Confidential Treatment. The portions of this exhibit that have been replaced
with "(*****)" have been filed separately with the Securities and Exchange
Commission and are the subject of an application for confidential treatment.
MEMORANDUM OF AGREEMENT
-----------------------------
This MEMORANDUM OF AGREEMENT ("Agreement") is entered into this 12th day of
December, 2001 (the "Effective Date"), among H Power Corp., 0000 Xxxxx Xxxxxx,
Xxxxxxx, XX 00000; H Power Enterprises of Canada, Inc. (together "H Power"); ECO
Fuel Cells, LLC ("EFC") and Energy Co-Opportunity, Inc. ("ECO"), both of 0000
Xxxxxxxxxxx Xxx, Xxxxxxx, XX 00000. These parties are referred to herein
singularly as "Party" and collectively as "Parties".
WHEREAS: H Power and EFC have been working together under the "Amended and
Restated Fuel Cell Product Operating Agreement of March 9, 2000" (the "Operating
Agreement") to design, build, and market certain H Power residential fuel cells
("Fuel Cell Power Systems") under an exclusive marketing program for all areas
in the United States served by Rural Electric Cooperatives;
WHEREAS: the Parties wish to further fund and encourage the marketing of Fuel
Cell Power Systems by providing H Power and ECO with additional marketing and
distribution opportunities and granting H Power marketing, technical, training,
field and other services from EFC; and
WHEREAS: the Parties wish to amend the Operating Agreement only as necessary to
further these goals and to enter into a set of definitive support agreements,
each as more particularly described below.
NOW, THEREFORE, in consideration of the promises herein and other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1. MUTUAL SUPPORT IN DEVELOPING AND MARKETING H POWER'S PRODUCTS AND SERVICES.
The Parties reaffirm their support for each other in the development and
marketing of H Power's Fuel Cell Power Systems for residential markets and
agree to mutually explore opportunities in other products and services
offered by H Power as well, including fuel cells for stationary and other
applications ("Other Fuel Cells").
2. RELINQUISHMENT OF CERTAIN EXCLUSIVE TERRITORY RIGHTS TO H POWER AND RELEASE
OF CERTAIN H POWER OBLIGATIONS. EFC and H Power wish to increase the
marketing opportunities for H Power's products and services covered by the
Operating Agreement. Under Article 3.A. of the Operating Agreement, EFC has
the exclusive rights to "sell, distribute, lease, finance, service, and
otherwise handle the Fuel Cell Products..." ("Exclusive Rights") in areas
of the United States in which Cooperative Members were providing energy
services as of August 15, 1999 (the "Territory").
A. TERRITORY RIGHTS. To provide H Power with increased marketing
flexibility, EFC hereby relinquishes its Exclusive Rights under
Article 3.A.1. of the Operating Agreement and agrees that such
Exclusive Rights shall revert to H Power.
B. NON-COMPETITION PROVISIONS.
1. Operating Agreement Provisions. Except with respect to those
Licensed Members who elect to retain and renegotiate their
Exclusive Distribution Agreements as described under clause C.
of this paragraph 2, H Power shall no longer be bound by or
subject to the non-competition covenant set forth in Article
3.A.4(a) of the Operating Agreement.
Privileged and Confidential Page 1 of 10 01-12-12
2. Direct Sales. Because of EFC's expertise in distributive
generation products and services, and because EFC's electric
cooperative customers are also EFC's owners, H Power agrees
that EFC will be its preferred provider of Fuel Cell Products
and Other Products to the electric cooperative industry.
Therefore, H Power agrees not to enter into any agreement for
a cooperative (including its affiliate, or a cooperative
association) to sell as a distributor, sub-distributor,
marketer, or sales representative of H Powers' products,
except through this Agreement and the Operating Agreement.
However, ECO's members and EFC's Licensees (as defined in the
Distribution Agreements) shall have the option of purchasing
Products from any H Power distributor, sub-distributor, sales
representative or similar sales entity of their choice. H
Power shall not make direct sales to cooperatives except
through this Agreement, the Operating Agreement, or through
its existing third party distribution associates' independent
sales efforts. EFC's Licensees shall have the right to sell
Fuel Cell Power Systems other than H Power's. Both EFC and
ECO, however, will exclusively purchase Fuel Cell Power
Systems and Other Fuel Cells from H Power.
3. Non-Exclusive Rights. H Power grants to EFC the Non-Exclusive
Rights for Fuel Cell Power Systems as well as Other Fuel
Cells, except for specialty fuel cell products designed and
sold by H Power as a component or sub-system for use in
equipment such as, but not limited to, vehicles, portable
computers, or other types of equipment. These Other Fuel Cells
are to be sold to EFC and its Licensed Members on such terms
and conditions as are agreed to by the Parties; provided that
they shall always receive best pricing on Fuel Cell Power
Systems and they shall never pay more for Other Fuel Cells
than others pay for similar quantities or levels of service,
except that U.S. and foreign government contract pricing is
excluded from this provision. These Non-Exclusive Rights shall
apply to all "Territory" and "Other Territories" as defined in
the Operating Agreement. EFC's and its Licensees' sales of
Fuel Cell Power Systems and Other Fuel Cells shall be credited
against EFC's Fuel Cell Products purchase obligations under
the Operating Agreement.
ECO and EFC recognize that H Power currently has pending an
exclusive agreement for Other Fuel Cells in Virginia,
Delaware, Maryland, West Virginia and the District of
Columbia. H Power and EFC shall work together constructively
to find an appropriate role for EFC's cooperatives in this and
any other exclusive agreements. Any exclusive agreement
opportunities shall be brought to the other Party for
discussion and approval by that other Party before an
agreement is executed; except for national accounts (but not
for retail consumer distribution) for Other Fuel Cells
initiated by H Power.
C. EXISTING AND PENDING DISTRIBUTION AND TESTING AGREEMENTS. EFC has
entered into numerous Distributive Generation Products and Fuel Cell
Licensing Agreements ("Distribution Agreements") under which
distribution rights for H Power's Fuel Cell
Privileged and Confidential Page 2 of 10 01-12-12
Power Systems have been granted to Licensees. Licensees shall be
notified by EFC that EFC wishes to cancel and renegotiate their
Distribution Agreements and convert them to non-exclusive
Distribution Agreements. If the Licensee nevertheless desires to
continue with an Exclusive Distribution Agreement then H Power's
obligations shall continue and shall be no greater than under the
Existing or Pending Distribution Agreement. Any existing, pending or
renegotiated Exclusive Distribution Agreements are called
"Grandfathered Distribution Agreements" herein. EFC shall provide a
list of those once they have been renegotiated but not later than
March 31, 2002. Otherwise, all obligations and liabilities of H
Power with respect to Distribution Agreements shall be assumed by
EFC and H Power shall have no further obligations thereunder. No
fees shall be paid to H Power for those Licensees that have selected
or will select the "Fuel Cell Distribution Option" or who select a
Non-Exclusive Option as defined in the EFC Distribution Agreement.
In addition, EFC shall be responsible for renegotiating the "Fuel
Cell Testing Agreements Between the Cooperatives and ECO Fuel Cells"
(the "Testing Agreements") with its Licensees. All obligations and
liabilities of H Power with respect to these Testing Agreements
(including, but not limited, to those set forth in Attachment 3
thereto) shall be assumed by EFC and H Power shall have no further
obligations thereunder. It is anticipated that the Parties will
continue a fuel cell testing program and new fuel cell testing
agreements will be executed on such terms as are agreed to by the
Parties.
D. PAYMENT TO EFC. In consideration for the foregoing, H Power hereby
agrees to pay EFC $2,100,000 on the Effective Date.
3. PURCHASE OF FUEL CELL UNITS.
A. EFC'S PURCHASE OF BETA UNITS. EFC reaffirms its obligation to
purchase the number of Alpha and Beta Test Units as specified in
Schedule A of the Operating Agreement. EFC shall be credited in a
revised Schedule A for its prior purchase of Alpha and Beta units
already accepted/delivered, and EFC agrees to pay $50,000 each for
its scheduled purchase of the next 10 Beta Fuel Cell Test Units per
Schedule A. Future Beta Units shall have the minimum specifications
and delivery times as agreed to by the Parties within ninety (90)
days after the execution of this Agreement and H Power shall ship
them to locations selected by EFC.
B. EFC'S PURCHASE OF EPACS. EFC agrees to purchase thirty (30) EPAC
Fuel Cell (Beta and/or commercial) Units for a price of $6,000 each.
These EPAC Units shall have such minimum specifications and delivery
times as are agreed to by the Parties within ninety (90) days after
the execution of this Agreement and H Power shall deliver them as
determined by EFC.
4. TRADE SHOWS REIMBURSEMENT. H Power agrees to pay EFC an amount not to
exceed $200,000 for its participation in two trade shows per year (one of
those shall be the NRECA Annual Meeting each year) in 2002 and 2003 on
behalf of H Power's products and services. EFC shall invoice H Power in the
amount of $50,000 per show at the time that such show
Privileged and Confidential Page 3 of 10 01-12-12
has been registered for or such other time as EFC shall determine (but not
earlier than within the specified calendar quarter shown on Attachment A).
5. SUSTAINABLE FUEL CELL COMMUNITIES OR SIMILAR APPLICATIONS. H Power will
provide $1.5 million of start-up funding to EFC, payable as set forth on
Attachment A, for development of sustainable fuel cell communities (or
similar applications as determined by the Parties) that could include the
generation, storage, transmission, distribution and utilization of
hydrogen-based fuel cells. EFC and H Power will seek to raise funding from
third-party sources for these purposes, including from the government,
hydrogen-related suppliers and other private sector sources. If such funds
are received by EFC, this $1.5 million obligation of H Power to EFC shall
be reduced by the same amount, or if payment has already been made by H
Power to EFC, the funds will be promptly reimbursed to H Power.
6. FINANCIAL STATEMENTS. ECO and EFC have delivered to H Power the September
2001 unaudited financial statements. ECO and EFC attest that these
financial statements have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operations of ECO and
EFC as at the dates and for the periods set forth therein. Beginning with
the first calendar quarter of 2002, ECO and EFC shall each furnish H Power
1) within forty-five (45) days after the end of each fiscal quarter,
quarterly unaudited financial statements, all in reasonable detail, fairly
presenting the financial position and the results of operations of ECO and
EFC as of the end of and through such fiscal quarter and 2) within one
hundred twenty (120) days after the end of each fiscal year, audited
financial statements and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of
operations of ECO and EFC as of the end of and for such fiscal year
together with the opinion of independent certified public accountants, that
such financial statements had been prepared in accordance with GAAP.
7. NO MATERIAL ADVERSE CHANGE. Notwithstanding anything contained in this
Agreement to the contrary, H Power shall have no obligation to make any
further payments to EFC during the Term hereof, if there has been a
"Material Adverse Change." For the purposes of this Agreement, Material
Adverse Change shall only be defined as a material violation of Sections 8
and/or 9 of this Agreement.
8. AFFIRMATIVE COVENANTS. From the Effective Date until the end of the Term
hereof, ECO and EFC shall:
A. Provide H Power with its operating budget for the calendar year ending
December 31, 2002.
B. Prior to January 1, 2003, EFC and/or ECO will provide H Power with its
annual operating budget for the calendar year ending December 31, 2003.
The budget shall insure that adequate funding is available for EFC and
ECO to complete their obligations in this Agreement and to continue in
business through December 31, 2003.
C. Provide H Power and its representatives access during normal business
hours to ECO's and EFC's books, accounts and records and all other
relevant documents and information as representatives of H Power may
from time to time request. Such
Privileged and Confidential Page 4 of 10 01-12-12
access may include consultations with the personnel of ECO and EFC
and/or professionals and consultants responsible for the preparation of
financial statements. ECO and EFC shall make their respective premises
and personal property available for inspection by H Power and its
representatives during normal business hours;
D. Notify H Power in writing of (i) any Material Adverse Change in their
financial position, earnings or prospects, (ii) any governmental
complaints, investigations or hearings to which ECO and/or EFC are a
party, (iii) any material pending legal actions to which ECO and/or EFC
are a party; or (iv) any threatened legal action.
E. Operate their businesses as presently operated and only in the ordinary
course of business and, consistent with such operation, make
commercially reasonable efforts to comply in all respects with all
applicable legal and contractual obligations; and
F. Keep in full force and effect all insurance related to their
businesses, comparable in amount and scope of coverage to that now
maintained. ECO and EFC will furnish to H Power appropriate
certificates of insurance confirming such coverage.
G. ECO and EFC represent that they currently have adequate funds to pay
all of their liabilities as incurred through December 31, 2001.
9. NEGATIVE COVENANTS.
A. Notwithstanding any other provisions in this Agreement:
1. ECO and its affiliates may create a new technology business
organization to support innovative technologies and fund it;
provided that 100 percent of the funding for this organization
shall be provided from sources outside of H Power's funding
under this Agreement, unless otherwise agreed to in writing by H
Power. Any funding from ECO and EFC for this purpose shall be
included in the reporting obligations in Section 8.A. of this
Agreement; and
2. Nothing in this Agreement shall interfere with any requirements
imposed upon ECO or EFC by the National Rural Utilities
Cooperative Finance Corporation (NRUCFC) under their existing
agreements or new agreements that are necessary to continue or
increase funding for ECO or EFC.
B. From the Effective Date until the end of the Term hereof, ECO and EFC
immediately shall notify H Power anytime that During the Term hereof,
there is any negative deviation from the annual EFC or ECO budget in
excess of fifteen percent (15%) of the net income/(loss) of ECO on a
quarterly basis. This provision shall not apply to any sales of propane
and other equipment that are made after a purchase order for such sales
has been received by ECO or such other events as may be agreed to by
the Parties in writing from time to time. At H Power's written request,
ECO or EFC shall immediately take such steps as may be necessary to
bring its budget back into compliance within forty-five (45) days or a
Material Adverse Change shall be deemed to have occurred.
Privileged and Confidential Page 5 of 10 01-12-12
C. ECO and EFC agree not to do any of the following during the Term of
this Agreement, if they involve a dollar amount in excess of $50,000
(unless it has been previously budgeted or covered by a customer
purchase order):
1. pledge, or otherwise encumber any shares of their capital
stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants,
or options to acquire, any such shares, voting securities, or
convertible or exchangeable securities except to extend the
terms of its H Power stock sale plan, or as otherwise
described in this Agreement, such as the creation of a
technology company and to obtain funding from NRUCFC;
2. acquire, make any investment in, or make any capital
contributions to, any person or entity other than in the
ordinary course of business;
3. sell, transfer, lease, license, pledge, mortgage or otherwise
dispose of or encumber any of their properties or assets,
other than in the ordinary course of business; the sale of any
interest in Altair Energy, LLC is excluded from this
provision;
4. a) incur any indebtedness, other than borrowings under
existing credit facilities, b) make any loans or advances to
any other person or entity, other than routine advances to
employees consistent with past practice or c) assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the
obligations of any other person;
5. enter into any compromise or settlement of, or take any action
with respect to, any litigation or proceeding other than the
prosecution, defense, and settlement thereof in the ordinary
course of business;
6. merge or consolidate with, or acquire (except in the ordinary
course of business) any of the assets of any other
corporation, business or person; and
7. enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any
affiliate, except upon terms no less favorable to ECO and/or
EFC than they would obtain in a comparable arm's length
transaction with an unaffiliated person.
D. In the event that NRUCFC, as defined herein, declares an event of
default under the terms of any of its agreements with ECO and/or EFC,
that shall be considered a Material Adverse Change under this
Agreement.
10. FAILURE TO COMPLY. Notwithstanding anything contained in this Agreement to
the contrary, upon ECO's and/or EFC's breach of any of the Affirmative or
Negative Covenants set forth in Paragraphs 8 and 9, H Power shall have the
unilateral right to suspend payment of any further monies due to EFC
hereunder (including those set forth on Attachment A hereto) until such
time that ECO and/or EFC cures such breach to H Power's satisfaction.
Privileged and Confidential Page 6 of 10 01-12-12
11. TERM. This Agreement shall terminate when all the provisions are satisfied,
but no later than December 31, 2003.
12. OTHER PROVISIONS. No other provisions of the Operating Agreement are
amended except those specifically referred to herein. This Agreement may be
amended by the Parties in writing and any disputes under it shall be
resolved as under Article 14 of the Operating Agreement, except that
arbitration shall be mandatory if requested by either Party following
thirty (30) days' prior written notice. All Attachments to this Agreement
are incorporated into and made a part of this Agreement. Each Party shall
be responsible for and pay all costs and expenses, including attorneys'
fees that it incurs in connection with drafting and negotiating this
Agreement and the support agreements referenced herein. This Agreement and
all actions contemplated hereby shall be interpreted and construed in
accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York and without
giving effect to its choice or conflict of laws rules or principles. This
Agreement may be executed in counterparts, each of which shall collectively
be effective as one single original. Defined terms used, but not otherwise
defined herein, shall have the respective meanings as set forth in the
Operating Agreement.
13. MUTUAL COOPERATION. The Parties agree to take such other actions and
execute such other documents as shall be necessary to carry out the
provisions of this Agreement. The following documents shall be provided at
Closing, to be held no later than January 15, 2002. Such documents shall
include:
A. A statement, dated the Closing date, from the National Rural
Electric Cooperative Finance Corporation (NRUCFC), satisfactory to
H Power, that provides that no principal or interest repayments or
other fees are due to be paid by ECO or EFC to NRUCFC during the
term of this Agreement. NRUCFC's rights to receive proceeds from
any Rule 10b-5-1 Plan H Power stock sale shall not be limited in
any way by this statement.
B. A certificate, dated the Closing date, from ECO, EFC, and H Power
that they are in full compliance with all terms of the Operating
Agreement.
C. An Amended and Restated Operating Agreement. This will include the
changes to the Operating Agreement specified herein. Other
revisions necessary to implement this Agreement also shall be
made, including any revisions to Schedule A regarding Fuel Cell
unit prices, number of units purchased and the schedule of
purchases, but not the total purchase price of $81,180,000. These
changes shall be incorporated into the Amended and Restated
Operating Agreement.
D. A Sales and Marketing Services Agreement. This agreement will
cover, among other things, marketing and sales services for Fuel
Cell Power Systems and other H Power products and services and
will provide for the payment to EFC of $1.5 million, as set forth
on Attachment A. This agreement also shall include provisions for
the close coordination of H Power's and EFC's marketing and sales
plans, including a review of such plans at least each calendar
quarter.
Privileged and Confidential Page 7 of 10 01-12-12
E. A Field Services Agreement. This agreement will cover, among other
things, technical support for Fuel Cell Power Systems and other
product deployment and operation. In exchange for this and for EFC
and ECO assuming certain expenses associated with the Testing
Agreements, H Power will pay to EFC $1.5 million, as set forth on
Attachment A.
F. A Test Reporting and Engineering Services Agreement. This
agreement will cover, among other things, data and reports
regarding ongoing Alpha and Beta Fuel Cell performance in the
field and will provide for the payment to EFC of $700,000, as set
forth on Attachment A.
G. A list of the EFC's pending Distribution Agreements described in
Section 2.C. of this Agreement.
H. The Parties agree that the agreements described in clauses D
through F of this Paragraph 13 shall contain Affirmative and
Negative Covenants on behalf of ECO and EFC. These shall include
but not be limited to ECO and EFC supplying the financial
statements described in Paragraph 6, the Affirmative and Negative
Covenants set forth in Paragraphs 8 and 9 and such other matters
as the Parties and their respective counsel may reasonably
require.
I. ECO and EFC will provide a statement acknowledging that H Power,
and H Power will provide a statement that ECO and EFC, have been
in full compliance with all of the terms and conditions of the
Operating Agreement since its inception and remain in full
compliance therewith.
14. In the event that there is no final NRUCFC action, including Board of
Directors approval, on the restructuring of ECO's and EFC's existing
indebtedness to NRUCFC by February 15, 2002, then the $2,100,000 paid upon
execution of this Agreement shall be returned promptly to H Power. In the
event that the Parties are unable to reach agreement on the items required
at Closing, EFC shall retain the $2.1 million paid at the Effective Date
and the existing terms of the Operating Agreement shall remain in effect
except as provided in Paragraphs 2 and 3 of this Agreement.
Privileged and Confidential Page 8 of 10 01-12-12
IN WITNESS WHEREOF the undersigned Parties hereby execute this Agreement as of
the Effective Date.
H POWER CORP. H POWER ENTERPRISES OF CANADA, INC.
/s/ H. Xxxxx Xxxxxxx /s/ H. Xxxxx Xxxxxxx
ECO FUEL CELLS, LLC ENERGY CO-OPPORTUNITY, INC.
/s/ Xxxxxxx X. Xxxxx /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx, President & CEO Xxxxxxx X. Xxxxx, President & CEO
Privileged and Confidential Page 9 of 10 01-12-12
ATTACHMENT A
ATTACHMENT OF H POWER'S PAYMENTS TO ECO FUEL CELLS (EFC)
--------------------------------------------------------
H Power shall make the following payments to EFC. Notwithstanding the
foregoing or anything else contained in the Agreement to the contrary, the
payments to be made by H Power with respect to Sales and Marketing
Services, Field Services and Test Reporting and Engineering Services shall
be contingent on the Parties executing definitive support agreements; and
they agree to diligently work together in good faith to that end.
--------------------------------------------------------------------------------------------------------
EFFECTIVE
DATE QTR 1-2002 QTR 2-2002 QTR 3-2002 QTR 4-2002
========================================================================================================
EXCLUSIVE TERRITORY (TO ECO) $2,100,000
--------------------------------------------------------------------------------------------------------
TRADE SHOWS REIMBURSEMENT (*****) (*****)
--------------------------------------------------------------------------------------------------------
SALES AND MARKETING SERVICES (*****) (*****) (*****) (*****)
--------------------------------------------------------------------------------------------------------
FIELD SERVICES (*****) (*****) (*****) (*****)
--------------------------------------------------------------------------------------------------------
TEST REPT. & ENG. SVCS. (*****)
--------------------------------------------------------------------------------------------------------
SUSTAINABLE FUEL CELL COMM. (*****)
========================================================================================================
TOTAL $2,100,000 (*****) (*****) (*****) (*****)
--------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
SUB TOTAL QTR 1-2003 QTR 2-2003 QTR 3-2003 QTR 4-2003 TOTALS
=====================================================================================================================
EXCLUSIVE TERRITORY (TO ECO) $2,100,000 $2,100,000
---------------------------------------------------------------------------------------------------------------------
TRADE SHOWS REIMBURSEMENT (*****) (*****) (*****) $200,000
---------------------------------------------------------------------------------------------------------------------
SALES AND MARKETING SERVICES (*****) (*****) (*****) (*****) (*****) $1,500,000
---------------------------------------------------------------------------------------------------------------------
FIELD SERVICES (*****) (*****) (*****) (*****) (*****) $1,500,000
---------------------------------------------------------------------------------------------------------------------
TEST REPT. & ENG. SVCS. (*****) $700,000
---------------------------------------------------------------------------------------------------------------------
SUSTAINABLE FUEL CELL COMM. (*****) $1,500000
=====================================================================================================================
TOTAL $5,900,000 (*****) (*****) (*****) (*****) $7,500,000
---------------------------------------------------------------------------------------------------------------------
