ASV, Caterpillar Extend Supply Agreement Until 2010

GRAND RAPIDS, Minn. – ASV announced today it has signed a five-year supply agreement with Caterpillar. Effective Nov. 1, 2005. The new supply agreement builds on the success the two companies have created in the rubber track loader market from their original alliance agreement, which expires Oct. 31.

According to the agreement, ASV will supply 100 percent of Caterpillar’s undercarriage requirements for current and specified future Caterpillar Multi-Terrain Loaders (MTLs). Additionally, should Caterpillar decide to manufacture MTLs outside North America for non-North American markets, Caterpillar will purchase from ASV 100 percent of its undercarriage requirements for those MTLs, provided ASV meets the capacity requirements and local requirements as necessary. Should ASV choose not to supply undercarriages to Caterpillar for these non-North American sales, ASV would grant a royalty-bearing license to Caterpillar to use ASV's intellectual property to manufacture undercarriages for use on MTLs manufactured outside North America for the non-North American markets.

Additionally, Caterpillar will continue to purchase 100 percent of its requirements for proprietary OEM aftermarket service parts from ASV, and ASV will continue to be allowed to sell its rubber track undercarriages to other equipment manufacturers for machines that do not compete with Caterpillar's Multi-Terrain Loaders. ASV will continue to utilize Caterpillar components in the manufacture of ASV's products.

The companies report that there will be no change to the pricing of MTL undercarriage products provided by ASV until Dec. 31, 2005. Starting in 2006, ASV is expected to earn gross profit percentages on the sale of its undercarriages similar to those expected, had the original alliance agreement with Caterpillar been extended to 2006. With the expected increased volume of service parts, ASV has agreed to accept a lower gross margin on the sale of those service parts, effective Nov. 1. ASV anticipates the impact of the new supply agreement may reduce its overall gross profit percentage for 2006 up to 2 percent.

The new agreement will begin on Nov.  1 and continue through Nov. 1, 2010, automatically renewing for successive one-year renewal terms unless either party provides at least six months prior written notice of termination.
 
"We have signed a new supply agreement with Caterpillar and are pleased to continue providing Caterpillar with our industry leading rubber track undercarriages," said ASV chairman and CEO Gary Lemke. "We believe the continuation of our long-standing relationship further validates both the potential of the rubber track loader market and ASV's patented undercarriage technology."

Along with the new supply agreement, ASV and Caterpillar have also entered into a Registration Rights Agreement that provides Caterpillar registration rights for shares of unregistered ASV common stock it currently holds. However, so long as the supply agreement remains in effect, Caterpillar will not sell or dispose of any of its ASV shares prior to Jan. 1, 2009.

"The extension of our relationship reflects the continued confidence Caterpillar has in ASV and its undercarriage technology," commented Edward Rapp, vice president of Caterpillar's building construction products division. "This agreement builds upon a strong alliance between Caterpillar and ASV which positions us to enhance our solid position in the growing rubber track loader market."
 
The new supply agreement and the Registration Rights Agreement replace all agreements previously entered into between the two companies. Under the Registration Rights Agreement, Caterpillar will retain its ability to designate members to ASV's Board of Directors in proportion to its ownership of shares in ASV.