Exhibit 10.31
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 our application for confidential treatment.
DEVELOPMENT AND LICENSE AGREEMENT dated as of the 17th day of August, 1998
BY AND BETWEEN: H. POWER ENTERPRISES OF CANADA INC., a corporation duly
incorporated pursuant to the Canada Business Corporations Act,
with a principal place of business at 0000 Xxxxx Xxxxxx,
Xx-Xxxxxxx, Xxxxxx, X0X XX0,
("HPEC")
AND: HARVEST ENERGY TECHNOLOGY INC., a California corporation, with
a principal place of business at 0000 Xxxxxxxx Xxxxxxxxx, Xxx
Xxxxxx, Xxxxxxxxxx 00000,
("HET")
WITNESSETH:
WHEREAS HET owns or has exclusive rights to certain intellectual property
rights, including proprietary information and know-how, relating to HET
Technology (as defined below) which can be applied to the design and development
of fuel processors; and
WHEREAS HPEC designs, develops, manufactures and markets Fuel Cell Stacks
(as defined below) and develops and supplies fuel cell systems; and
WHEREAS HPEC desires procurement of fuel processing technology in order to
profit from commercialization of residential energy modules; and
WHEREAS HET desires to license fuel processing technology to a capable
fuel stack development and manufacturing company in order to profit from
commercialization of residential energy modules; and
WHEREAS HPEC has an interest in developing, using and selling a fuel
processor to provide hydrogen to a 1-10 kW fuel cell utilizing HET Technology,
for use with a Fuel Cell Stack in a Fuel Cell System (as defined below), and HET
is willing to develop a prototype of such a fuel processor pursuant to the terms
of this Agreement; and
WHEREAS HET wishes to grant to HPEC, and HPEC desires to obtain, the
exclusive worldwide license to manufacture, produce, market, promote, advertise,
sell, lease, distribute and merchandise the fuel processor developed by HET
hereunder utilizing HET Technology.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
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Confidential
SECTION 1 - DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the meanings set forth below:
1.1 "Acceptance Tests" shall mean such tests as are described in Appendix B
hereto and paragraph 2.9.1 hereof.
1.2 "Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person. For purposes hereof,
the term "control" (including, with its correlative meanings, the terms
"controlled by" and "under common control with"), with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person (whether through the
ownership of voting securities, by contract or otherwise); provided, that in
each event in which any Person owns directly or indirectly more than 50% of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or more than 50% of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or more than 50% of the ownership interest of any other Person, such
Person shall be deemed to control such corporation or other Person.
1.3 "Arising Know-How" means any and all technology, manufacturing and other
know-how, technical information, inventions, discoveries, methods,
specifications and trade secrets owned or Controlled pursuant to subsection 10.2
hereof relating to any research, development or manufacture of the Processor,
which are generated during the course of, arise out of or result from
performance of any Work hereunder.
1.4 "Arising Patent Rights" means all Patents which issue at any time from
applications filed worldwide pursuant to subsection 10.3 claiming inventions
necessary or useful to the development, manufacture or use of the Processor,
which are generated during the course of, arise out of or result from
performance of any Work hereunder.
1.5 "Arising Technology" means, collectively, Arising Know-How and Arising
Patent Rights with respect thereto.
1.6 "Confidential Information" means any and all information (in any and every
form and media) not generally known in the relevant trade or industry, which was
obtained from any party or any Affiliate thereof in connection with this
Agreement or the respective rights and obligations of the parties hereunder,
including, without limitation, (a) information relating to trade secrets of such
party or any Affiliate thereof, (b) information relating to existing or
contemplated products, services, technology, designs, processes, formulae,
research and development (in any and all stages) of such party or any Affiliate
thereof, (c) information relating to any Fuel Cell Stack, any Processor or any
Fuel Cell System, and (d) information relating to business plans, methods of
doing business, sales
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or marketing methods, customer lists, customer usages and/or requirements and
supplier information of such party or any Affiliate thereof, except that
"Confidential Information" shall not include any information which (i) at the
time of disclosure, is generally known to the public, (ii) after disclosure,
becomes part of the public knowledge (by publication or otherwise) other than by
breach of this Agreement by the receiving party, (iii) the receiving party can
verify by written documentation was in its possession at the time of disclosure
and which was not obtained, directly or indirectly, from the other party or any
Affiliate thereof, (iv) the receiving party can verify by written documentation
results from research and development by the receiving party or any Affiliate
thereof independent of disclosures by the other party or any Affiliate thereof
or (v) the receiving party can prove was obtained from any Person who had the
legal right to disclose such information, provided that such information was not
obtained to the knowledge of the receiving party or any Affiliate thereof by
such Person, directly or indirectly, from the other party or any Affiliate
thereof on a confidential basis.
1.7 "Contract Price" means the total amount to be paid by HPEC to HET for
performance of the Work which shall be a fixed price of US $194,000.00.
1.8 "Control" means possession of the ability to grant a license or sublicense
as provided for herein without violating the terms of any agreement with, or the
rights of, any third Person.
1.9 "Due Date" means the date which is 12 months following the date hereof.
1.10 "Field" means any and all fuel processors providing hydrogen using the
combination of processes described in the Work for stationary fuel cell systems
in the 1-10 kW range operating on propane, natural gas or other carbonaceous
fuel for residential, commercial, remote and back-up power applications.
1.11 "Final Acceptance" means the acceptance of the prototype Processor by HPEC
upon the completion of all Work to HPEC's satisfaction and receipt from HET of a
true and correct Final Acceptance Certificate, and the release and waiver by
HPEC of all claims against HET relating to the performance of the Work, except
those claims arising from or consisting of (a) unsettled claims (including,
without limitation, claims of HPEC or any subcontractor), (b) claims for breach
of any warranty or guarantee set forth in this Agreement, (c) HET's continuing
obligations under this Agreement, (d) liens or other title exceptions respecting
the Processor or any portion thereof, (e) any material breach by HET (whether by
an employee, representative or subcontractor) of any of the terms of this
Agreement or (f) all rights of HPEC under Sections 4, 8, 9 and 10 hereof, all of
which claims and rights shall survive such acceptance of the prototype
Processor.
1.12 "Final Acceptance Certificate" shall mean a duly completed and executed
certificate, substantially in the form of Appendix F hereto.
1.13 "Final Acceptance Date" shall mean the date on which Final Acceptance
occurs in accordance with the provisions of subsection 2.9 hereof.
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1.14 "Final Test Report" shall mean HET's written report describing the results
and procedures of the Acceptance Tests in detail sufficient to HPEC.
1.15 "Final Specifications" shall mean HET's written report specifying: (i)
HET's recommended mechanical design (geometrical dimensions) for a Processor in
the 1 to 10 kW range, (ii) the types of catalysts to be used, (iii) the
parts-per million of carbon-monoxide in the hydrogen from the Processor and (iv)
the conditions under which the Processor is to be operated, the whole in detail
sufficient to HPEC. Attached to such report shall be a letter from each of the
manufacturers of the types of catalysts referred to in such report pursuant to
which such manufacturers shall consent to the use by HPEC of such catalysts for
the purposes of testing the prototype Processor;
1.16 "Fuel Cell Stack" shall mean any Proton Exchange Membrane (PEM) fuel cell
stack developed or marketed by HPEC or any Affiliate thereof, as more fully
described in the Specifications.
1.17 "Fuel Cell System" means any fuel cell system in the Field which utilizes
the Processor.
1.18 "HET Background Know-How" means any and all technology, manufacturing and
other know-how, technical information, inventions, discoveries, methods,
specifications and trade secrets owned or Controlled at any time prior to this
agreement by HET relating to any research, development or manufacture of the
Processor (the whole as more fully described in Appendix E), but shall in no
event include any HPEC Background Know-How.
1.19 "HET Background Patent Rights" means all Patents (i) which have been issued
to HET as of the date of this Agreement, (ii) which issue at any time from
applications pending as of the date of this Agreement or subsequently filed
worldwide, now owned or Controlled, by or on behalf of HET or any of its
successors or Affiliates, claiming inventions necessary or useful to the
development, manufacture or use of the Processor, but shall in no event include
any HPEC Background Patent Rights, or (iii) which issue at any time from
invention disclosures filed as of the date of this Agreement with the Law
Offices of Xxxxxxx X. Xxxxxxxxx located at 000 Xxxxx Xxxx Xxxxxx, Xxxxx 000,
Xxxxxxxx, XX 00000.
1.20 "HET Background Technology" means, collectively, HET Background Know-How
and HET Background Patent Rights with respect thereto.
1.21 "HPEC Background Know-How" means any and all technology, manufacturing and
other know-how, technical information, inventions, discoveries, methods,
specifications and trade secrets owned or Controlled at any time prior to this
Agreement by HPEC relating to any research, development or manufacture of the
Processor (the whole as more fully described in Appendix H), but shall in no
event include any HET Background Know-How.
1.22 "HPEC Background Patent Rights" means all Patents (i) which have been
issued to HPEC as of the date of this Agreement, or (ii) which issue at any time
from applications pending as of the
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date of this Agreement or subsequently filed worldwide, now owned or Controlled,
by or on behalf of HPEC or any of its successors or Affiliates, claiming
inventions necessary or useful to the development, manufacture or use of the
Processor, but shall in no event include any HET Background Patent Rights.
1.23 "HPEC Background Technology" means, collectively, HPEC Background Know-How
and HPEC Background Patent Rights with respect thereto.
1.24 "Patent" means (i) unexpired letters patent (including inventor's
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including without limitation any substitution,
extension, registration, confirmation, reissued, re-examination, renewal or any
like filing thereof, and (ii) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.
1.25 "Person" means any individual, estate, trust, corporation, partnership,
joint venture, association, firm or company, or governmental body, agency or
official, or any other entity.
1.26 "Payment Schedule" means the schedule of payments of the Contract Price by
HPEC to HET appended hereto as Appendix G.
1.27 "Processor" means fuel processor to be developed by HET to provide hydrogen
for a 1-10 kW fuel cell in accordance with the Specifications and this
Agreement.
1.28 "Specifications" means the specifications for development of the Processor,
as set forth in Appendix A hereto.
1.29 "Subcontractor" means any contractor, constructor, supplier or vendor of
equipment, material, supplies or services to HET or any subcontractor thereto as
provided in subsection 2.11 hereof.
1.30 "Technical Representative" means the representative of HPEC with whom HET
shall communicate and to whom HET shall report with respect to all matters
contemplated by this Agreement, which representative shall initially be Xx.
Xxxxxx Xxxxxx, who may be replaced from time to time upon HPEC giving HET
written notice of each such replacement.
1.31 "Work" means all obligations, duties and responsibilities assigned to or
undertaken by HET pursuant to this Agreement, except in its capacity as
licensor, including the furnishing of all equipment, supplies and material and
the provision of all development, design, engineering, procurement (including
transportation), performance testing and other services to be performed by HET
in accordance with the intent of the Specifications and all other terms of this
Agreement, the whole as more fully defined in Appendix D.
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1.32 "Work Schedule" means the schedule for the development of the prototype
Processor and performance of the Work hereunder, as set forth in Appendix C
hereto.
SECTION 2 - DEVELOPMENT OF PROCESSOR
2.1 Development. HET shall develop, design, engineer, procure, construct and
test a prototype Processor, in accordance with the Specifications. All Work to
be performed by HET hereunder shall be sufficient, complete and adequate in all
respects necessary to enable the prototype Processor to meet the Acceptance
Tests.
2.2 Work Schedule. HET shall perform the Work hereunder in accordance with the
Work Schedule. HET shall promptly notify HPEC in writing at any time that HET
has reason to believe that the Work Schedule will not be met and will specify in
said notice the corrective action planned by HET.
2.3 Revisions to Specifications. Either party may propose changes to minimum
criteria and other specifications in the Specifications provided that the
Specifications shall only be amended by agreement of the parties in writing.
2.4 Costs. All Costs incurred by HET in the performance of the Work hereunder,
including all labour, equipment, materials and other goods and services, shall
be the sole responsibility of HET.
2.5 Reports
2.5.1 Monthly Reports. Within 10 days of the end of each month following the
date hereof, HET shall prepare and submit to HPEC's Technical
Representative a report summarizing all activities during the previous
month toward accomplishing Processor objectives. Said report shall include
the status of all Work tasks, the current projection for their completion,
and a discussion of problems and potential problems that may require
action by HPEC.
2.5.2 Catalyst Data. HET is to provide catalyst evaluation data to HPEC and to
obtain HPEC's agreement with HET's recommendation for the type of catalyst
to be used in the Prototype.
2.5.3 Final Report. Within three weeks of the Final Acceptance Date, HET shall
prepare and submit to HPEC's Technical Representative a final report
summarizing the findings, conclusions, technology developments, and other
technical information obtained through the Work, including the design,
development of the prototype Processor. Information relative to predicted
performance shall also be included in the final report.
2.6 Engineering Drawings. HPEC's Technical Representative shall be provided with
a copy of all engineering plans, specifications and drawings for the Processor.
All engineering plans, specifications and drawings for the Processor are the
property of HET.
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2.7 HPEC's Right to Inspect. HPEC or any authorized representative of HPEC shall
have the right at all reasonable times to inspect the Work and to observe the
Acceptance Tests. HET shall make arrangements and provide access for such
inspection and observation of such tests. HET shall promptly correct any part of
the Work which is defective or not in accordance with this Agreement. Any such
inspection of any part of the Work shall in no way affect HET's obligations to
furnish a Processor and perform the Work in accordance with the intent of the
Specifications and all other terms of this Agreement.
2.8 Taxes. HET shall pay all taxes for the Work, including all equipment, goods
and services supplied hereunder.
2.9 Final Acceptance.
2.9.1 Acceptance Tests. At such time as HET deems appropriate in accordance with
the Work Schedule, HET shall notify HPECs Technical Representative of its
intention to commence Acceptance Tests in accordance with Appendix B
hereto. Such notice shall be given at least 15 business days prior to
HET's planned commencement of testing and HPEC's representatives shall
have the option to witness the Acceptance Tests. The cost of all such
testing, including, without limitation, the cost for HET'S personnel and
equipment involved in such testing, shall be borne solely by HET except
HPEC's personnel costs. Completion of such testing shall occur when each
of the following requirements has been fulfilled in the opinion of HPEC:
2.9.1.1 each element of the prototype Processor is able to perform in
accordance with its design requirements in conformity with the intent of
the Specifications;
2.9.1.2 each component of the Acceptance Tests has been performed
concurrently (unless otherwise mutually agreed upon), and the indicated
results achieved in accordance with the criteria specified in Appendix B
hereto;
2.9.1.3 all Work shall be completed and all such Work shall have been
performed in accordance with the terms of this Agreement; and
2.9.1.4 HET shall have provided HPEC with the Final Specifications.
2.9.2 Notice of Completion and Acceptance. Once HET has completed the testing
and has performed all of the requirements in accordance with paragraph
2.9.1 hereof HET shall submit the Final Test Report to HPEC's Technical
Representative. Within 15 business days following receipt of the Final
Test Report, HPEC shall provide the Final Acceptance Certificate (Appendix
F) to HET, indicating that HET has fulfilled the requirements of this
Agreement sufficiently to successfully complete the Acceptance Tests in
accordance with the terms of paragraph 2.9.1 hereof. Such notice shall
constitute Final Acceptance.
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2.9.3 Custody of Processor, etc. Upon the Final Acceptance Date, (i) HET shall
deliver, relinquish and grant to HPEC full and exclusive custody of the
prototype Processor, including responsibility for maintenance, operation
and insurance, at which time all risk of loss shall pass to HPEC, (ii)
HPEC shall advance to HET, prior to HET's being required to release the
prototype Processor to HPEC, the cost for the shipping of same to HPEC and
(iii) the license contained in subsection 4.1 hereof shall become
effective. It is expressly understood and agreed by the parties that
nothing contained in this subsection 2.9 shall in any way modify or alter
HET's obligations under Section 12 hereof. HET shall have no further
obligations with respect to the prototype Processor after HPEC has signed
the Final Acceptance Certificate and the prototype Processor has been
received by HPEC.
2.10 No Obligation to Commercialize. It is understood and agreed by the parties
hereto that the Processor to be developed and delivered by HET hereunder is a
prototype only and that HPEC shall have no obligation to HET or any other Person
to further develop or commercialize the Processor after Final Acceptance thereof
hereunder, except as provided in subsection 4.5 hereof.
2.11 Subcontracts. Subject to the terms and conditions of this Agreement, HET
shall have the right to have any of the Work accomplished by Subcontractors
pursuant to written subcontracts between HET and such Subcontractors (which
written subcontracts shall contain clauses pursuant to which, inter alia, such
Subcontractors take cognizance of and agree to be bound by the provisions of
Sections 9 and 10 of this Agreement). Subject to the foregoing, HET shall be
solely responsible for the engagement and management of Subcontractors in the
performance of the Work. No contractual relationship shall be deemed to exist
between HPEC and any Subcontractor with respect to the Work to be performed
hereunder. No Subcontractor is intended to be or shall be deemed a third-party
beneficiary of this Agreement.
SECTION 3 - CONTRACT PRICE
3.1 Contract Price. HET agrees to perform the Work for the Contract Price, in
accordance with Appendix G. The first instalment of Contract Price, in the
amount of $30,000, shall be paid to HET within 30 days after the date hereof.
The balance of the Contract Price shall be payable in monthly instalments in
accordance with the Payment Schedule, each such payment to be made within 30
days after receipt by HPEC of an invoice from HET therefor. Each such invoice
may include the full amount specified in the Payment Schedule upon the
completion of each task completed thereunder, except to the extent that all or a
portion of such amount is disputed for good reason, in which case (a) HET shall
continue to perform the Work and (b) the disputed portion shall not be paid
until the dispute is resolved. Within 30 days following the receipt of the
prototype Processor at HPEC, HPEC shall pay to HET any amount remaining to be
paid to HET under this Agreement, provided that HPEC may withhold a reasonable
and necessary portion of the Contract Price to reflect items which have not been
completed by HET. No payment made hereunder shall be considered as approval or
acceptance of any Work. All payments shall be subject to correction or
adjustment in subsequent progress reviews and payments.
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SECTION 4 - LICENSE GRANT
4.1 Grant. Upon the terms and subject to the conditions herein stated, and
effective at such time as is provided in paragraph 2.9.3 hereof, HET hereby
grants to HPEC an exclusive, worldwide license under the HET Background Patent
Rights, HET Background Know-How, Arising Know-How and Arising Patent Rights to
manufacture, produce, market, promote, advertise, sell, lease, distribute and
merchandise the Processor, and Fuel Cell Systems incorporating the Processor,
utilizing HET Background Technology and Arising Technology for the term of this
Agreement.
4.2 Sublicenses. HPEC shall have the right to enter into sublicensing agreements
with respect to any of the rights, privileges and licenses granted hereunder,
subject to the terms and conditions hereof. Such sublicenses (a) shall not
become effective unless and until the license granted in subsection 4. 1 hereof
becomes effective, and (b) shall terminate upon the termination of this
Agreement.
4.3 HET Restrictions. During the term of this Agreement, HET shall not
manufacture, produce, market, promote, advertise, sell, lease, distribute or
merchandise the Processor or Fuel Cell Systems incorporating the Processor
anywhere in the world for commercial purposes, or grant to others the right and
license to perform any of the foregoing activities anywhere in the world, except
that HET has the right to manufacture the Processor for the purpose of
development and testing, including development under projects that may be funded
by various federal, state and local government agencies or research institutes.
Notwithstanding the foregoing, HET shall be entitled to manufacture the
Processor for other purposes upon written authorization from HPEC. HET shall
refer to HPEC all inquiries concerning the Processor or Fuel Cell Systems
incorporating the Processor received from anywhere in the world.
4.4 Information and Assistance. At all times during the term of the license
granted in subsection 4.1 hereof, HET shall: (i) make available to HPEC all
relevant information relating to the machinery and equipment used in the
manufacture and production of the Processor; (ii) collaborate with and assist
HPEC in the design and testing of the Processor and Fuel Cell Systems
incorporating the Processor; (iii) provide HPEC from time to time with
information and specifications relating to raw materials required to manufacture
and produce the Processor and Fuel Cell Systems incorporating the Processor; and
(iv) provide HPEC with reasonable assistance in transferring the HET Background
Know-How, together with the expertise required to use the HET Background Know-
How, to HPEC.
4.5 Loss of Exclusivity. By no later than December 31, 2001, HPEC will provide
HET a list describing the current location of all Processors that have been
constructed using HET Background Technology and Arising Technology.
Notwithstanding the provisions of subsection 4.1 hereof, in the event that HPEC
fails to construct or have constructed a minimum of [*****] Processors using
HET Background Technology or Arising Technology prior to December 31, 2001,
or fails to provide said list to HET describing the current location of a
minimum of [*****] Processors, HET shall have the right, within sixty (60)
days of December 31, 2001, to advise HPEC in writing of the termination of the
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rights of exclusivity granted by HET to HPEC pursuant to subsection 4.1 and
thereafter HET shall be free to itself make use of or to license to others to
make use of the HET Background Technology and Arising Technology.
Notwithstanding the foregoing, HPEC shall be entitled to retain rights to
exclusivity until December 31, 2002 by making a cash payment to HET of $100,000
within sixty (60) days following such notification by HET, in which event HET
shall not be entitled to so terminate the rights of exclusivity granted by it to
HPEC pursuant to subsection 4.1 hereof. Furthermore, notwithstanding the
provisions of subsection 4. 1 hereof, in the event that HPEC fails to construct
or have constructed a minimum of [*****] Processors using HET Background
Technology or Arising Technology prior to December 31, 2002, or fails to
provide a list to HET describing the current location of a minimum of [*****]
Processors, HET shall have the right, within sixty (60) days of December 31,
2002, to advise HPEC in writing of the termination of the rights of
exclusivity granted by HET to HPEC pursuant to subsection 4.1 and thereafter
HET shall be free to itself make use of or to license to others to make use
of the HET Background Technology and Arising Technology. Notwithstanding the
foregoing, HPEC shall be entitled to retain rights to exclusivity until
December 31, 2003 by making a cash payment to HET of $100,000 within sixty
(60) days following such notification by HET, in which event HET shall not be
entitled to so terminate the rights of exclusivity granted by it to HPEC
pursuant to subsection 4.1 hereof.
Notwithstanding the provisions of subsection 4.1 hereof, in the event that
the aggregate annual royalties paid pursuant to Section 5 hereof are less than:
(i) $30,000 for the 2004 calendar year; (ii) $50,000 for the 2005 calendar year;
(iii) $75,000 for the 2006 calendar year; and (iv) $100,000 for each calendar
year after 2006, then, in each such case, HET shall have the right, within sixty
(60) days of the end of each such calendar year, as applicable, to advise HPEC
in writing of the termination of the rights of exclusivity granted by HET to
HPEC pursuant to subsection 4.1 and thereafter HET shall be free to itself make
use of or to license to others to make use of the HET Background Technology and
Arising Technology. For purposes of clarity, HPEC shall be entitled to
supplement, through a cash payment to HET, any shortfall in royalties paid in
each such calendar year, as applicable, (provided that such supplement, together
with the royalties actually paid to HET during such calendar year, are not less
than the applicable minimum aggregate amount of annual royalties payable during
such year), in which event HET shall not be entitled to so terminate the rights
of exclusivity granted by it to HPEC pursuant to subsection 4.1 hereof.
SECTION 5 - PAYMENT OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS, ETC.
5.1 Royalties. As consideration for the entering into of this Agreement by HET
and for the rights and license granted to HPEC under subsection 4.1 hereof, HPEC
shall pay to HET royalties in the amount of US $[*****] per Processor
(including any HET Processors incorporated into any Fuel Cell Systems) sold
by HPEC or any Affiliate or sublicensee thereof prior to January 1, 2004.
Thereafter, such royalty payment will escalate in future years at a rate
defined by the ratio of the U.S. Consumer Price Index in the year 2004 to
the U.S. Consumer Price Index in the year during which such royalties are due.
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5.2 Payment. Royalties payable hereunder shall be paid within 30 days after the
end of each calendar quarter, based on the quantity of Processors (including
Processors incorporated into any Fuel Cell Systems) sold by HPEC and its
Affiliates and sublicensees during the preceding calendar quarter. Such payments
shall be accompanied by a statement setting forth such sales quantities.
5.3 Foreign Currency; Withholding. All payments of royalties shall be made in
U.S. Dollars. HPEC shall withhold from all payments due to HET hereunder any
amount which is legally required to be withheld and paid to the appropriate
Canadian (provincial and/or federal) fiscal authority. Whenever any such amount
is withheld, HPEC shall deliver to HET a statement disclosing the amount
withheld, a copy of the withholding tax form, the date of payment thereof and
the royalty with respect to which such amount was paid. It is understood that
the current withholding rate is 10%.
5.4 Records. HPEC shall keep for five years complete and accurate records of the
quantity of Processors (including Processors incorporated into any Fuel Cell
Systems) sold by HPEC and its Affiliates and sublicensees in sufficient detail
to allow the royalties payable by HPEC to be accurately determined. HET shall
have the right for a period of one year after receiving any report or statement
with respect to royalties due and payable hereunder by HPEC to appoint an
independent accounting firm to inspect and audit the relevant records of HPEC
and its Affiliates to verify such report or statement. HPEC and its Affiliates
shall make their records available for inspection and audit by such independent
accounting firm during regular business hours at such place or places where such
records are customarily kept, upon reasonable notice to HPEC and without further
interfering with the conduct of HPEC's business, to the extent reasonably
necessary to verify the accuracy of the reports and payments required hereunder.
The cost of any such inspection and audit shall be paid by HET, unless such
inspection and audit discloses for any calendar quarter examined that there
shall have been a negative discrepancy of greater than 5% between the royalties
payable hereunder by HPEC and the royalties actually paid by HPEC with respect
to such calendar quarter, in which case HPEC shall be responsible for the
payment of the entire cost of such inspection and audit as full and final
recourse of HET for such understatement of royalties.
SECTION 6 - TITLE AND RISK OF LOSS
6.1 Clear Title. HET warrants and guarantees that legal title to and ownership
of the prototype Processor hardware shall pass to HPEC, free and clear of any
and all liens, claims, hypothecs, security interests or other encumbrances, upon
the delivery of the Processor to HPEC, except as provided for regarding royalty
payment obligations as described in Section 5.
6.2 Risk of Loss. HET shall assume risk of loss of any equipment, materials or
supplies or any other Work completed until the Final Acceptance Date or such
time as this Agreement is terminated, whichever date is earlier. All equipment,
materials or supplies not yet incorporated into the Processor shall be stored in
secured areas. HET shall bear the responsibility of preserving, safeguarding and
maintaining such equipment, materials or supplies and any other Work completed.
Any equipment,
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materials and supplies or any Work lost, damaged stolen or impaired before the
Final Acceptance Date shall be replaced promptly by HET at its own expense.
SECTION 7 - REPRESENTATIONS AND WARRANTEES
7.1 By HPEC. HPEC hereby represents and warrants to HET that (a) HPEC has full
legal right, power and authority to execute, deliver and perform its obligations
under this Agreement, (b) the execution, delivery and performance by HPEC of
this Agreement do not contravene or constitute a default under any provision of
applicable law or its articles or by-laws (or equivalent documents) or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
HPEC, (c) all licenses, consents, authorizations and approvals, if any, required
for the execution, delivery and performance by HPEC of this Agreement have been
obtained and are in full force and effect and all conditions thereof have been
complied with, and no other action by or with respect to, or filing with, any
governmental authority of any other Person is required in connection with this
execution, delivery and performance by HPEC of this Agreement, and (e) this
Agreement constitutes a valid and binding agreement of HPEC, enforceable against
HPEC in accordance with its terms.
7.2 By HET. HET hereby represents and warrants to HPEC that (a) HET has full
legal right, power and authority to execute, deliver and perform its obligations
under this Agreement, (b) the execution, delivery and performance by HET of this
Agreement do not contravene or constitute a default under any provision of
applicable law or of its articles of incorporation or by-laws (or equivalent
documents) or of any agreement, judgment, injunction, order, decree or other
instrument binding upon HET, (c) subject to subsection 7.3 below, all licenses,
consents, authorizations and approvals required for the execution, delivery and
performance by HET of this Agreement have been obtained and are in full force
and effect and all conditions thereof have been complied with, and no other
action by or with respect to, or filing with, any governmental authority or any
other Person is required in connection with the execution, delivery and
performance by HET of this Agreement, (d) it has full experience and proper
qualifications to perform the Work, to construct the prototype Processor and to
evaluate the need for and obtain all approvals, certificates, permits and
licenses, governmental or otherwise, for the construction and operation of the
prototype Processor, (e) it has not granted any right or license to any third
party to use the HET Background Technology in connection with the manufacturing,
production, advertising, promotion, marketing, distribution, sale, rental and
merchandising of the Processor or Fuel Cell Systems incorporating the Processor
anywhere in the world and there is no outstanding right or license granted by
HET which would in any way conflict with the right and license granted to HPEC
in subsection 4.1 hereof, (f) there are no lawsuits, pending or threatened,
relating to the HET Background Technology, and to the best of HET's knowledge
there are no claims or demands of whatsoever nature with respect to or in any
manner affecting same, (g) it has not received any notice that the right and
license granted in subsection 4.1 hereof infringe upon or conflict with any
proprietary right belonging to any third party, and (h) this Agreement
constitutes a valid and binding agreement of HET, enforceable against HET in
accordance with its terms. Notwithstanding the provisions of clause (c) above,
all licenses, consents, authorizations and approvals required for the
(including, without limitation, licenses from third parties such as catalyst
manufacturers)
12
7.3 Exceptions. Notwithstanding subsection 7.2 above, all licenses (including,
without limitation, licenses from third parties such as catalyst manufacturers),
consents, authorizations and approvals required for the delivery and testing of
the prototype Processor will be obtained by HET, and no other action by or with
respect to, or filing with, any governmental authority or any other Person is
required in connection with the delivery and testing of the Processor. In
addition, HET hereby undertakes to use its best efforts to assist HPEC in
obtaining any such licenses (including, without limitation, licenses from third
parties such as catalyst manufacturers), consents, authorizations and approvals.
7.4 Survival of Representations and Warranties. The representations and
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time made by or on behalf of any party or parties.
SECTION 8 - INFRINGEMENT AND INDEMNIFICATION
8.1 Infringement Claims. Each party shall promptly advise the other party of any
infringements or suspected infringements of any HET Background Technology or
HPEC Background Technology of which such party becomes aware, and (a) HPEC shall
cooperate with and assist HET in any action undertaken by HET for the defense of
infringement of any HET Background Technology and (b) HET shall cooperate with
and assist HPEC in any action undertaken by HPEC for the defense of infringement
of any HPEC Background Technology. In such case, HET, in the case of HET
Background Technology, or HPEC, in the case of HPEC Background Technology, shall
retain the right to elect, in its sole discretion, which remedies to adopt. In
the event that HET advises HPEC that it shall not participate in any proceedings
relating to the defense of infringement of any HET Background Technology, HPEC
may prosecute same and shall pay all costs and expenses related thereto and
shall be entitled to all recoveries and awards therefrom. HET shall, however, be
entitled to join in any such proceedings at any time. The parties shall at all
times fully cooperate in the prosecution of all such proceedings.
8.2 Indemnification.
8.2.1 Indemnification by HPEC. HPEC hereby agrees that it shall be responsible
for, indemnify, hold harmless and defend HET, HET's Affiliates and their
respective directors, officers, managing members, shareholders, partners,
attorneys, accountants, agents, employees and consultants and their heirs,
successors and assigns (collectively, the "HET Indemnitees") from and
against any and all claims, demands, losses, liabilities, damages, costs
and expenses (including the cost of settlement, reasonable legal and
accounting fees and any other expenses for investigating or defending any
actions or threatened actions) (collectively "Losses") suffered or
incurred by any HET Indemnitee arising out of, relating to, resulting from
or in connection with (a) any actual or alleged injury or death of any
Person or damage to any property caused or claimed to be caused by any
Fuel Cell System, provided that such injury, death or damage is not
related to HET Background Technology or the Work performed hereunder, (b)
except to the extent indemnified against by HET pursuant to
13
Section 8.2.2 hereof, any claim that the manufacture, sale or use of any
Fuel Cell System by such party infringes or violates the patent or other
rights of any other Person, (c) the breach of any representation or
warranty made by HPEC herein, (d) the default by HPEC in the performance
or observance of any of its obligations to be performed or observed
hereunder, and (e) any action, suit or other proceeding, or compromise,
settlement or judgment, relating to any of the foregoing matters with
respect to which HET Indemnitees are entitled to indemnification
hereunder. The foregoing shall not apply to the extent that such Losses
are due to the wilful misconduct or negligence of any HET Indemnitees, as
finally determined by a court of competent jurisdiction.
8.2.2 Indemnification by HET. HET hereby agrees that it shall be responsible
for, indemnify, hold harmless and defend HPEC, HPEC's Affiliates and their
respective directors, officers, managing members, shareholders, partners,
attorneys, accountants, agents, employees and consultants and their heirs,
successors and assigns (collectively, the "HPEC Indemnitees") from and
against any and all Losses suffered or incurred by any HPEC Indemnitee
arising out of, relating to, resulting from or in connection with (a) any
actual or alleged injury or death of any Person or damage to any property
caused or claimed to be caused by any Fuel Cell System and related to HET
Background Technology or the Work performed hereunder, (b) any claim that
the manufacture, sale or use of any Fuel Cell System by such party
infringes or violates the patent or other rights of any other Person by
reason of the use of HET Background Technology, (c) the breach of any
representation or warranty made by HET herein, (d) the default by HET in
the performance or observance of any of its obligations to be performed or
observed hereunder, and (e) any action, suit or other proceeding, or
compromise, settlement or judgment, relating to any of the foregoing
matters with respect to which HPEC Indemnitees are entitled to
indemnification hereunder. The foregoing shall not apply to the extent
that such Losses are due to the wilful misconduct or negligence of any
HPEC Indemnities, as finally determined by a court of competent
jurisdiction. Notwithstanding the foregoing, the aggregate amount that HET
shall be recoverable from HET pursuant to this paragraph 8.2.2 shall be
equal to the greater of (i) $50,000 and (ii) 50% of the aggregate
royalties paid to HET pursuant to Section 5 hereof or, in the event of any
Loss attributable to the infringement or violation of the patent or other
rights of any other Person where HET was aware that such infringement was
occurring and failed to disclose same to HPEC forthwith, 100% of the
aggregate royalties paid to HET pursuant to Section 5 hereof. In addition,
HET shall not be responsible for any Loss suffered as a result of any
infringement or violation of the patent or other rights of any other
Person unless such infringement occurs in Canada, the United States, or
any other territory in which HET has caused to be registered or filed, in
accordance with applicable law, HET Background Technology and Arising
Technology. Notwithstanding the foregoing, immediately upon either party
becoming aware that any HET Background Technology infringes or violates
the patent or other rights of any other Person (i) such party shall so
advise the other party; (ii) HPEC shall not contest that validity of the
patents or other rights of such other Persons without the consent of HET;
(iii) HET shall pay for any design changes that are required to
14
modify the Processor design; and (iv) HPEC shall pay for all costs of
changing the HPEC manufacturing plant to produce the modified Processor
design.
8.2.3 Notice of Claims. In the event that a claim is made pursuant to Section
8.2.1 or 8.2.2 above against any party which seeks indemnification
hereunder (the "Indemnitee"), the Indemnitee agrees to promptly notify the
other party (the "Indemnitor") of such claim or action and, in the case of
any claim by a third Person against the Indemnitee, the Indemnitor may, at
its option, elect to assume control of the defense of such claim or
action; provided that (a) the Indemnitee shall be entitled to participate
therein (through counsel of its own choosing) at the Indemnitee's sole
cost and expense, and (b) the Indemnitor shall not settle or compromise
any such claim or action without the prior written consent of the
Indemnitee, unless such settlement or compromise includes a general
release of the Indemnitee and all of the other HET Indemnitees or HPEC
Indemnitees, as the case may be, from any and all liability with respect
thereto.
SECTION 9 - CONFIDENTIALITY
9.1 The parties each recognize that the Confidential Information of the other
party and any and all Affiliates thereof constitutes valuable confidential and
proprietary information. Accordingly, the parties each agree that they and their
respective Affiliates shall hold in confidence all Confidential Information of
the other party (including this Agreement and the terms hereof) and not use the
same for any purpose other than as set forth in this Agreement nor disclose the
same to any other Person except to the extent that it is necessary for such
party to enforce its rights under this Agreement or if required by law or any
governmental authority (including, without limitation, any stock exchange upon
which such party's shares or other equity securities may be traded); provided
that if any party shall be required by law to disclose any such Confidential
Information to any other Person, such party shall give prompt written notice
thereof to the other party and shall minimize such disclosure to the amount
required. In connection therewith, each party shall apprise all such persons of
the obligations contained herein prior to the disclosure to them of any part of
the other party's Confidential Information. The parties hereby further covenant
and agree that they shall do all such things as are necessary to preserve the
secrecy and confidentiality of the other's Confidential Information and no
copies, extracts or reproductions of any part of the other's Confidential
Information shall be made except for use by the persons contemplated herein.
Each party hereby covenants and agrees to deliver to the other, upon demand, an
acknowledgment by each person designated by such party, acting reasonably,
confirming that it has reviewed the provisions of this Section 9 and agrees to
be bound thereby. Notwithstanding the foregoing, either party may disclose
Confidential Information of the other (a) to such party's attorneys,
accountants and other professional advisors under an obligation of
confidentiality to such party, (b) to such party's banks or other
financial institutions for the purpose of raising capital or borrowing money
or maintaining compliance with agreements, arrangements and understandings
relating thereto, and (c) to any Person who proposes to purchase or otherwise
succeed (by merger, operation of law or otherwise) to all of such party's
right, title and interest in, to and under this Agreement, if such Person
agrees to maintain the confidentiality of such Confidential Information
pursuant to a written agreement. The standard
15
of care required to be observed hereunder shall be not less than the degree of
care which each party or Affiliate thereof uses to protect its own information
of a confidential nature.
SECTION 10 - INTELLECTUAL PROPERTY; IMPROVEMENTS
10.1 Rights to Proprietary Technology. Neither party shall through this
Agreement obtain any rights to the other party's proprietary technology except
for such rights as are expressly granted or allocated under this Agreement.
10.2 From the date of signing this Agreement to 24 months thereafter, any and
all patents relating to the Processor that arise from this Work shall be jointly
owned by HPEC and HET and shall be subject to the license grant and royalty
requirements described in Section 4 and Section 5. Notwithstanding subsection 4.
1, if HET and HPEC elect to share equally the cost of patent filing, prosecution
and maintenance for any patent filed during this period, then HET shall be
deemed to have been granted a royalty-free, exclusive, worldwide license to use,
market, manufacture, sell or sublicense all such arising patents and
intellectual property, other than for use in the Field. In the event that HET
elects not to share in the costs of patent filing, prosecution and maintenance
for any patent filed during this period, then HET shall pay a royalty to HPEC of
[*****] of the manufactured cost of the item, component, or process so covered
by the patent for the exclusive right to use, market, manufacture, sell or
sublicense all such arising patents and intellectual property, other than for
use in the Field. In case of termination of this Agreement as described in
Section 15, HET shall have the option to purchase HPEC's ownership rights in
and to any and all arising patents relating to the Processor by making a lump
sum payment equal to HPEC's share of the patent costs at the date of
termination.
10.3 Improvements and Filing, Prosecution and Maintenance - 24 months after this
Agreement is signed both HET and HPEC shall be entitled to file and prosecute
patent applications related to and maintain patents issued on and/or obtain
copyrights, industrial designs, trademarks and other intellectual property
registration with respect to any invention, discovery, addition, improvement or
development (including, without limitation, data, formulas or research results)
generated in the course of, or arising out of or resulting from, the Work.
Each party shall be the owner of the patent rights and intellectual property
described above. Nevertheless, HET shall offer HPEC the first right of refusal
to acquire the patent rights and intellectual property pertaining to the Field,
and HPEC shall offer HET the first right of refusal to acquire the patent rights
and intellectual property outside the Field.
10.4 HPEC shall give HET the first right of refusal to provide design and
engineering of the second generation fuel processor.
10.5 HET shall provide technological development services for reasonable fees
when so requested by HPEC.
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Confidential 16
SECTION 11 - LIMITATIONS ON LIABILITY
11.1 No Warranties. Except as expressly set forth in Sections 7 and 12 hereof,
neither party makes any representations or warranties as to any matter
whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROCESSOR, THE FUEL CELL
STACKS, THE FUEL CELL SYSTEMS, THE HET BACKGROUND TECHNOLOGY AND THE HPEC
BACKGROUND TECHNOLOGY.
11.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY LOSS OF PROFITS OR
SPECIAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER.
11.3 Force Majeure. No party shall be liable for failure or delay in performing
any of its obligations hereunder if such failure or delay is occasioned by
compliance with any governmental regulation, request or order, or by
circumstances beyond the reasonable control of the party so failing or delaying,
including, without limitation, Acts of God, war, insurrection, fire, flood,
accident, labour strikes, work stoppage or slowdown (whether or not such labour
event is within the reasonable control of the parties), or inability to obtain
raw materials, supplies, power or equipment necessary to enable such party to
perform its obligations hereunder. Each party shall (a) promptly notify the
other party in writing of any such event of force majeure, the expected duration
thereof and its anticipated effect on the ability of such party to perform its
obligations hereunder, and (b) make reasonable efforts to remedy any such event
of force majeure. Notwithstanding the foregoing, each party shall be entitled to
terminate this Agreement upon written notice in the event that any such event of
force majeure lasts for more than 90 days.
SECTION 12 - WARRANTY AND GUARANTY
12.1 Scope and Term - Prototype. HET warrants that the Work shall be (i)
performed with the degree of skill and care that is required by good and sound
procedures and practices and in conformity with generally accepted standards or
as otherwise specified in this Agreement, and (ii) designed in accordance with
the terms of this Agreement and generally accepted standards and practices.
Without limiting the generality of the foregoing, all workmanship shall be of
first-class quality. Without limiting the generality of subsection 11.1, HET
hereby specifically disclaims any representation or warranty that the Processor
will meet any particular codes or standards that may be required by applicable
law of any commercial products offered to the general public. Notwithstanding
the preceding sentence, HET hereby represents and warrants that, provided that
the prototype Processor is operated under the conditions set forth in the Final
Specifications, the prototype Processor will have sufficient interlocks, burner
monitoring systems, pressure safety valves and other features as are necessary
for the safe operation of the prototype Processor. Lastly, HET hereby represents
and warrants that the use by HPEC, for purposes of testing the prototype
Processor, of the catalysts described in the Final Specifications shall not
infringe upon the rights of any third party, including, without limitation, any
manufacturer of such catalysts.
17
12.2 Scope and Term - License. HET further warrants that provided that, any
Processor that is manufactured in accordance with, and is operated under the
conditions set forth in the Final Specifications, such Processor will perform as
required by the Specifications when using fresh catalyst. This warranty shall
remain in force during the entire period that the license contained in
subsection 4.1 remains in effect.
12.3 Remedy. If the warranty set forth in Section 12.2 hereof is breached, and
provided that HPEC notifies HET of such breach within a reasonable time from the
day HPEC becomes aware of such breach, no additional royalty payments, in
accordance with Section 5. 1, will be made by HPEC to HET and no license will be
conferred to HPEC by HET and HPEC shall be entitled to terminate this Agreement
in accordance with subsection 15.3 hereof.
12.4 HET's Obligation to Repair, Replace or Buy-Down. In the event the
Acceptance Tests results deviate from those which are acceptable to HPEC then
HET shall be obligated to reschedule up to two Acceptance Tests at its own cost
and expense, excluding the costs for HPEC personnel, within two months after the
conclusion of the first attempt to pass the Acceptance Tests, and shall
diligently continue to use its best efforts to repair, redesign or modify the
Processor or any piece of equipment or part thereof at its sole cost and expense
in order to satisfy the Acceptance Tests. If after the second such rescheduled
test the test results remain unacceptable to HPEC, then, at any time thereafter,
HPEC may require HET to continue to repair, redesign or modify the Processor or
any piece of equipment or part thereof at its sole cost and expense in order to
satisfy the Acceptance Tests until such time as HET achieves results which are
acceptable to HPEC. If the Final Acceptance Date shall not have occurred by the
"Due Date" for reasons other than force majeure, then the prototype shall be
delivered to HPEC in its totality including all parts, equipment, and
instruments. As its sole remedy, HPEC may retain the 15% contract withholding,
or $29,100. If HPEC does not notify HET in writing that HET has fulfilled the
requirements of this Agreement by the Due Date, and elects to withhold the final
15% payment, and fails to pay HET the full fixed contract price of $194,000
within 30 days after delivery of the prototype by HET to HPEC, then HPEC or HET
shall be entitled to terminate this Agreement in accordance with subsection 15.3
hereof.
SECTION 13 - INSURANCE
13.1 HET's Insurance. HET shall, prior to the start of the Work, procure and
thereafter maintain throughout the term of this Agreement and for a period of
three years thereafter, at its own expense, the following insurance with
reputable insurers acceptable to HPEC, acting reasonably:
(a) Worker's Compensation Insurance as required by applicable law covering
employees of HET engaged in the performance of the Work;
(b) $2,000,000 General Aggregate;
18
(c) $2,000,000 Completed Operations;
(d) $1,000,000 Non-Owned and Hired-Auto.
SECTION 14 - NON-USE OF NAMES
14.1 Neither party shall use the name of the other party or the name of any
Affiliates or employees of such party, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from such other party in each case (which consent shall not be
unreasonably withheld or delayed).
SECTION 15 - TERM AND TERMINATION
15.1 Term. This Agreement shall be effective from the date of its execution by
the parties and, unless sooner terminated in accordance with the provisions of
this Section 15, shall continue until 20 years from the date of this Agreement.
Thereafter, HPEC shall have the option to renew the rights and licenses granted
hereunder for an additional term of 20 years, provided that HPEC shall have
given HET written notice of its exercise of its option to renew not less than 6
months prior to the expiration of the term hereof.
15.2 Events of Default. Each party shall have the right to terminate this
Agreement upon the occurrence of any of the following events (each, an "Event of
Default") with respect to the other party (the "Defaulting Party"): (a) a decree
or order shall have been entered by a court of competent jurisdiction adjudging
the Defaulting Party bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, readjustment, arrangement, composition or
similar relief for the Defaulting Party under any bankruptcy law or any other
similar applicable statute, law or regulation, or a decree or offer of a court
of competent jurisdiction shall have been entered for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the
Defaulting Party or a substantial part of its property, or for the winding up or
liquidation of its affairs; (b) the Defaulting Party shall institute proceedings
to be adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy petition against it, or shall file a petition or answer or consent
seeking reorganization, readjustment, arrangement, composition, liquidation or
similar relief under any bankruptcy law or any other similar applicable statute,
law or regulation, or shall consent to the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of it or of a
substantial part of its property, or shall make an assignment for the benefit of
creditors, or shall be unable to pay its debts generally as they become due; or
(c) the Defaulting Party shall commit a material breach of the terms of this
Agreement (other than a breach of Section 12.4) and the same and all of its
effects shall not be remedied within 30 days after written notice thereof is
given by the other party to the Defaulting party.
15.3 Termination. Each party may terminate this Agreement upon the occurrence of
any Event of Default by giving written notice thereof to the other party, which
notice shall specifically identify the reason(s) for such termination.
19
15.4 Event of Default Prior to Final Acceptance Date. In the event that an Event
of Default occurs prior to the Final Acceptance Date with respect to which HET
is the Defaulting Party, HPEC shall have the right, at HPEC's sole option and
without prejudice to any other right or remedy which it may have, to either: (a)
finish the Work or cause the Work or any part thereof to be finished by whatever
method it may deem expedient, provided that it shall mitigate its damages and
expenses, in which event the royalty payable by HPEC pursuant to subsection 5.1
shall be reduced from US $[*****] to US $[*****] per Processor (including any
Processors incorporated into any Fuel Cell Systems) sold by HPEC or any
Affiliate or sublicensee thereof or (b) terminate this Agreement in accordance
with subsection 15.3 hereof,
15.5 Consequences of Termination. Subject to subsection 15.4 hereinabove, upon
the termination of this Agreement, all rights, privileges and licenses granted
by HET to HPEC hereunder shall revert to HET. The termination of this Agreement
for any reason shall be without prejudice to (a) the rights and obligations of
the parties pursuant to Sections 8, 9, 10, 12 and 14 hereof, and (b) any other
remedies as may now or hereafter be available to any party, whether under this
Agreement or otherwise. Upon the termination of this Agreement (a) HPEC and its
sublicensees and Affiliates shall immediately discontinue the manufacture,
production, marketing, promotion, advertisement, sale, leasing, distribution and
merchandising of the Processor, and (b) each party and its Affiliates shall
immediately cease the use of, and shall return all copies of all Confidential
Information obtained from the other party or any Affiliate thereof.
SECTION 16 - MISCELLANEOUS
16.1 Notices. All payments, notices, reports and/or other communications to be
given by any party hereto to any other party hereto or referred to herein shall
be in writing and may be given by personal delivery or registered mail, postage
prepaid, or may be sent by messenger or by telecopier to the following addresses
and telecopier numbers:
In the case of HPEC: Xxxxxx Xxxxxx
Technical Representative
0000 xxx Xxxxx
Xx-Xxxxxxx, Xxxxxx
X0X XX0
XXXXXX
Telephone: (514) 956-8932 ext. 240
Telecopier: (000) 000-0000
E-mail: xxxxxxx@xxxxxx.xx
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Confidential 20
In the case of HET: Xxxxx X. Xxxxxx
Harvest Energy Technology, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
E-mail: dwarren@link. online. net
Any such payment, notice, report and/or other communication sent by registered
mail shall be deemed to have been received on the third (3rd) business day
following the date on which it was mailed or if sent by messenger, personal
delivery or telecopier shall be deemed to have been received on the date of its
delivery or transmission if received prior to 12:00 P.M. on a business day,
otherwise it shall be deemed to have been received on the next business day. The
parties hereto may, from time to time, change any address for receipt of
payments, notices, reports and/or other communications hereunder by written
notice in accordance with the foregoing provisions.
16.2 Arbitration. Any dispute, controversy or claim as to performance of the
Work or Acceptance Tests, as well as any dispute, controversy or claim arising
out of or relating to this Agreement, its validity, construction or
enforceability or the breach of any of the terms or provisions hereof shall be
definitively dealt with using the rules of conciliation and arbitration of the
International Chamber of Commerce, by one arbitrator appointed in accordance
with said rules, and to the exclusion of any courts except for any provisional
remedy including injunctive relief and seizure before judgment which may be
obtained from any court or tribunal, the whole in accordance with said rules in
force at the time of execution of this Agreement. Any arbitration proceeding
required pursuant to the terms thereof shall take place in Los Angeles,
California and shall be conducted in the English language.
16.3 Amendments, etc. This Agreement may not be amended or modified, nor may any
right or remedy of any party be waived, unless the same is in writing and signed
by such party or a duly authorized representative of such party. The waiver by
any party of the breach of any term or provision hereof by any other party shall
not be construed as a waiver of any other subsequent breach.
16.4 No Waiver; Remedies. No failure or delay by any party in exercising any of
its rights or remedies hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies of the parties provided in this Agreement are cumulative and
not exclusive of any rights or remedies provided by law.
16.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives,
successors and permitted assigns: provided that, except as expressly provided
herein, neither party may assign or otherwise transfer this
21
Agreement or any of its rights, duties or obligations hereunder without the
prior written consent of the other party.
16.6 Relationship of Parties. HPEC and HET are not (and nothing in this
Agreement shall be construed to constitute them) partners, joint venturers,
agents, representatives or employees of the other party, nor shall anything in
this Agreement be construed to create any relationships between them other than
that of an independent contractor. Neither party shall have any responsibility
or liability for the actions of the other party except as specifically provided
herein. Neither party shall have any right or authority to bind or obligate the
other party in any manner or make any representation or warranty on behalf of
the other party.
16.7 Expenses. Unless otherwise provided herein, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party which shall have incurred the same and the other party
shall have no liability relating thereto.
16.8 Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes all prior proposals, communications, representations
and agreements, whether oral or written, with respect to the subject matter
hereof.
16.9 Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability, without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions
hereof in any other jurisdiction.
16.10 Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be deemed an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
16.11 Headings. The heading used in this Agreement are for convenience of
reference only and shall not affect the meaning or construction of this
Agreement.
16.12 Governing Law. This Agreement, including the performance and
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of New Jersey applicable therein, without reference to choice
of law doctrine. Each party hereby submits itself for the sole purpose of this
Agreement and any controversy arising hereunder to the jurisdiction of the
courts located in the State of New Jersey and any courts of appeal therefrom,
and waives any objection (on the grounds of lack of jurisdiction, or forum non
conveniens or otherwise) to the exercise of such jurisdiction over it by any
such courts.
16.13 Language. The parties hereto acknowledge having required that this
Agreement and all notices, documents and agreements related hereto be drafted in
English; les parties aux presentes
22
reconnaissent avoir exige que la presente convention ainsi que tous xxx xxxx,
documents et conventions s'y rapportant soient rediges en anglais.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written below.
H POWER ENTERPRISES OF CANADA INC.
By: /s/ Xxxx-Xxx Xxxxxxxxx
--------------------------------------
Xxxx-Xxx Xxxxxxxxx
General Manager
HARVEST ENERGY TECHNOLOGY, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
President
23
APPENDIX A
SPECIFICATIONS
Feedstock: Commercial grade LPG (Liquified Petroleum
Gas -principal component = propane)
Fuel Processor Capacity: net 50 SCFH hydrogen delivered (equivalent to 2 Kw @
45% stack efficiency)
Hydrogen quality: less than [*****] CO
Steam Generation: self sufficient
Water recovery: partial
Control: manual
Operation: continuous, attended
Packaging: less than 40 cubic foot
Upon delivery of the prototype Processor, HET shall specify the processing
conditions at which the 50 SCFH of hydrogen are to be delivered. As a minimum,
for each reaction (steam reforming, water gas shift, preferential oxidation,
etc., the following are to be specified by HET: temperature, pressure, space
velocity [(volume of liquid propane + water) / (hour -volume of catalyst) or
other appropriate units], steam/propane molar ratio, Catalyst manufacturer,
catalyst identification or number, etc.
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Confidential 00
XXXXXXXX X
ACCEPTANCE TESTS
Gross delivery of 66 SCFH hydrogen (equivalent to a net delivery of 50 SCFH
hydrogen) containing less than the amount of carbon monoxide that is agreed to,
in accordance with paragraph 2.5.2, at a minimum hydrogen efficiency of 60% (LHV
gross H2/LHV feed + fuel) will be required. Notwithstanding the above, HET use
its best effort to achieve a [*****] ppm carbon monoxide specification and
HPEC will accept the result of HET's best efforts. The total gas flow rate
will be measured using a wet test meter or calibrated equivalent. The
hydrogen content of the gas will be measured by a gas chromatograph or an
equivalent instrument. The carbon monoxide content will be measured by an
infra-red analyzer or an equivalent instrument. All measuring instruments are
to be calibrated by Harvest Technology. A standard calibration test and will
be performed for each instrument will be performed in the presence of HPEC's
technical representative. HPEC's technical representative will approve the
specific tests that are chosen to be the standard calibration tests.
If at any time the Processor does not meet any of the aforementioned
specifications, HPEC may still elect at its discretion to accept the Processor
by notifying HET in writing that HET has fulfilled the requirements of this
Agreement and such notice shall constitute Final Acceptance.
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Confidential 25
APPENDIX C
WORK SCHEDULE
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Task Number Completion Date
(number of months after signing contract)
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1 3
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2 4
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3 5
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4 6
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5 7
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6 7
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APPENDIX D
WORK
The following statement of work describes the tasks that are to be performed.
Task 1 - Process design ($30,000).
(to be completed 3 months after signing of this contract)
This task will prepare the basic design package for the fuel processor, and will
produce the following deliverables:
1A. Process Flow Diagram
A conceptual flow sheet for the LPG Fuel Processor is shown in the figure.
1B. Heat and Material Balances
1C. Equipment and Catalyst Specifications
Equipment specifications shall be prepared for all of the major equipment items.
The specifications of all the equipment, catalyst, and materials used to
construct the fuel processor shall be included. This will include written
documentation of safe procedures for start-up, operation, and shut-down of the
fuel processor. All relevant documentation related to occupational health and
safety will be included.
Item No. Description
V-1 LPG Tank
V-2 Activated Carbon Fitter
V-3 Demineralizer
Internal packing (ion-exchange resin?)
R-1 Steam Reformer
Annular, helical, or tubular catalyst space Radiant fiber burner
with burner flame monitoring system Convective heat transfer
surface
R-2 HTS Reactor
Packed bed reactor with heat transfer shroud. During normal
operation air is used for cooling. During start-up, steam is
used for heating.
High temperature shift (HTS) catalyst
R-3 LTS Reactor
Packed bed reactor with flue gas
27
heat shroud
LTS catalyst
R-4 Selective Oxidation Reactor
Air cooled heat exchange tubes
Selective oxidation catalyst
B-1 Steam Generator
Internal heat exchange coils
AC-1 Cooler/Condenser
Tube bank
P-1 BFW Pump
F-2 Air fan
Task 2 - Optimize Gas Conditioner for 2 kW PEM Fuel Cell ($20,000)
(to be completed 4 months after the signing of the contract)
This task will incorporate selective oxidation technology to condition gases for
low-temperature PEM fuel cells, and will produce the following deliverables:
2A Design PEM fuel cell gas conditioning system based on economic and
technical assessment of catalyst cost and performance data base. The
catalyst cost and the performance data base will be provided to H Power.
2B The gas condition will be fabricated as part of the 2 kW fuel processor.
Task 3 - Detailed Engineering ($40,000 - 2 months)
(to be completed 5 months after the signing of the contract)
This task will perform the detailed engineering needed to construct the fuel
processor including the development of the relevant engineering documents.
3A Piping and Instrumentation Diagrams
3B Control Logic Diagram
A description of the process control strategy will be provided. It will include
a description of the fail safe procedures for burner operation with its
interlocks.
3C Equipment Fabrication Sketches
3D Vendor Data Summary
28
This will include a list of all the items, components, etc. used to
construct the fuel processor. Supplier information shall be provided for each
entry on the list, including supplier's name, address, telephone number, price
paid by HET, and if possible an estimate of its price for purchases in large
quantities.
Task 4 -Procurement, Fabrication, Installation and Development Testing ($80,000)
(to be completed 6 months after the signing of the contract)
This task will procure, fabricate, install, and perform system development tests
needed to prove out breadboard fuel processor design. The following will be
delivered:
4A Fuel processor physical unit per specifications of Appendix A.
Task 5 - Testing ($24,000)
(to be completed 7 months after the signing of the contract)
This task will operate the fuel processor at design conditions to verify
hydrogen efficiency, capacity and product gas quality using mass and energy
balances, and gas chromatograph and CO analyser measurements. The following will
be delivered:
5A Summary of a test report on verification test results.
Task 6 - Delivery (fuel processor shipping costs)
A functional 2 Kw LPG (propane) fuel processor that can be integrated with a PEM
cell stack will be delivered to HPEC in Montreal.
TOTALS 194,000 US$ plus fuel processor shipping costs, 7 months
00
XXXXXXXX X
HET Background Technology
HET owns the following intellectual property
1. Expertise in the design of fuel processing systems that provide maximum
system efficiency when integrated with Proton Exchange Membrane (PEM) fuel
cells. This expertise encompasses proprietary knowledge relating to:
a. Use of steam reforming technology to general synthesis gases having net
hydrogen product quantities in the rage of 50-250 SCFH that is sufficient to
operate PEM fuel cells having net electric power outputs in the range of 1-10
kW.
b. Use of selective oxidation technology to reduce the carbon monoxide
concentrations of said synthesis gases to [*****] ppm or less.
c. Use of system integration technology that enables efficient thermal
integration of PEM fuel cells with fuel processors for grid connect and non-grid
connect residential electric power applications. Specifically, this includes
proprietary knowledge relating to technology that allows PEM fuel cells to
achieve high gross electric-generation efficiencies and high co-generation heat
recovery potential.
d. Methods to automate steam reforming processes to allow unattended
operation as required by fuel cell electric power generation applications.
e. Methods of design, material selection, and fabrication that minimize
fuel processor cost for high-volume manufacture.
f. Use of selective hydrogen-permeable membranes to purify hydrogen-rich
feed streams for PEM fuel cell applications.
2. Expertise in the design, fabrication and control of high-temperature
endothermic, steam reforming, reactors for the conversion of fuels such as
LPG, natural gas, and gasoline to hydrogen-rich synthesis gas. This
expertise encompasses proprietary knowledge relating to:
a. Use of radiant burners to provide uniform heat flux, high thermal
efficiency, and compact design for small endothermic reactors generating 50-250
SCFH of net hydrogen product.
b. Methods to operate and control radiant burners using fuels having
widely varying heating value as required for PEM fuel cell applications.
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Confidential 30
c. Use of catalyst-packed reactor tubes to promote reaction between steam
and fuel to produce hydrogen. Specifically, this includes expertise relating to
the design of said tubes and their physical relation to said radiant burners,
the selection of the catalyst type, vendor, physical size, and method of
packing.
d. Use of convective heat transfer methods to recover heat from flue gases
in order to maximize the thermal efficiency of endothermic, steam reforming,
reactors.
e. Use of design and control methods to avoid loss of catalyst performance
during automated start-up, idle and normal electric power generating operating
states due to catalyst poisoning, condensation, coking and overheating.
3. Expertise in the design and control of selective oxidations reactors to
reduce the carbon monoxide concentration of hydrogen-rich synthesis gases
to less than 10-50 ppm. HET possesses proprietary knowledge relating to
selective catalytic oxidation technology that has relevance to PEM fuel
cell applications including:
a. Knowledge relating to selection of catalyst type and vendor.
b. Commercial relation with catalyst vendors.
c. Knowledge relating to optimum operating conditions of selective
oxidation reactor, including temperature, humidity, space velocity, and oxygen
stoichiometry.
d. Methods of reactor design and exothermic heat removal.
e. Methods to integrate selective oxidation reactor with fuel processing
systems to maximize overall system efficiency.
4. Expertise in the design of cost-effective control systems to allow
operation of base- loaded residential electric power generators. HET
possesses unique expertise in the design of cost- effective control
systems for PEM fuel cell power plants in the 2-10 kW range, including
methods for control of feed, fuel and air during start-up, idle and normal
operation. This includes development arrangements with OEM vendors for
blowers, control valves, actuators, heat exchangers and catalyst.
5. The following invention disclosure documents on file at the Law Offices of
Xxxxxxx X. Xxxxxxxxx, Patent Attorney, located at 000 Xxxxx Xxxx Xxxxxx,
Xxxxx 000, Xxxxxxxx, XX 00000: (i) the invention disclosure entitled,
"Compact Endothermic Catalyst Reaction Apparatus," Docket No. 11879; and
(ii) the invention disclosure entitled, "Integrated Selective Oxidation
Reactor Apparatus and Process," Docket No. 11880.
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APPENDIX F
FINAL ACCEPTANCE CERTIFICATE
This certificate attests to the fact that H Power has accepted the Fuel
Processor
__________________________________ ____________________________________
Xxxxxx Xxxxxx, for H Power Date
32
APPENDIX G
PAYMENT SCHEDULE
First instalment $30,000
Subsequent instalments will be paid monthly in accordance with invoices
submitted to H Power by Harvest. H Power's Technical Representative will inspect
each monthly report submitted by Harvest, to verify that the work performed is
commensurate with the amount of the invoice. A sum of 15% of each monthly
invoice will be withheld by H Power. The amounts withheld will be paid to
Harvest upon final acceptance and delivery of the Fuel Processor to H Power.
HPEC will pay a 1% penalty for each month that the invoice in question is past
due. The due date for each invoice will be 30 days after the date on which the
HPECs Technical Representative approves the HET monthly progress report that
corresponds with such invoice. Within 3 days of receipt of both the invoice and
the progress report, the HPEC Technical Representative will inform HET if the
amount of the invoice does not correspond to the amount of completed Work that
the progress report has claimed.
33
APPENDIX H
HPEC BACKGROUND TECHNOLOGY
HPEC owns the following intellectual property:
HPEC has established both technical competence and a knowledge base (know-how)
in fuel processing reaction and separation technology that applies to the
manufacture of hydrogen for use in Polymer Electrolyte Membrane Fuel Cells
(PEMFC). This expertise spans the domains of process equipment, process
operating conditions, catalyst performance, and catalyst deactivation. Specific
examples of HPEC expertise that are pertinent to this Agreement are the
following:
1. Desulphurization - Removal of sulphur compounds used as odorants in
carbonaceous fuels such as natural gas. These technologies include the use
of oxides fr stoichiometric reactions; i.e., iron oxides, metallic oxides
supported on activated carbon, and ZnO; disposable nickel hydrogenation
catalysts; and molybdenum catalysts supported on alumina that are promoted
with either nickel or cobalt.
2. Steam reforming - The reaction of steam with carbonaceous fuels to produce
hydrogen and carbon monoxide. The following technologies are included:
Shifts in equilibrium as a function of process operating variables, such
as temperature and pressure. Heat flux densities that are acceptable for
the transfer of the exothermic heat from combustion reactions to provide
the endothermic heat requirement of the steam reforming reaction.
Combustion processes pertaining to flame length, Nox production, and
numerical simulation of these reactions in a confined environment.
Materials technology pertaining to temperature ranges which cause
metallurgical limitations. Heat transfer technology for the internal
exchange of heat energy between entering and leaving process streams. Mass
transfer technology governing the diffusion of the reaction species to
catalyst sites. Catalyst technology pertaining to; catalyst compositions
which enhance the surface concentration of the most desirable species on
the catalyst surface; catalyst promoters that inhibit sintering of
metallic catalyst components at reaction conditions; catalyst
effectiveness factors; regimes of steam to carbon ratio required to avoid
coke deposition on the catalyst. Technologies to minimize undesirable
reaction including; hydrocarbon cracking at temperatures greater than
600-700 C depending on hydrocarbon type; mechanical degradation of
catalysts caused by coke formation; and the Boudouard reaction which
results in carbon formation.
3. The water-gas shift reaction - which is a reaction between the carbon
monoxide formed in steam reforming and water to form hydrogen and carbon
dioxide. The following technologies are included : Shifts in equilibrium
as a function of process operating variables, such as temperature and
pressure, including the use of the high temperature shift reaction with
Fe-Cr oxide catalysts and the low temperature shift reaction with ZnCu
oxide catalysts, to maximize hydrogen production and eliminate as much
carbon monoxide as possible.
34
Technologies to avoid oil carbonization on catalysts. Technologies to
avoid carbon deposition via the Boudouart reaction. Catalyst technology
that permits process operation in the presence of small quantities of
sulphur.
4. Gas absorption processes for the removal of carbon dioxide. This
technology includes: Acid gas scrubbing processes which cycle a solvent
such as an amine between gas absorption and solvent regeneration towers.
Design expertise in selection of the appropriate number of plates for the
separation required, and selection of the appropriate tower diameter
having suitable liquid and vapour loads at each plate to avoid weeping and
blowing.
5. Gas absorption processes for the removal of carbon dioxide. This
technology includes: Design technology for the selection of the
appropriate number of transfer units based on break through curves.
Operating technologies that include either a pressure swing mode or a
thermal swing mode. Materials technologies which include selection of
appropriate adsorbents such as zeolites.
6. Methanation processes to convert small quantities of carbon monoxide and
carbon dioxide gases that have not been removed from the hydrogen into to
methane. This technology includes: Heat transfer technology to control
temperature increases from the exothermic reactions. Catalyst technologies
for reduction and stabilization. Technologies to minimize both the
formation of carbonyls and of carbon via the Boudouart reaction.
7. Preferential oxidation processes to selectively convert small quantities
of carbon monoxide that have not been removed during the water gas shift
reaction into carbon dioxide. This technology includes : Catalyst
technology that encompasses the traditional Pt/[gamma]A1^20^3 catalyst;
other catalysts such as Ru/[gamma]A1^20^3, which provide greater carbon
monoxide conversion rates but also large methanation rates; the Au/Fe^20^3
catalyst which can operate at 80 C while producing rates which are similar
to those on Pt/[gamma]A1^20^3.
35
[Purchase Order related to development project]
36
STATEMENT OF WORK
CONCEPTUAL DESIGN OF A 120 SCFH
HET/HPEC NATURAL GAS FUEL PROCESSOR
Harvest Energy Technology Inc. will provide a conceptual design for a HET/HPEC
Natural Gas Fuel Processor that will include the design information specified
below. The HET/HPEC Fuel Processor will be one that corresponds to the
Development and License Agreement between H Power Enterprises of Canada Inc. and
Harvest Energy Technology Inc. that was dated August 17, 1998. The Fuel
Processor will have the capacity to produce 120 SCFH of hydrogen.
Task 1: Preparation of a Process Flow Diagram
Deliverable: A process flow diagram that includes all the process vessels and
equipment contained in the fuel processor will be prepared. Each process vessel
and equipment item will be numbered. Lines indicating the flow of fluids and/or
solids (flow streams) between the process vessels will be shown. Each flow
stream will be numbered.
Task 2: Calculation of Heat and Material Balances
Deliverable: A table will be prepared providing a column for each process flow
stream. For each process flow stream the following will be given (in one of the
rows), the total mass flow rate, the percent composition of each flow stream
(hydrogen, carbon dioxide, carbon monoxide, water, methane, etc.), the
temperature, the pressure and the enthalpy content.
Task 3: Preliminary Equipment List and Process Equipment Sketches
Deliverables: A list of all the equipment items including an estimate of their
capacity (e.g., volume, throughput). Appropriate sketches of the process
equipment.
Task 4: Preliminary Piping and Instrument Diagram
Deliverable: A preliminary piping and instrument diagram.
Task 5: Conceptual Equipment Layout - Preliminary Plot Plan and Elevations
Deliverables: Diagrams showing the plan view and elevations of the equipment
including the estimated dimensions.
Task 6: Conceptual Control System - Preliminary Logic Diagram
Deliverables: A brief written description of the concepts on which the control
system will be designed and a preliminary control logic diagram.
37
