ordinate market conduct with competitors or their own suppliers in a way that improperly restricts competition.

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5 Our place in the world As a global company we seek to be a good corporate citizen in our dealings with customers, suppliers, employees and communities where we operate. All suppliers must make proper provision for the health, safety and welfare of their employees, contractors, visitors and those in the community who may be affected by their operations. We expect suppliers to comply with legal and industry requirements and seek to implement best practice in their industries. 5.1 Health, safety and environment (HS&E) Our principles: What this means for our suppliers: We have a strong approach to HS&E management, where our vision is to be known for the excellence of our HS&E performance in all our business activities and our products. Our HS&E goals are to: • Create a safe and healthy work environment with no injuries, no work related ill-health, and no environmental incidents, and • Prevent or minimise the negative impacts of our products and services We expect our suppliers to take personal and collective responsibility to help fulfil our HS&E goals. Suppliers must make proper provision for the health, safety and the welfare of their employees, contractors, visitors and those in the community who may be affected by their activities. The supplier shall care for the environment through a commitment to good environmental practices. We have a robust HS&E management system in place across our global operations Suppliers are expected to develop, implement and maintain a management system for managing health, safety and environmental risks. This system may be integrated into the supplier’s business management system and associated processes, or act as a standalone HS&E management system. As a minimum this management system shall include processes for: • Identifying, assessing and managing HS&E risks and opportunities • Planning improvements and establishing objectives and targets where applicable • Identifying and delivering learning relevant to identified risks • Monitoring performance • Assurance of the effective management of HS&E risks Suppliers are encouraged to have management systems in place that are equivalent to the requirements of OHSAS 18001  and ISO 14001. We do not mandate certification to these standards. Suppliers who carry out activities on our premises, in our facilities or under our direct control shall follow the requirements set out in the Rolls-Royce HS&E management system. We participate annually in the Carbon Disclosure Project (www.cdp.net) to measure, analyse and benchmark our environmental performance. Suppliers are encouraged to register as members of the Carbon Disclosure Project and participate in annual submissions 5.2 Community involvement Our principles: What this means for our suppliers: We are committed to building positive relationships with the communities in which we live and work Suppliers are encouraged to seek similar opportunities in their local communities. Suppliers are expected to listen carefully to requests or concerns from the community and address them appropriately. 5.3 Lobbying and political support Our principles: What this means for our suppliers: We are committed to undertaking any lobbying activities in compliance with all applicable laws, and to behaving ethically in all our interactions with governments, agencies and their representatives.. Suppliers must undertake any and all lobbying activities in compliance with all applicable laws. Suppliers are expected to behave ethically in all interactions with governments, their agencies and representatives. We expect suppliers to refrain from making any corporate contributions or donations to political parties, or any think-tanks, academic institutions or charities closely linked to political parties, intended as, or that may be viewed as, attempts to influence decision making.

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6 Supplier commitment 6.1 Communication Suppliers must make the Rolls-Royce Global Supplier Code of Conduct available to employees in the business language of the company. Suppliers are encouraged to make their employees aware of the Rolls-Royce Ethics Line, as detailed in 6.3 below. 6.2 Code adherence Suppliers must conform to all aspects of the Rolls-Royce Global Supplier Code of Conduct, as mandated through the Rolls-Royce General Conditions of Purchase. Rolls-Royce reserves the right to audit against compliance to this Supplier Code of Conduct. Suppliers are expected to ensure that documentation is kept that demonstrates compliance with this Code; Rolls-Royce may request access to that documentation at any time. Rolls-Royce may also request access to supplier sites for audit purposes. Rolls-Royce reserves the right to terminate contracts in the event of material breach of the principles set out in the Code. Suppliers are encouraged to disseminate these expectations throughout their own supply chain and incorporate the principles set out in this document as part of routine sustainable business practices. 6.3 Supplier ethical concerns If any supplier has an actual or potential ethical concern related to the subject matter of the Code or any engagement or relationship with Rolls-Royce they are encouraged to make Rolls-Royce aware. This can be done through the Rolls-Royce Ethics Line, anonymously if required. Concerns may be raised either online or via telephone. The following website contains a full list of worldwide telephone numbers for reporting concerns, or alternatively you can use the online system also provided at:  EthicsPoint – Rolls-Royce www.rolls-royce.com/ethicsline  We encourage suppliers to provide a similar anonymous service for raising ethical concerns. © Rolls-Royce plc 2015 The information in this document is the property of Rolls-Royce plc and may not be copied, or communicated to a third party, or used, for any purpose other than that for which it is supplied without the express written consent of Rolls-Royce plc. While this information is given in good faith based upon the latest information available to Rolls-Royce plc, no warranty or representation is given concerning such information, which must not be taken as establishing any contractual or other commitment binding upon Rolls-Royce plc or any of its subsidiary or associated companies. CTA334   March 2015 Rolls-Royce plc 62 Buckingham Gate London SW1E 6AT United Kingdom rolls-royce.com



 

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