EXHIBIT 10.1
TECHNOLOGY DEVELOPMENT AGREEMENT
This Agreement is entered into this 1st day of November, 2001 (the
"Effective Date") by and between Reliable Power Systems, Inc., a Colorado
corporation ("RPSI") and Flywheel Energy Inc., a California corporation
("Developer").
RECITALS
WHEREAS, RPSI develops total power packages for industrial, commercial
manufacturing, data and telecommunications users that address the growing
problems facing power users from an aging infrastructure, poor quality power,
deregulation and surging global demand (collectively, the "UPS Industry"); and
WHEREAS, Developer is an engineering firm specializing in the
development of self-contained power units, back-up power units and energy
management devices for one or more industries, including, but not limited to,
the UPS Industry; and
WHEREAS, RPSI desires to contract with Developer to develop a
continuous power machine for the UPS Industry and Developer desires to accept
this engagement subject to the terms and conditions contained herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein the parties agree as follows:
1. Scope of the Project. The purpose of this Agreement is to set
forth the terms and conditions under which Developer shall create,
design and develop a "continuous power machine" for RPSI (the
"Project").
2. Development of the Continuous Power Machine. The continuous power
machine to be developed under this Project shall be based on
patentable technology ("CPM"), with the patent rights to such
technology to be held in the name of Developer (or its designate),
until such time as such rights are assigned to RPSI pursuant to
the terms and conditions of this Agreement and as otherwise
provided in the Exclusive Patent Rights Transfer Agreement, dated
as of August 29, 2001, (the "Patent Rights Transfer Agreement"),
which is an exhibit to this Agreement and is incorporated herein
by this reference.
3. Term of Agreement.
a. The term of this Agreement (the "Term") shall run
concurrently with the development of the CPM, which is the
subject matter of the Project and shall begin on the
Effective Date and end upon the acceptance by RPSI of the CPM
as a product that is generally acceptable for release and
sale to the public in the UPS Industry (the "Production
Version of the CPM").
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b. In the event that the parties agree to extend or expand this
Agreement beyond the scope of the Project, such agreement
shall be in writing and shall specify the new project(s) that
shall be covered hereunder.
c. Each party has the right to terminate this Agreement prior to
the expiration of the Term only if the other party has
materially breached any obligations herein and such breach
remains uncured for a period of 30 days after notice thereof
is sent to the other party; provided, however, that in the
case of RPSI's obligations to reimburse Developer for
undisputed expenses that are reasonably and demonstrably
incurred under Section 10, a material breach shall have been
deemed to occur if RPSI fails to make an expense
reimbursement within 15 days after submittal by Developer of
the Monthly Expense Report. Upon termination of this
Agreement in the event of such material breach, each party
shall be released from all obligations and liabilities to the
other arising after the date of termination. However, any
termination of this Agreement shall not relieve RPSI from the
obligation to pay Developer the fees, royalties and stock and
stock options for services rendered by Developer and accepted
by RPSI prior to receipt of the notice of termination. Upon
termination of this Agreement, Developer shall promptly
return to RPSI all data, materials and other property of RSPI
held by it.
4. Exclusivity During the Term. RPSI shall be the exclusive customer
of Developer during the Term and Developer shall devote itself
exclusively to the development of the CPM, unless otherwise
mutually agreed to in writing.
5. Acceptance Testing of the CPM. During the Term of this Agreement,
the parties will negotiate in good faith and jointly agree upon
and set forth in writing the specifications and acceptance
criteria for the releases of each of: (i) an "Alpha Version of the
CPM", (ii) a "Beta Version of the CPM" and (iii) the Production
Version of the CPM (each, a "Deliverable"). Each Deliverable will
be subject to acceptance testing to verify that the Deliverable
satisfies the acceptance criteria ("Acceptance"). In the event
that any Deliverable fails to conform to the acceptance criteria,
RPSI will cooperate with Developer in promptly identifying in what
respects the Deliverable has failed to conform to the acceptance
criteria and Developer will use its best efforts to promptly
correct any identified problems so as to facilitate the timely
re-submittal and Acceptance of the Deliverables.
6. Ownership of Intellectual Property. RPSI is aware that the sole
shareholder of Developer as of the Effective Date (the "Sole
Shareholder") developed the following unique technologies prior to
this Agreement (collectively, "Prior Technologies"):
a. A combination of the Electromagnetic Coupling (Clutch) with
the Flywheel ("Electromagnetic Coupling").
b. A combination of a Hydraulic Coupling (Clutch) with the
Flywheel ("Hydraulic Coupling").
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c. A method to oil rotary machinery without using dynamic seals.
d. A method to oil rotating machinery continuously using a
combination of pumps and gravity flow.
e. Using "Gimbals" to align support bearings for rotating a
flywheel.
f. A method to rotate a flywheel at a high speed and the
rotating bearing at half that speed.
Except for the Prior Technologies, all trademarks, trade secrets,
copyrights, technology, patents, patent applications, patentable
technology and any other intellectual property created by
Developer during the Term of this Agreement (collectively,
"Intellectual Property"), shall be the sole property of RPSI. By
signing this Agreement, together with the Patent Rights Transfer
Agreement, Developer hereby transfers to RPSI all rights that
Developer may have or acquire in the Intellectual Property
developed pursuant to this Agreement, except for the Prior
Technologies. It is agreed that the patent for the "Continuous
Power Machine" which was submitted to RPSI prior to the Effective
Date of this Agreement, is considered to be part of the "Prior
Technologies." To the extent that some or all of the Prior
Technologies are used in the development of the CPM, Developer
grants to RPSI a non-exclusive and perpetual license to use the
embedded Prior Technologies solely in connection with the uses
contemplated under this Agreement and only so long as such Prior
Technologies remain embedded in the CPM(s) that Developer designs
for RPSI hereunder. Developer warrants that this Agreement will
not conflict with any of Developer's other agreements with any
third parties, and based solely upon the documentation that
Developer has provided to RPSI, RPSI is informed and believes that
Developer's warranty is accurate and true. To the extent that any
of the Intellectual Property contains material that is proprietary
to a third party, Developer shall obtain a license from the owner
permitting the use of such material and granting RPSI the right to
sub-license its use.
Developer agrees to sign any documentation reasonably requested by
RPSI to transfer or vest title to the above-referenced
Intellectual Property in and to RPSI, except for the Prior
Technologies. Developer shall require all employees and
consultants assigned to this Project to execute a written
agreement transferring all Intellectual Property rights that they
may acquire while working on the CPM to RPSI. This provision shall
be interpreted as broadly as possible in favor of RPSI.
Exceptions. Except for the Prior Technologies, it is the express
intent of the parties that RPSI shall have the exclusive right to
all Intellectual Property created by Developer under this
Agreement, including without limitation, any Intellectual Property
which is developed or discovered by Developer during the Term of
this Agreement, regardless of whether or not the Intellectual
Property is related to or incorporated into the CPM; provided
that, any ASSIGNMENT OF INTELLECTUAL PROPERTY REQUIRED BY THIS
AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT,
SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF RPSI WAS USED
AND WHICH WAS DEVELOPED ENTIRELY ON SOLE SHAREHOLDER'S OWN TIME,
UNLESS: (a) THE INVENTION RELATES (i) DIRECTLY TO THE BUSINESS OF
RPSI
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OR (II) TO RPSI'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT OR (b) THE INVENTION RESULTS FROM ANY WORK PERFORMED
BY THE SOLE SHAREHOLDER OR DEVELOPER'S OTHER EMPLOYEES FOR RPSI.
7. Developer's Right to Use the Intellectual Property. In the event
that RPSI does not begin the marketing and sale of the
Intellectual Property as a CPM or other marketable product within
18 months after Acceptance of the Production Version of the CPM,
then Developer shall have the right to market the Intellectual
Property; provided that, RPSI shall be entitled to receive a
royalty of 2.5% of the "net sales price" on all CPMs (or other
products) sold by Developer at any time. For purposes of this
Agreement, "net sales price" shall be the gross purchase price for
the product as identified in the purchase order, less any
applicable taxes and freight paid by Developer.
8. Disclosure Re: Prior Technologies. RPSI will not disclose or
advertise the Prior Technologies, without a written consent from
Sole Shareholder, which shall not be unreasonably withheld if such
Prior Technologies are used in the design of the CPM under this
Agreement. Notwithstanding the foregoing, Sole Shareholder and
Developer are aware of RPSI's agreement with Perfect Power/On-line
Power (the "Perfect Power Agreement") regarding the marketing and
sale of the "Seamless Power Machines" ("SPMs"), and nothing herein
shall be deemed to prevent the marketing, sale and distribution by
RPSI of a "Continuous Power Machine" or the SPMs under the terms
of the Perfect Power Agreement.
9. Monthly Design Work Fee. During the Term of this Agreement, RPSI
shall pay Developer a monthly fee of $15,000 per month. This fee
shall be deposited directly into an account designated by
Developer. Direct deposit shall occur on the 15th day of each
month, or the Friday immediately before the 15th day of the month
if the 15th day of the month occurs on a Saturday or Sunday. In
the event that Developer begins this contract on any day other
than on the first day of a month, the initial direct deposit shall
be a pro rata portion to reflect the number of weekdays that will
be worked during the initial month.
10. Expenses for the Project. RPSI shall open a checking account with
a balance of $50,000 to cover expenses associated with the Project
(the "Expense Account"). Developer shall be given signature
authority over the Expense Account and shall have the right to
incur reasonable and necessary expenses associated with the
development of the CPM. Within five days of the last business day
of each month, Developer shall submit to RPSI a detailed report of
all expenses incurred by it ("Monthly Expense Reports"). RPSI's
President and Chief Technology Officer, Xxxxx Xxxxx ("RPSI's
President & CTO"), shall review the Monthly Expense Reports and,
to the extent acceptable to RPSI, will deposit within one week of
receipt thereof, sufficient funds into the Expense Account to
cover the prior month's approved expenses. Notwithstanding RPSI's
right to approve expenses, it is understood by the parties that
such expenses shall include rent for a facility with approximately
8,000 square feet and 800-amp service, reasonable office support
equipment,
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computers, printers, fax machines and other necessary supplies for
this effort. All supplies, office equipment, computers, tools and
machinery purchased by Developer with funds supplied by RPSI,
shall be the property of RPSI at the completion of the Project.
The Sole Shareholder, on behalf of Developer, shall personally
indemnify RPSI in the event that any funds are misappropriated
from the above-referenced checking account.
11. Car Allowance. During the Term of this Agreement, Developer shall
have car allowance equal to $700 per month, which shall be payable
by RPSI concurrently with the Monthly Design Work Fee set forth in
Section 9.
12. Royalties to Developer.
a. Royalties on CPM Products. Upon Acceptance of the Production
Version of the CPM, Developer (or its designate) shall be
entitled to receive a royalty of 6% of the "net sales price"
on all CPMs (or other similar products), which are sold by
RPSI to customers in the UPS Industry, using the Intellectual
Property that is created pursuant to this Project
(collectively, "CPM Products"). Developer shall be entitled
to receive such royalties on CPM Products, for as long as
such CPM Products are sold by RPSI to any third parties,
whether such sales are made directly to the customer, or such
sales are subject to a distributor or OEM relationship or
otherwise.
b. Royalties on Other Products Developed by RPSI. Upon
Acceptance of the Production Version of the CPM, to the
extent that RPSI applies the Intellectual Property to the
development of new products other than the CPM that may be
marketed and sold outside of the UPS Industry ("New
Products"), Developer (or its designate) shall be entitled to
receive a royalty of 2.5% of the "net sale price" on all New
Products sold by RPSI. Developer shall be entitled to receive
such royalties on New Products, for as long as such New
Products are sold by RPSI to any third parties, whether such
sales are made directly to the customer, or such sales are
subject to a distributor or OEM relationship or otherwise.
c. Royalties on the Seamless Power Machines. In consideration
for Developer's agreement to develop the CPM exclusively
under this Agreement and to agree that RPSI shall be its
exclusive customer during the Term, for a period of 24 months
from the Effective Date, Developer shall be entitled to
receive a royalty of 1.25% of the "net sales price" on all
SPMs sold by RSPI under the Perfect Power Agreement. In the
event of an uncured material breach of this Agreement by
Developer which results in the termination of this Agreement
prior to Acceptance of the Production Version of the CPM, any
remaining royalties payments under this Section shall
terminate upon the termination date of the Agreement
d. Definition of Net Sales Price. For purposes of this Agreement
"net sales price" shall be the purchase price for the
specific product at
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issue as identified in the purchase order, less freight and
taxes (or tariffs) paid by RPSI associated specifically with
the sale of the specific product at issue. For purposes of
clarification, the taxes and/or tarriffs to be subtracted
from the purchase order to arrive at the "net sales price"
shall not include taxes that RPSI pays in order to operate
its business (e.g., income taxes and/or employment taxes).
e. Royalties shall be payable monthly in arrears on or before
the 15th day of the month following the month in which
revenue is collected by RPSI for the sale of the applicable
product.
13. Issuance of Stock and Stock Options.
a. Stock Options. As an additional inducement for Developer to
enter into this Agreement, RPSI hereby grants to Developer an
option to grant 200,000 shares of the common stock of RPSI at
an exercise price of $1.00, which options shall vest upon the
occurrence of the following events: (i) 66,667 shares shall
vest upon Acceptance of the Alpha Version of the CPM; (ii)
66,667 shares shall vest upon Acceptance of the Beta Version
of the CPM; and (iii) 66,666 shares shall vest upon the
successful installation of the first Production Version of
the CPM. As provided in Section 5 above, the parties will
mutually agree upon the specifications and acceptance
criteria for each of the Alpha, Beta and Production Versions
of the CPMs.
b. Bonus Options. In accordance with Section 15 below, it is
anticipated by the parties that the Alpha Version of the CPM
and the Beta Version of the CPM will be completed within 14
months of the time that the Expense Account is funded by
Developer. In the event that Acceptance of the Alpha Version
of the CPM occurs prior to 14-month proposed schedule, RPSI
shall grant to Developer an option to purchase an additional
15,000 shares of RPSI common stock per month for each month
of early completion (or a pro rata amount for each partial
month of early completion) (the "Bonus Options"). The Bonus
Options shall vest immediately upon their date of grant and
shall have an exercise price equal to the fair market value
of the common stock on the date of the grant.
c. All stock options issued pursuant to this Agreement shall be
exercisable for a period of 10 years. At the request of
Developer, RPSI shall issue the options in the name of
Developer or its Sole Shareholder.
14. Proposed CPM Specifications and Estimated Timeline. It is
anticipated that the initial CPM will be a 75 KW unit, which may
be powered by either a natural gas or diesel engine (the "75 KW
Unit") and will take approximately 14 months to complete.
Developer will prepare the specifications of the CPM with the
input of RPSI's President & CTO and such engineers as RPSI assigns
to the Project and the parties will mutually agree upon the
acceptance criteria in accordance with Section 5. Developer shall
endeavor to incorporate the concepts and ideas
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proposed by RPSI in the CPM design, so long such ideas shall not
infringe upon any other third party patents. Additionally,
Developer will incorporate a one megawatt unit into its
development plans (the "1 Megawatt Unit"). It is anticipated that
the 1 Megawatt Unit will take an additional eight months to
complete after the completion of the 75KW Unit. After the
execution of this Agreement, the parties will work in good faith
to develop a schedule of milestones for the development of the
CPMs, which the parties will endeavor in good faith to achieve.
15. Compliance with Obligations. Each of the parties will comply with
its obligations under this Agreement on a timely basis. Neither
party will be liable for any delays, costs increases or other
consequences resulting from the other party's wrongful acts or
omissions, or caused by the negligence or willful misconduct of
the other party. Any deadline adversely affected by a party's
wrongful acts or omissions, or caused by the negligence or willful
misconduct of such party, will be automatically extended by an
amount of time reasonably required to compensate for such delay.
Except as such delay may be excused in accordance with this
Section, and except as otherwise mutually agreed to by the
parties, the failure by Developer to complete the Production
Version of the CPM within 22 months after the Expense Account has
been funded shall be deemed to constitute a material breach of
this Agreement by Developer.
16. Estimated Budget. Developer has estimated that it will cost
approximately $975,700 to build the first prototype of the 75 KW
Unit and approximately $400,000 - $500,000 additionally to build
the 1 Megawatt Unit. Developer shall provide an initial budget to
RPSI's President & CTO for his review and approval, and shall
provide RPSI with updated budgets at least every three months.
17. Independent Contractor. Developer acknowledges that it will act as
an independent contractor. As an independent contractor, Developer
is not entitled to workers' compensation benefits and is obligated
to pay federal and state income tax on any moneys earned under
this Agreement.
18. Developer's Staff. Developer shall assign at least two full-time
engineers and sufficient support staff to the Project so that it
may be completed in a timely fashion. The costs of these
individuals have been incorporated into the budget and will be
paid by RPSI. Additionally, it is anticipated that Developer will
hire two technicians to assist with the Project. The costs of
these technicians have been factored into the budget and will be
paid by Developer. If additional staff is necessary, Developer
will consult with RPSI so that funds can be made available for
their compensation.
19. Employment Agreements. Developer shall enter into a binding
employment agreement with its principal owner, Sole Shareholder
(the "Sole Shareholder's Employment Agreement"). The Sole
Shareholder's Employment Agreement shall require Sole Shareholder
to devote his full-time working efforts to the CPM project, and
shall prohibit Sole Shareholder from working on any other project
until Acceptance of the Production Version of the CPM, or until
this Agreement is otherwise
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terminated. Notwithstanding the foregoing, during the Term, RPSI's
President & CTO, on behalf of RPSI, may release the Sole
Shareholder from this requirement for all or a portion of the
Term. In addition, Developer shall enter into consulting or
employment agreements with any individuals or entities that are
assigned by Developer to the Project. Each of the Sole
Shareholder's Employment Agreement, as well as any additional
employment and/or consulting agreements that are relevant to this
Project shall contain an unconditional assignment of any
Intellectual Property developed by the Sole Shareholder and/or
such employees and consultants. Nothing in this Section shall be
deemed to apply to the Prior Technologies, which shall be governed
in their entirety by the terms and conditions of Section 6.
20. Confidentiality Agreement. The parties agree to enter into a
mutually acceptable confidentiality agreement to protect their
respective confidential and proprietary information.
21. Mutual Indemnification. Each party will indemnify, defend and hold
harmless the other party, its affiliates and their respective
shareholders, partners, members, directors, officers, authorized
representatives, employees, agents, successor and permitted
assigns from any and all third party claims, losses and threatened
losses arising from or in connection with, or based upon a
material breach of this Agreement by the party obligated to
indemnify the other party.
22. Governing Law. This Agreement shall be governed by the laws of the
state of Colorado.
23. Non-Waivers. No express or implied waiver by either party of any
event of default hereunder will in any way be, or be construed as,
a waiver of any future or subsequent event of default.
24. Survival. Any and all obligations under this Agreement which, by
their very nature should reasonably survive the termination or
expiration of this Agreement, will so survive.
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25. Entire Agreement. This Agreement, together with the Patent Rights
Transfer Agreement, contains the entire agreement between the
parties. The parties agree that in entering into this Agreement,
they have not relied upon any representations, warranties,
promises and/or conditions made by the other party that are not
expressly set forth herein.
RELIABLE POWER SYSTEMS, INC.
By:
-----------------------------------
Xxxxx Xxxxx, President & CTO
FLYWHEEL ENERGY INC.
By:
-----------------------------------
Xxxxxxx Xxxxx, President
and Sole Shareholder
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