DEVELOPMENT AGREEMENT BETWEEN HEMIWEDGE VALVE CORPORATION AND AT BALANCE AMERICAS LLC
BETWEEN
HEMIWEDGE
VALVE CORPORATION
AND
AT
BALANCE AMERICAS LLC
TABLE
OF CONTENTS
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PAGE
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ARTICLE
1
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DEFINITIONS
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2
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ARTICLE
2
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JOINT
PROJECTS: MANAGEMENT AND STRUCTURE
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5
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ARTICLE
3
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RIGHTS
AND LICENSES
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7
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ARTICLE
4
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CONFIDENTIAL
INFORMATION
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8
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ARTICLE
5
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TERM
AND TERMINATION
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9
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ARTICLE
6
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REPRESENTATIONS
AND WARRANTIES
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9
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ARTICLE
7
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LIMITATION
OF REMEDIES
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10
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ARTICLE
8
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NOTICES
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10
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ARTICLE
9
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MISCELLANEOUS
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11
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ARTICLE
10
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GOVERNING
LAW AND JURISDICTION
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13
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EXHIBIT
A
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INTELLECTUAL
PROPERTY OF THE PARTIES
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14
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EXHIBIT
B
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DESCRIPTION
OF PHASES OF WORK
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15
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| HVC/@BALANCE |
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This
Development Agreement is made effective as of July 13,
2006
(the
"Effective
Date"),
and is between HEMIWEDGE VALVE CORPORATION, a Texas corporation (hereinafter
"HVC"), a wholly-owned subsidiary and Affiliate of ▇▇▇▇▇▇▇ Industries, Inc.,
("▇▇▇▇▇▇▇") having an office at ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and AT BALANCE
AMERICAS LLC, a Limited Liability Corporation organized under the laws of
Delaware (hereinafter "@BALANCE"), a wholly-owned subsidiary and Affiliate
of
Shell Technology Ventures, having an office at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. HVC and @BALANCE may be referred to herein individually
as a
"Party" or collectively as "the Parties."
Whereas
HVC has expertise in designing and manufacturing certain valves (called
"HEMIWEDGE®"
valves)
and @BALANCE has expertise in well construction and workover operations that
may
use a subsurface valve called a "Downhole Isolation Valve" and the Parties
desire to cooperate to develop and produce an improved valve for use as a
Downhole Isolation Valve;
Now,
therefore, the Parties are entering into this Agreement that will set forth
the
terms and conditions under which the Parties may engage in development
activities, as may be agreed by the Parties from time to time, pursuant to
the
procedures set forth herein.
ARTICLE
1: DEFINITIONS
Unless
expressly defined and used with an initial capital letter in this Agreement,
words shall have their normally accepted meanings. The word "shall" is
mandatory, the word "may" is permissive, the word "or"
is not
exclusive, the words "includes"
and
"including"
are not
limiting, and the singular includes the plural. The following terms shall have
the described meanings:
1. "Affiliate"
of a Party means any controlling parent company of a Party, and all present
and
future companies in which a Party or its parent company, directly or indirectly,
owns or controls 50% or more of the stock.
1.2 "Agreement"
means the terms and conditions of this Development Agreement together with
any
exhibits or attachments including any Phase Descriptions signed by both Parties
and referring to this Development Agreement, such as included in EXHIBIT B,
which are incorporated herein by this reference.
1.3 "Change
of Control" means a change in ownership or control of a Party effected through
any of the following transactions:
(i) a
merger,
consolidation or reorganization approved by the Party's equity holders, unless
securities representing more than fifty percent (50%) of the total combined
voting power of
the
voting securities of the successor entity are immediately thereafter
beneficially owned, directly or indirectly and in substantially the same
proportion, by the persons who beneficially owned such Party's outstanding
voting securities immediately prior to such transaction, or
(ii) any
transfer or other disposition of all or substantially all of the Party's
assets.
1.4 "Confidential
Information" means HVC Confidential Information, @BALANCE Confidential
Information, or both if the context so indicates.
1.5 "Custom
Sales Agreement" means the agreement so titled, if executed by and between
the
Parties that sets out the terms under which Joint Product will be manufactured
and sold to @BALANCE. The Custom Sales Agreement will be executed concurrently
with the issuance of Warrants and the termination of this Agreement except
as to
its provisions for confidentiality.
1.6 "Disclosing
Party" means either Party hereunder that discloses its Confidential Information
to the other Party.
1.7 "HVC
Confidential Information" means any and all information and items disclosed
or
delivered
by HVC to @BALANCE hereunder, that is identified by HVC as confidential,
whether
written,
oral or both, in whatever form disclosed or delivered, whether tangible or
intangible (including software). With respect to the HVC Confidential
Information referenced in the preceding sentence, HVC agrees (i) to coordinate
and control the disclosure thereof with an @BALANCE
Representative, (ii) if such HVC Confidential Information is disclosed in
tangible
form,
HVC will stamp or otherwise clearly ▇▇▇▇ such information as HVC Confidential
Information,
and (iii) if such Confidential information is disclosed orally, HVC agrees
to
identify
the
Confidential Information as confidential at the time of disclosure, and provide
to @BALANCE written confirmation thereof within thirty (30) days after such
disclosure.
1.8 "HVC
Licensed Patent Claims" means the claims of any patent:
1.8.1 that
are
necessarily infringed in the manufacture or sale or other transfer of
Joint
Products; and
1.8.2 under
which patents, claims or the relevant patent applications therefore, HVC
has
the
right to grant licenses to @BALANCE of the scope granted below, without such
grant or
the
exercise of rights thereunder resulting in the payment of royalties or other
consideration by HVC to third parties. The term "HVC Licensed Patent Claim"
shall also include the corresponding claims of any reissued or reexamined
patents containing any of the aforesaid claims provided they continue to meet
the aforesaid criteria.
1.9 "HVC
Technology" means (i) the information listed in a Phase Description as being
provided by and that is actually provided by HVC (ii) any other information
provided by HVC pursuant to a Phase, including technical information, know-how,
trade secrets and other information but only to the extent such information
described in (i) and (ii) above, is owned or controlled
by HVC or licensed to HVC independently of a Joint Project and HVC has the
free
right to grant a license or a non-assertion right to the extent necessary for
the implementation of the Joint Project.
1.10 "Joint
Product" means a Downhold Isolation Valve used in any activity related to
forming, improving or refurbishing an hydraulic connection between a subsurface
reservoir and the Earth's surface or water bottom, including but not limited
to
drilling, completing or working over a well, apparatus related to or used with
the Valve, or any other item specified in a Phase Description to be jointly
developed by the Parties hereunder.
1.11 "Joint
Project" means development work described in the Phase Descriptions in Exhibit
B.
1.12 "Joint
Technology" means, unless specified otherwise in a Phase Description, those
Inventions or other materials consisting of the specific results of the Parties'
partial or completed design and development work pursuant to Joint Project,
as
embodied in all tangible, written, graphic, and other documentary forms as
well
as the intangible forms, and shall include but not be limited to the following:
program material, design information, engineering notes, Joint Project design
databases, design tool and design methodology information and designs and any
tools developed as part of a Joint Product.
1.13 "@BALANCE
Confidential Information" means any and all information and items disclosed
or
delivered by @BALANCE to HVC hereunder, that is identified by @BALANCE as
confidential, whether written, oral or both, in whatever form disclosed or
delivered, whether tangible or intangible (including software). With respect
to
the @BALANCE Confidential Information referenced in the preceding sentence,
@BALANCE agrees (i) to coordinate and control the disclosure thereof with an
HVC
Representative, (ii), if such @BALANCE Confidential Information is disclosed
in
tangible form, @BALANCE will stamp or otherwise clearly ▇▇▇▇ such information
as
@BALANCE Confidential Information, and (iii) if such Confidential Information
is
disclosed orally, @BALANCE agrees to identify the Confidential Information
as
confidential at the time of disclosure, and provide to HVC written confirmation
thereof within thirty (30) days after such disclosure.
1.14 "a
BALANCE Technology" means (i) the information listed in a Phase Description
as
being provided by and that is actually provided by @BALANCE, (ii) any other
information provided by @BALANCE pursuant to a Phase Description including
technical information, know-how, trade secrets and other information, but only
to the extent such information described in (i) and (ii) above, is owned or
controlled by @BALANCE or licensed to @BALANCE independently of a Joint Project
and @BALANCE has the free right to grant a license or a non-assertion right
to
the extent necessary for the implementation of said Joint Project.
1.15 "Project
Executive Director" means the individual appointed by @BALANCE to provide
oversight of the Joint Project.
1.16 "Receiving
Party" means either Party hereunder that receives the other Party's Confidential
Information.
1.17 "Representative"
means, with respect to a Party, that Party's agents, representatives and
employees (including attorneys, accountants, consultants, contract employees
and
advisors).
1.18 "Phase
Descriptions" means a written agreement executed by both Parties describing
a
Phase, such as included in EXHIBIT B.
1.19 "Term"
means the period from the Effective Date of this Agreement through the same
date
in the year 2008.
1.20 "Warrants"
means the security issued from HVC's publicly traded parent company ▇▇▇▇▇▇▇
Industries, Inc. (OTCBB:SHMT) in connection with the execution of the Custom
Sales Agreement.
ARTICLE
2: JOINT PROJECTS: MANAGEMENT AND STRUCTURE
2.1 The
Parties agree to cooperate on a Joint Project for the design of certain Joint
Products useful during drilling of ▇▇▇▇▇. Each Phase of development work to
be
performed by the Parties shall be the subject of a Phase Description, which
shall be attached as Exhibit B to this Agreement. Each Phase Description will
establish the activities of that Phase, a plan for the conduct of the work,
the
schedule for task completion and the deliverables. Each Phase Description will
set forth a budget for the Phase described. @BALANCE will pay the estimated
costs of each Phase before work begins for the Phase. In the event of a conflict
between the provisions of a Phase Description and the provisions of this
Development Agreement, the provisions of the Phase Description will prevail.
The
Parties recognize that the budget attached in Exhibit B for each Phase is an
estimate by HVC which may vary depending on materials costs and other variables.
HVC will utilize a Change Order to request more money from @BALANCE during
an
uncompleted Phase when needed. The Parties agree that it is @BALANCE's sole
discretion as to whether @BALANCE chooses to approve any Change
Order.
2.2 The
initial Joint Project is described in the Phase Descriptions attached in Exhibit
B. Future Phases, if any, will be documented in a similar mariner and will
become a part of this Agreement upon signature by the Project Executive Director
of @BALANCE and the Project Representative of HVC. Neither Party will be
obligated with respect to any proposed additional Phase until and unless a
Phase
Description with respect thereto is signed by both Parties. Neither Party has
an
obligation to agree to any additional Phase.
2.3 @BALANCE
will appoint a Project Executive Director to provide oversight and coordination
of the Joint Project.
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2.4 HVC
will
appoint a Project Representative who will work with the Project Executive
Director to ensure that appropriate development processes are being followed
for
all Phases.
2.6 Personnel
supplied by each Party are employees or contractors of the supplying Party
and
shall not for any purpose be considered employees or agents of the other Party.
Each Party shall be responsible for the supervision, direction and control,
payment of salary (including withholding of taxes), worker's compensation
insurance, disability benefits and the like of its own employees while engaged
in any Joint Project in accordance with the law of the state or states wherein
a
Joint Project is to be performed.
2.7 To
the
extent permitted by law, during the Term and for one year thereafter, @BALANCE
and HVC each agrees neither to solicit nor hire the employees of the other
Party
performing services hereunder without the prior written consent of the other
Party.
2.8 Each
Party (a "Hosting Party") allowing employees of the other Parry (an "Assigning
Party") to work on its premises assumes no liability to the Assigning Party
for
any injury, (including death) to persons or damage to or loss of property
suffered on or
about
the
such Hosting Party's premises or in connection with work under this Agreement
unless caused by the willful misconduct or gross negligence of the Hosting
Party, its employees or invitees (other than employees of the Assigning Party).
Each Hosting Party makes no representation or warranty, written or oral, of
any
kind as to the condition of or the fitness for any purpose of its
premises.
ARTICLE
3: RIGHTS AND LICENSES
3.1 HVC
shall
contribute relevant HVC Technology, HVC Licensed Patents and HVC Confidential
Information to the Joint Project. @BALANCE shall contribute relevant @BALANCE
Technology. Each Party shall retain ownership of its contributed Technology,
patent rights and Information. Joint Technology shall be owned by
HVC.
3.2 HVC
shall
have the right at HVC's expense to protect Joint Technology or Joint Products
by
U.S. and foreign patents. @BALANCE shall cooperate in prosecuting such patents
at HVC's request. If HVC chooses not to prosecute a patent on Joint Technology,
@BALANCE shall have the right to prosecute U.S. or foreign patents and pay
the
costs therefor. HVC shall pay the cost of and obtain the benefit of any action
to enforce such patents against infringers. In the event HVC declines to take
action to enforce such patents, @BALANCE shall have the right to take such
action at its cost and shall obtain the benefit of any such action, and HVC
shall join as a party to such action to enforce patents taken by @BALANCE if
it
is determined that HVC is a necessary party.
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3.3 If
and
when @BALANCE reaches a decision to commercialize a Joint Product, the Parties
will use their best efforts to negotiate and enter into a Custom Sales
Agreement. The Custom Sales Agreement shall be executed within ninety (90)
days
after testing of the Joint Product
as provided in Phase 3 (described in Exhibit B). The Custom Sales Agreement
shall provide terms that include @BALANCE's right to have world-wide exclusivity
in the purchase of Joint Products from HVC, provided that @BALANCE pays minimums
(an Exclusivity Fee), purchases at least a specified value of Joint Products
from HVC, funds part or all of any necessary capital expenditures needed by
HVC
to manufacture Joint Products, or any combination of the foregoing. The Custom
Sales Agreement shall also provide @Balance the right to procure Joint Products
from third parties to the extent HVC is not able to meet @ Balance's
requirements for such Joint Products, and shall require HVC to license such
third parties to such extent. The Custom Sales Agreement shall provide @BALANCE
the right to purchase Joint Products from HVC at not more than HVC's cost to
make same plus a markup consistent with HVC's markup on similar HVC products
sold to third parties in arm's length transactions.
3.4 When
the
Custom Sales Agreement provided in Section 3.3 has been executed, ▇▇▇▇▇▇▇ shall
issue to @BALANCE warrants (the "Warrants") to purchase shares of common stock
of ▇▇▇▇▇▇▇. The number of shares that can be purchased upon exercise of the
Warrants shall equal the quotient obtained by dividing (a) the amount, in U.S.
dollars, that @BALANCE has provided to develop and test the Joint Product,
by
(b) $3.00. The exercise price of the Warrants shall be $3.00 per share, and
the
term of the Warrants shall be ten (10) years. The Warrants will contain standard
"piggy-back" registration rights with respect to the shares of common stock
issuable upon exercise of the Warrants. By example, if @BALANCE spends $1.5
million during the Agreement, then in connection with agreeing to commercialize
the
Joint
Product (executing the Custom Sales Agreement contemplated herein), ▇▇▇▇▇▇▇
will
issue a
fully-vested warrant of 500,000 shares, with a $3.00 strike price and a term
of
10 years. ▇▇▇▇▇▇▇'▇ assent to be bound by the foregoing obligation, and its
representation and warranty of authority to perform such obligation are
evidenced by signature of its authorized representative below.
3.5 Each
Party agrees that it will not assert against the other Party any patent claims
covering technology related to Downhole Isolation Valves, to the extent and
only
to the extent that such technology related to Downhole Isolation Valves is
used
to manufacture, use, or sell a Joint Product.
3.6 Upon
request by @BALANCE, before commencement of sale of Joint Products manufactured
by HVC, the Parties will negotiate and execute a non-exclusive, royalty-free
Trademark License for use of the registered trademark HEMIWEDGE®
in
products or services sold by @BALANCE that include goods manufactured by HVC.
The Trademark License shall include all limitations, restrictions and
requirements necessary to avoid any impairment of the rights of HVC in the
▇▇▇▇
or any diminution in value of the ▇▇▇▇ to HVC.
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3.7 To
the
extent capital investment is required by HVC to meet the demand for Joint
Products, @BALANCE and/or its Affiliate Shell Technology Ventures shall have
the
right to participate in such capital investment by cash payment, and shall
receive as consideration for such cash payment common stock of ▇▇▇▇▇▇▇, subject
to first right of refusal of certain interests of investors in ▇▇▇▇▇▇▇ created
in February 2006.
ARTICLE
4: CONFIDENTIAL INFORMATION
4.1 For
a
period of five (5) years from the date of disclosure of Confidential
Information, the Receiving Party agrees to use the same degree of care and
discretion to keep the Disclosing Party's Confidential Information confidential
as it uses with its own similar information that it wishes to keep confidential.
The Confidential Information received by a Receiving Party shall not be used
for
any purpose other than in connection with exercising the rights and licenses
granted to it under this Agreement, subject to the obligation of confidentiality
and subject to the terms and conditions of the licenses granted
herein.
4.2 The
Receiving Party may disclose the Confidential Information of the Disclosing
Party only to the Receiving Party's Representatives on a need-to-know basis,
subject to the requirements of Section 4.1.
4.3 Notwithstanding
any other provisions of this Agreement, the nondisclosure and use obligations
specified herein shall not apply to any Confidential Information
that:
4.3.1 is
already lawfully in the possession of the Receiving Party prior to being
furnished to the Receiving Party by the Disclosing Party, provided that the
source of such information was not and does not become known by the Receiving
Party, prior to disclosure by the Receiving Party, to be prohibited from
disclosing the information to the Receiving Party by legal, contract or
fiduciary obligation to the Disclosing Party;
4.3.2 is
independently developed by employees (without use of Confidential Information)
of the Receiving Party or any of its subsidiaries;
4.3.3 becomes
generally publicly available without breach of this
Agreement;
4.3.4 is
rightfully received by the Receiving Party on a non-confidential basis from
a
third party that is not known by the Receiving Party to be prohibited from
disclosing the information to the Receiving Party by legal, contract, or
fiduciary obligation to the Disclosing Party; or
4.3.5 is
released for disclosure by the Disclosing Party with its written
consent.
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4.4 Disclosure
of Confidential Information shall not be precluded if such disclosure
is:
4.4.1 in
response to a valid order of a court or other governmental body; or
4.4.2 otherwise
required by law; or
4.4.3 necessary
to establish the Receiving Party's rights under this Agreement.
4.5 Each
party shall obtain the consent of the other before making any press release
or other
publication of any activity pursuant to this Agreement, which consent
shall
not be
unreasonably withheld.
ARTICLE
5: TERM AND TERMINATION
5.1 During
the Term (from the Effective Date to the same date in the year 2008) either
Party may terminate this Agreement upon written notice to the other Party that
it does not choose to proceed to another Phase after completion of the current
Phase. Such notice shall be sent at least thirty (30) days before scheduled
completion of the current Phase.
5.2 @BALANCE
may terminate this Agreement upon written notice to HVC if HVC is more than
ninety (90) days late in completing work on a Phase.
5.3 This
Agreement shall not terminate of its own accord in the event of a Change of
Control of either Party. In the event of a Change of Control, the Party
undergoing same shall, to the extent not provided for by operation of law,
provide in the agreement giving effect to the Change of Control require the
counterparty to such agreement to accept assignment of this Agreement and be
bound by all its terms as fully as if such counterparty were a parry to this
Agreement, and the other Party shall accept such assignment.
5.4 Upon
expiration or termination of this Agreement, both Parties shall end the Phase
in
process and the following shall apply:
5.4.1 Neither
Party shall be under any obligation to make further disclosures of technical
information of any kind to the other Party.
5.4.2 All
confidentiality obligations set forth herein shall continue.
5.4.3 Joint
Technology shall be owned by HVC and HVC shall continue to have the right to
prosecute patents to protect the Joint Technology or Joint Products as provided
in Section 3.2.
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ARTICLE
6: REPRESENTATIONS AND WARRANTIES
6.1 Although
the Parties will use all reasonable efforts in performing Joint Projects, the
Parties acknowledge that the results of the design and development work to
be
performed are uncertain and cannot be guaranteed by either Party. Therefore,
if
a Party has exerted its reasonable efforts in the performance of its
responsibilities under a Phase Description, the failure to achieve schedules
within the Phase Description shall not constitute a breach of this Agreement.
Further, neither Party warrants or assumes any liability in connection with
the
implementation or completion of any Joint Project or that its work under this
Agreement will be error-free. Any services provided by a Party shall be provided
on an "AS IS" basis without warranty of any kind.
6.2 Each
Party represents that it has agreements, including confidentiality agreements,
with its employees and any other person with whom such agreement may be
necessary sufficient to meet its obligations under this Agreement.
6.3 NEITHER
PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE JOINT
PRODUCTS, THE TECHNOLOGY CONTRIBUTED, OR THE CONFIDENTIAL INFORMATION DISCLOSED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
6.4 ▇▇▇▇▇▇▇
represents and warrants that it has obtained any necessary consent of its
shareholders and board of Directors to issue the Warrant set forth in Section
3.4 and the participation right set forth in Section 3.7.
ARTICLE
7 - LIMITATION OF REMEDIES
7.1 In
no
event shall either Party be liable to the other Party for incidental damages,
lost profits, lost savings, delayed production, lost production or any other
consequential damages, regardless of whether the claim is for breach of
contract, warranty, tort (including negligence), failure of a remedy to
accomplish its purpose or otherwise, even if such Party has been advised of
the
possibility of such damages.
7.2 Except
for breach of ▇▇▇▇▇▇▇'▇ warranty as set forth in Paragraph 6.4, in no event
shall either Party be liable to the other Party for actual damages resulting
from any claim relating to this Agreement, regardless of the form of action,
provided that this limitation will not apply to claims for bodily injury or
damage to real property or tangible personal property for which the Party is
legally liable.
7.3 Neither
Party will be liable for any damages claimed by the other Party based on any
third party claim.
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ARTICLE
8: NOTICES
8.1 Any
notice or other communication required or permitted to be made or given to
either Party hereto pursuant to this Agreement shall be sent to such Party
by
facsimile, or by certified or registered mail, postage prepaid, addressed to
the
person named below and shall be deemed to have been made, given or provided
on
the date of facsimile transmission or mailing.
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HVC:
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HEMIWEDGE
VALVE CORPORATION
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▇▇▇▇▇
▇▇ ▇▇▇▇
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▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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Attention:
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CFO
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@BALANCE:
|
AT
BALANCE AMERICAS
LLC
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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|
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Attention:
▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇, CEO
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8.2 A
Party
hereto may change its address for the purposes of this Section 12 by giving
ten
(10)
days
prior written notice of such change of address to the other Party.
ARTICLE
9: MISCELLANEOUS
9.1 Nothing
contained in this Agreement shall be construed as conferring any right to use
in
advertising, publicity or other promotional activities any name, trade name,
trademark or other designation of any Party hereto (including any contraction,
abbreviation or simulation of any of the foregoing) except as expressly provided
in Sec. 3.6.
9.2 No
license or immunity is granted by this Agreement by either Party to the other
Party, either directly or by implication, estoppel, or otherwise, under any
patent or other intellectual property right now owned or hereafter obtained,
except as expressly provided herein.
9.3 Neither
this Agreement nor any activities hereunder will impair any right of INC or
@BALANCE to design, develop, manufacture, market, service or otherwise deal
in,
directly or indirectly, any products or services. Each Party may pursue
activities independently with any third party even if similar to the activities
under this Agreement, subject to provisions of confidentiality provided
herein.
9.4 Each
Party is an independent contractor and is not an agent of the other Party for
any purpose whatsoever. Neither Party will make any warranties or
representations on the other Party's behalf, nor it will not assume or create
any obligation on the other Party's behalf.
9.5 Each
Party may, upon written notice to the other Party, assign its rights or
obligations without the prior written consent of the other Party only in
connection with a merger or a sale of all or substantially all of the assets
of
such Party relating to the subject matter of this Agreement to a third party.
Each Party may freely assign its rights to receive payment hereunder to any
third party upon written notice the other Party. In all other instances, neither
Party shall assign its rights or delegate or subcontract its obligations under
this Agreement without prior written permission from the other Party and attempt
to do so without such permission shall be null and void.
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9.6 Each
Party will comply with all applicable federal, state and local laws, regulations
and ordinances of the U.S. Government including, but not limited to, the
regulations of the U.S. Govern rent authorities relating to the export of
commodities and technical data insofar as they relate to activities under this
Agreement. Each Party agrees that Joint Products, design information, test
results and any other technical data provided under this Agreement may be
subject to restrictions under the export control laws and regulations of the
United States of America, including but not limited to the U.S. Export
Administration Act and the U.S. Export Administration Regulations. Neither
Party
shall export any Joint Product, design information or other technical data
without appropriate government documents and approvals.
9.7 This
Agreement will not be binding upon the Parties until it has been signed herein
below by or on behalf of each Party, in which event it shall be effective as
of
the date first written above. This Agreement and its Exhibits constitute the
entire agreement between the Parties with respect to the subject matter hereof
and shall supersede all previous communications, representations, understandings
and agreements, whether oral or written, between the Parties or any officer
or
representative thereof with respect to the subject matter of this Agreement.
No
amendment or modification of this Agreement shall be valid or binding upon
the
Parties unless made in writing and signed on behalf of each Party by their
respective representatives thereunto duly authorized. The requirement of written
form may only be waived in writing.
9.8 Any
waiver by either Party of any breach of, or failure to enforce at any time,
any
of the provisions of this Agreement, shall not be construed as or constitute
a
continuing waiver of such provision, or a waiver of any other provision of
this
Agreement, nor shall it in any way affect the validity of this Agreement or
any
part thereof, or the right of either Party thereafter to enforce each and every
provision of this Agreement.
9.9 If
any
provision of this Agreement is found by competent authority to be invalid,
illegal or unenforceable in any respect for any reason, the availability,
legality and enforceability of any such provision in every other respect and
the
remainder of this Agreement shall continue in effect so long as it still
expresses the intent of the Parties. If it no longer expresses the intent of
the
Parties, the Parties will negotiate a satisfactory alternative to such
provision; if, after reasonable efforts, such alternative cannot be found,
this
Agreement shall be terminated.
9.10 Either
Party hereto shall be excused from the fulfillment of any obligation under
this
Agreement with the exception of payment obligations for so long as and to the
extent such fulfillment may be hindered or prevented by any circumstance of
force majeure, such as but not limited to, acts of God, war whether declared
or
not, riot, lockout, fire, shortages of materials or transportation, power
failures,
national or local government regulations, or any other circumstances outside
its
control.
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9.11 Headings
used in this Agreement are for convenience of reference only and are not
intended to be part of, or to affect the meaning or interpretation of this
Agreement. References to any given section of this Agreement are intended by
the
Parties to include any subsections of such section.
9.12 This
Agreement may be executed in two (2) counterparts, each of which shall be
deemed
an
original, but both of which together shall constitute one and the same
agreement.
ARTICLE
10: GOVERNING LAW AND JURISDICTION
This
Agreement shall be construed, and the legal relations created herein between
the
Parties shall be determined, in accordance with the laws of the United States
of
America and, specifically, the State of Texas, as if said agreement were
executed in, and to be fully performed within, the State of Texas.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their
duly
authorized representatives as of the day and year first above
written.
|
HEMIWEDGE
VALVE CORPORATION
|
AT
BALANCE AMERICAS, LLC
|
|||
|
By:
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
|
By:
|
/s/
▇▇▇▇ ▇▇▇▇▇▇▇
|
|
|
Name:
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
Name:
|
▇▇▇▇
▇▇▇▇▇▇▇
|
|
|
Title:
|
President
|
Title:
|
President
|
|
|
Date:
|
7/13/06
|
Date:
|
7/13/06
|
|
Assent
to
obligation to issue warrants as set forth herein, and representation and
warranty of authority to perform such obligation by ▇▇▇▇▇▇▇ INDUSTRIES
INC.
|
By:
|
/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|||
|
Name:
|
▇▇▇▇▇
▇▇▇▇▇▇▇
|
|||
|
Title:
|
President
|
|||
|
Date:
|
7/13/06
|
|||
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DEVELOPMENT
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EXHIBIT
A:
Patents,
Trademarks and Applications Therefor of HVC
Patents
and Patent Applications:
U.
S.
Patent No. 5,333,834
U.S.
Patent No. 5,507,469
U.S.
Patent Application Serial No. 11/630,150, filed Feb. 23, ▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇/▇▇▇▇▇▇/▇▇▇▇▇▇, filed Feb. 22, 2006
Trademark:
HEMIWEDGE®,
Registration No. 1983828, February 7, 1996
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EXHIBIT
B
PHASE
DESCRIPTIONS
SEE
THE
FOLLOWING "CORPORATE PARTNERING DOCUMENT," DATED JUNE 7, 2006, INCORPORATED
BY
REFERENCE INTO AND MADE A PART OF THE DEVELOPMENT AGREEMENT.
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Hemiwedge
Valve
Corporate
Partnering Document
HEMIWEDGE®
Downhole Isolation Valve (DIV)
Presented
Hemiwedge
Valve Corporation
To
At
Balance Americas
June
7, 2006
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Table
of Contents
|
EXECUTIVE
SUMMARY
|
20
|
|
1.0
INTRODUCTION AND PROJECT EXPERIENCE
|
21
|
|
1.1
A History of Development Project Success
|
21
|
|
1.2
Key Differentiators - Why Use ▇▇▇▇▇▇▇
|
21
|
|
1.3
Product Development Philosophy
|
22
|
|
2.0
THE
HEMIWEDGE®
DOWNHOLE ISOLATION VALVE SYSTEM DEVELOPMENT
|
23
|
|
2.1
Overview
|
23
|
|
2.2
Operational Sequence
|
23
|
|
2.3
Preliminary HEMIWEDGE®
Design Concept
|
24
|
|
2.4
Project Summary
|
26
|
|
3.0
PHASE DEVELOPMENT OUTLINE
|
26
|
|
3.1
Phases 1-3
|
26
|
|
3.2
Project Deliverables
|
27
|
|
3.3
Project Cost Estimate
|
27
|
|
3.4
Project Baseline: Phase Description
|
28
|
|
3.5
Project Timeline
|
31
|
|
4.0
COMMERCIALIZATION.
|
31
|
|
5.0
CONCLUSION SUMMARY.
|
31
|
EXHIBIT
B
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Foreword
Hemiwedge
Valve Corporation appreciates the opportunity to present this Corporate
Partnering Document
(to be included as Exhibit B of the proposed Agreement) to At Balance Americas
LLC
and its
parent Shell Technology Ventures to explain the proposed development of a
HEMIWEDGE®
Downhole Isolation Valve (DIV).
Respectfully
Submitted,
EXHIBIT
B
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HEMIWEDGE®
Downhole Isolation Valve Executive
Summary
Executive
Summary
Recent
drilling technology advances led to the Dynamic Annular Pressure Control (DAPC)
process, also known as Managed Pressure Drilling (MPD). This new drilling
process was developed to solve lost circulation, hole instability, formation
damage and other problems in deep water and other oil and gas drilling projects.
The process allows the driller to maintain constant Bottom Hole Pressure (BHP)
by using a lower mud weight with the adjustment of surface back pressure and
circulation rates. The new technology employs a closed mud system that can
be
maintained under pressure. The MPD setup also provides the ability to drill
ahead and make up pipe connections while maintaining the appropriate annular
pressure profile. The controlled and proper pressure profile prevents both
unintended well influx and formation damage. Well influx (loss of well control)
when the drill pipe is removed from a well using the MDP process is controlled
by a valve at the bottom of casing in the well, called a "Downhole Isolation
Valve," or "DIV." The two prevailing valve designs for the DIV include the
flapper valve and the swab ball valve. Although both valve technologies have
been around for years, the overall system reliability for these valves has
not
increased greatly through the years. The drilling industry has simply accepted
the risk of utilizing these two valve designs.
This
document (known as Exhibit B) outlines the proposed development of a
HEMIWEDGE®
Downhole
Isolation Valve (DIV). Phases of a Joint Project and the deliverables, schedule
and associated costs for each Phase are provided.
EXHIBIT
B
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1.0 Introduction
and Project Experience
Hemiwedge
Valve Corporation ("HVC") is in the position to develop and commercialize a
beneficial leap in Downhole Isolation Valve ("DIV") technology. For years DIVs
have been limited to flapper and related designs. Quarter-turn valve technology
has been limited to variations on a theme of ball and plug valves. In arduous
and inaccessible applications these valve styles are utilized by virtue of
a
lack of a superior high reliability alternative solution. Poor valve reliability
can result in millions of dollars of productivity losses.
The
HEMIWEDGE®
technology has been identified as a potential step change for high integrity
valve applications. This is an evolving process in which HVC has and will
continue to recruit the correct technical and manufacturing expertise to deliver
the required valve design solutions. Additional machining, assembly, and
development testing capability, along with the necessary procedural due
diligence, are also being added as the company expands. This in turn is rapidly
positioning HVC to provide alternative and superior valve technology solutions
to existing ball and flapper valve applications.
1.1
A
History of Development Project Success
The
progressive history of recent HVC development project successes is as
follows:
| · |
2004:
concept verification of HVC technology into a universal and replacement
cartridge design for ANSI class valves 2" through
12".
|
| · |
2004-5:
prototype design, manufacture and preferred flow test (1000 cycles)
of a
2" cartridge valve.
|
| · |
2005:
filing of cartridge valve provisional patent
application.
|
| · |
2005:
prototype design, manufacture and pressure test (30,000psi) of
a
cartridge
valve for subsea applications.
|
| · |
2005-6:
expansion of cartridge valve design up to 6" with concept development
to
12" ANSI.
|
1.2
Key Differentiators - Why Use HVC?
| · |
Technology
- scalable and proven in surface valve applications and prototype
tested
for a subsea high pressure
application.
|
| · |
Safety
- zero Lost Time Incidents since ▇▇▇▇▇▇▇'▇ original inception in
1978.
|
| · |
Experience
- more than 10 years of oil and gas tool development and
manufacturing.
|
EXHIBIT
B
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DEVELOPMENT
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| · |
Personnel
- broad and comprehensive oil and gas expertise including downhole
tool
research and development team, drilling/production engineering, subsea
engineering and a leading class manufacturing core group focused
and
dedicated to the HEMIWEDGE®
Valve development.
|
| · |
Focus
- Organization devoted to the HEMIWEDGE®
Technology.
|
1.3
Product
Development Philosophy
Since
its
inception, Hemiwedge Valve Corporation's product development philosophy has
been
geared toward developing and evolving the HEMIWEDGE®
valve
concept for the oil and gas industry. A building block approach has been
utilized where each new product development progression has been leveraged
from
the previous product's technology base, to deliver a functional commercial
product with a high level of quality and reliability in an accelerated time
cycle. By continually improving the process through several product iterations,
HVC will produce refinements and efficiency in optimizing the
HEMIWEDGE®
technology through modeling; testing and utilizing an iterative design
development process (see Figure 1).
|
Commercialization
|
||||
|
Testing
&
Validation
|
||||
|
Prototype
Manufacture
|
||||
|
Engineering
Calculation
&
Verification
|
||||
|
Design
Concept
Development
|
Figure
1 - Design Development Process
As
the
market for Dynamic Annular Pressure Control system and its various applications
broadens, it is necessary to advance the control valve technology even further
to achieve a more reliable pressure-isolation system during the drilling
process. Three focus areas for development are currently underway at HVC. These
areas are:
EXHIBIT
B
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| · |
Enhancements
- Designed to broaden the overall application envelope of the
HEMIWEDGE®
valve system. Examples include increased operational parameters such
as
burst and collapse ratings, gas tight pressure integrity, corrosion
resistant alloys and overall system
reliability.
|
| · |
Improvements
- Designed to improve the manufacturability of the HEMIWEDGE'®
valve design by providing a scalable and standard design concept
for ease
of assembly and/or field repair.
|
| · |
New
Technology - To produce the next generation valve control system
configuration, leveraged from the proven components of the existing
HEMIWEDGE®
valve design concept, for all aspects of the oil and gas drilling
and
completions environment.
|
As
part
of the process, these development enhancements and technology advancements
will
become part of HVC's commercial product offering and be rolled into the
mainstream business. Leveraging its technological superior valve design,
Hemiwedge Valve Corporation will build hands-on knowledge of valve control
systems in various downhole environments. As a result, the product improvement
cycle advances and the knowledge database will be updated as the technology
evolves. This approach will elevate HVC into the world leader for drilling
and
completions DIV technology.
HVC
believes the HEMIWEDGE®
system
will be the facilitator for a radical change in valve design functionality
including enhanced reliability and robustness. With these combined learnings
and
experience, our company will implement the design concept development,
qualification, and commercialization of the HEMIWEDGE®'
DIV.
2.0 The
HEMIWEDGE®
Downhole Isolation Valve System Development
2.1 Overview
Existing
isolation valve technology currently in use with underbalanced drilling
applications typically utilizes ball or flapper valve technology. Both
technologies have either borehole size limitations or overall reliability
issues. The HEMIWEDGE®
system
addresses both issues with its revolutionary design.
EXHIBIT
B
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2.2 Operational
Sequence
The
simple but revolutionary principle behind the HEMIWEDGE®
valve
design is defined by three primary components:
| · |
The
patented HEMIWEDGE®
driver that rotates the HEMIWEDGE®
element
through a quarter turn arc to open or close the valve to
flow.
|
| · |
The
spherically tapered HEMIWEDGE®
element that effectively gives all the attributes of a rotary quarter-turn
mechanically sealed gate valve.
|
| · |
The
integral core element that assists in the mechanical seal loading
of the
valve and provides a smooth full-bore flow path through the valve.
This
not only reduces flow turbulence through the valve during valve operation
but minimizes seal surface damage from fluid
impingement.
|
EXHIBIT
B
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2.3 Preliminary
HEMIWEDGE®
Design Concept
HEMIWEDGE®
DIV
System Specifications
7in
- 26 ib/ft system
 |
Casing
connection OD:
7
inches
HEMIWEDGE®
OD: 8
inches
|
Figure
1: HEMIWEDGE®
Valve
Body (thread connection not shown).
Design
proposal:
The
7 in,
26 lb/ft HEMIWEDGE®
valve
system is a technologically advanced design concept that allows maximum
thru-bore ID with the ability to provide superior and robust seal integrity.
This design utilizes an out-of-the-box concept that provides the ultimate
functional and reliable isolation valve operation. Unlike today's casing
isolation valves, the HEMIWEDGE®
system
will utilize a revolutionary design concept that addresses many of the problems
inherently present with the existing isolation valves utilized in Managed
Pressure Control (MPC) drilling practices.
| · |
Limited
thru-bore size
|
| · |
Seal
integrity
|
| · |
Reliability
|
EXHIBIT
B
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As
shown
above in Figure 1, the overall valve body OD maintains a uniform body dimension
of 7 inches OD except for the location of the HEMIWEDGE®
valve
system. The HEMIWEDGE®
valve
location currently is designed with a max OD of 8.0 inches which allows the
maximum thru-bore ID. Despite this small oversized section, the
HEMIWEDGE®
valve
system can still pass through an 8-1/2 inch drill hole size used for a 7-inch
casing string. Actual drill hole sizes will dictate the final
HEMIWEDGE®
valve
thru-bore ID size. The increased outside dimension of the valve will require
that there is no premature wear on the valve while running or pulling out of
the
well. To this end it must be protected by a wear ring or suitable
device.
General
specifications are provided below for the standard HEMIWEDGE®
valve
system. Initial calculated values will be verified with further Finite Element
Analysis and empirical testing. Due to additional customer requirements and/or
design improvements, the specification values shown below may change. All values
are based on an initial prototype design concept.
The
preliminary HEMIWEDGE®
valve
downhole specifications are based on initial input provided by At Balance and
Shell Technology Ventures. Final specification values are subject to change
once
the overall valve system has been optimized and tested.
|
Specifications
(1)
|
|
|
Max.
OD (2)
|
8.000
inches
|
|
Min.
Thrubore ID
|
6.125
inches
|
|
Max.
Casing
connection
OD
|
7.000
inches
|
|
Total
Length(4)
|
40.0
inches
|
|
Seal
Type
|
Metal
to Metal
|
|
Casing
Connection
|
To
Be Determined
|
|
Functional
Operation
|
Mechanical
or Hydraulic
Activation
|
|
Burst
(3)
|
5,000
psi
|
|
Collapse
(3)
|
3,500
psi
|
|
Tensile
|
Determined
by thread
connection
type
|
|
Operating
Temperature
|
-40°
F thru 350° F
|
|
Target
Cost
|
<$10,000.00
|
Notes
to section 2.3:
| 1) |
Current
specification based on calculated values and is subject to change
due to
design scope modifications.
|
| 2) |
Max.
OD determined by drill bit size used to run in the 7" casing string.
This
drill hole size dimension will determine the overall burst and collapse
rating due the HEMIWEDGE®
valve design including the min. thru bore
size.
|
| 3) |
Actual
burst and collapse values can be increased by using high strength
alloys
or changing dimensions.
|
| 4) |
Total
length subject to change due to design scope
modifications.
|
EXHIBIT
B
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2.4 Project
Summary
The
Hemiwedge valve will be developed as a "Downhole Isolation Valve" with the
intent to hold pressure from both above and below the valve, although pressure
will primary be from below the valve with a maximum differential pressure of
5000 psi. The valve will typically be run on various size casing strings but
will be initially designed for deployment on 7" casing.
As
the
valve may require an outside dimension beyond that of conventional casing there
will need strike a balance between the outside dimensions, internal dimensions;
which should be at least drift dimensions of the casing it is run on, burst
and
collapse resistance acceptable for perhaps permanent installation. This is
of
course dependent on market demands. In addition the valve must prove to be
robust enough to provide closure and sealing ability in a vertical, angled
and
horizontal position in a drilling environment which will be prone to drilled
cuttings and debris.
Downhole
Isolation valves are currently activated by mechanical or hydraulic means.
It is
expected that Shell who has used the ▇▇▇▇▇▇▇▇▇▇▇ DDV will be the first to deploy
this technology and based on the current uptake of the ▇▇▇▇▇▇▇▇▇▇▇ DDV which
is
hydraulically activated versus the Halliburton quick trip valve, it seems
prudent to use a hydraulic activation method. The mechanical activation method
will not be precluded but given that the shifting tool needs to be run on the
BHA it is likely to not be so widely accepted.
In
a
downhole drilling environment the valve will be installed at up to a 90 degree
angle and perhaps beyond as well as in an environment prone to solids matter
or
various sorts but predominately particles and formation cuttings being of sand,
carbonate and shale in nature. The valve will have to pass rigorous testing
in a
similar environment to prove suitable prior to an actual well
installation.
Commercial
viability of both the valve Isolation systems will be attained by a
comprehensive testing and qualification program.
3.0 Phase
Development Outline
The
HEMIWEDGE®
project
plan will proceed forward in a systematic approach consisting of three Phases
as
shown below. A complete report of phase deliverables including time and cost
breakdown will be available at the end of each phase for review prior to moving
ahead with the next phase.
EXHIBIT
B
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DEVELOPMENT
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3.1 Phases
1-3
Phase
One - Engineering
and Design
Phase
Two -
Procurement and Manufacturing
Phase
Three - Testing
and Validation
3.2
Project Deliverables
The
key
deliverables for the HEMIWEDGE®
valve
project are the following:
| · |
Project
Planning, Monitoring and Control
|
| · |
Applications
and Operations Analysis for input into Product Specification and
Functionality
|
| · |
Design
Engineering
|
| · |
Procurement
of all Manufactured Tools
|
| · |
QC/QA
and Inspection Plans for all Manufactured
Tools
|
| · |
Test
Coordination and Supervision
|
| · |
HEMIWEDGE®
Valve
|
| · |
VO
Certification
|
| · |
System
Integration Test (complete tool string
assembly)
|
| · |
All
related Testing Documentation
|
| · |
All
Systems' Technical Documentation
|
| · |
Milestone
reviews and reports
|
| · |
A
minimum of one commercialized HEMIWEDGE®
DIV ready for field installation with all other milestones having
been
achieved.
|
| · |
Custom
Sales Agreement, the terms of which are to be negotiated in the future
including certain minimums to be paid for exclusivity
preservation.
|
3.3 Project
Cost Estimate
The
Phase
Descriptions are listed below in section 3.4.
As
with
any project it will be necessary to track time, equipment and materials in
order
to provide an auditable trail of expenditures. Any delays or additional costs
or
cumulative delays or costs which may cause an overrun in excess of 10% of the
phase or project must be agreed immediately with At Balance. Additionally,
if
cost overrun's are agreed upon by the Parties, "Change Orders" will be utilized
as the formal request for additional development monies.
EXHIBIT
B
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The
amounts for each milestone will be funded at the start of each milestone
process. Any surplus from each milestone will be applied to the next
milestone.
|
Phase/Milestone
|
Cost
|
Deliverable
|
|
Phase
I
|
$292,500
|
See
Phase I Phase Gate Description
|
|
Milestone
1.1
|
$200,000
|
Hire,
Infrastructure, Design/Eng. initiated
|
|
Milestone
1.2
|
$50,000
|
Further
Design/Eng, Design Viability concluded
|
|
Milestone
1.3
|
$42,500
|
Fully
Functioning Plastic Prototype
|
|
Phase
II
|
$805,000
|
See
Phase II Phase Gate Description
|
|
Milestone
2.1
|
$400,000
|
Materials
Procurement, Machining
|
|
Milestone
2.2
|
$205,000
|
ECN
Processing, Machining/Eng. Cond't.
|
|
Milestone
2.3
|
$200,000
|
Three
Prototypes Built
|
|
Phase
III
|
$287,300
|
See
Phase Ill Phase Gate Description
|
|
Milestone
3.1
|
$150,000
|
Qualification
Testing Completed
|
|
Milestone
3.2
|
$80,000
|
Flow
Testing Completed
|
|
Milestone
3.3
|
$57,300
|
Third
Prototype Completed and ready for down
hole deployment
|
Total
for
all Phases $1,384,800.
3.4 Project
Baseline: Phase Description
Phase
1 (Engineering and Design) Estimated time -- 4 months.
Scope:
To
engineer and design a HEMIWEDGE®
DIV to
the targeted specifications listed in Section 2.3 and elsewhere within this
document. Electronic design demonstrating Design Viability if necessary for
design purposes, definitive FEA Modeling and a functioning Plastic prototype
model to be built by end of Phase 1.
| 1. |
Hire
and dedicate one senior and three junior engineers. Senior engineer
is
down-hole expert with 12 years experience. Acquisition costs of personnel
are HVC responsibility. Project hours billed to @BALANCE via
agreement.
|
| 2. |
Build
out infrastructure and acquisition costs for new employees. Estimated
cost
$50,000.
|
EXHIBIT
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DEVELOPMENT
AGREEMENT
|
| 3. |
Engineering
and design activities include the
following:
|
| a.) |
Design
Viability: Identify and develop dimensional constraints and mechanical
functionality for valve body design. Acceptance of the analysis is
required to proceed to the next step. Estimated cost
$8,000.
|
| b.) |
FEA
modeling: Insure design specifications based on preliminary calculated
values and model load failure conditions. Acceptance of the analysis
is
required to proceed to the next step. Estimated cost
$14,800.
|
| c.) |
Rapid
Prototype Modeling. Manufacture prototype model (i.e. plastic) to
verify
tool operational functionality, assembly and disassembly procedure.
Acceptance is required to proceed to Phase 2. Estimated cost
$10,700.
|
| 4. |
Estimated
1,340 Engineering hours during Phase I @ average ▇▇▇▇ rate of $100.00
per
hour. Estimated cost $134,000.
|
| 5. |
Management
overhead allocation to project $25,000.
|
| 6. |
Transaction
costs and professional fees to execute Development Agreement
$50,000.
|
| 7. |
Total
cost for Phase I estimated at $292,500. Milestones to be paid by
@BALANCE
in advance. Payment overages to be applied to Phase
II.
|
Phase
Gate "Go /
No
Go" decision to proceed to Phase II is
based
on HVC presenting a satisfactory electronic design and fully functional plastic
prototype model of the HEMIWEDGE®
DIV to
acceptable criteria and mutual agreement of the Parties.
Phase
2 (Procurement and Manufacturing) Estimated time - 5
months.
Scope:
Build
at
least three working proof of concept prototypes based on the design
specifications of Phase 1 engineering and design results.
| 1. |
Tendering
process for all outside manufacturing requirements. Estimated cost
$20,000.
|
| 2. |
Purchase
machinery for manufacturing, which is HVC's
responsibility.
|
| ▇. |
▇▇▇▇
VF-5 Vertical Mill
|
| ▇. | ▇▇▇▇ VF-6 Vertical Mill w/ 4th axis |
| c. | Puma 25 CNC Lathe |
|
i.
|
Estimated
costs for all three at $300,000 paid for by HVC. No cost to At
Balance.
|
| 3. | Materials, Tooling and Fixtures for manufacturing. |
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a.
|
Estimated
costs at $215,000. Note this is a rough estimate, which may change
based
on commodity prices and market
fluctuations.
|
| 3. | Materials, Tooling and Fixtures for manufacturing. |
| 4. |
Engineering
Hours budgeted for the Phase 2 is 1,500. Estimated cost
$150,000.
|
| 5. |
Machining
Hours budgeted for the Phase - 3,000 hours @$125.00 per hour (which
includes machine operator). Estimated cost
$375,000.
|
| 6. |
Management
overhead allocation to this Phase of the project
$45,000.
|
| 7. |
Total
Cost for Phase 2 is estimated at $805,000. Milestones to be paid
by
@BALANCE in advance. Payment overages to be applied to Phase
III.
|
|
Phase
Gate "Go /
No
Go" decision to proceed to Phase 3 is
based on HVC presenting a satisfactory working prototype Proof
of
Principle of the HEMIWEDGE®
DIV to acceptable criteria and mutual
agreement.
|
Phase
3 (Testing and Validation) Estimated time - 3 months.
Scope:
In
Phase
3, HVC will test and validate all calculated design specifications, which
includes but is not limited to standard API qualifications, burst and collapse
at temperature, torque rating, tensile strength, flow rate, and corrosive
environment testing. These tests are within the HVC standard valve testing
and
are not designed to replace @BALANCE's own due diligence and testing for the
HEMIWEDGE®
DIV in
connection with their technology and systems.
| 1. |
HVC
will purchase internal testing equipment for Phase 3
scope.
|
| a. |
Internal
Test Kits and Assembles. Estimated
$25,000.
|
| b. |
High
Pressure Pumps: Estimated $13,500
|
| c. |
Hydraulic
Press: Estimated $10,000
|
| d. |
Data
Acquisition Unit: Estimated $7,750
|
| e. |
Direct
labor for internal testing: Estimated
$37,500.
|
| 2. |
Additional
Engineering Hours budgeted for prototype revisions during Phase 3
of 100
hours. Estimated cost of $10,000.
|
| 3. |
Additional
Machining Hours budgeted for prototype revisions during Phase 3 of
200
hours. Estimated cost of $25,000.
|
| 4. |
Qualification
testing (validate valve
specifications).
|
| a. |
DIV
assembly and mechanical activation test.
|
| b. |
Preliminary
pressure test @ ambient temp.
|
| c. |
Pressure
test at temperature (multiple cycles per ANSI / API
specs).
|
| d. |
Thermal
cycle pressure test.
|
| e. |
Tensile
test.
|
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DEVELOPMENT
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| f. |
Torque
test.
|
| g. |
Total
estimated for item 4 is $55,050.
|
| 5. |
Cost
for additional outside testing (Corrosive Environment, Flow Rate):
Estimated cost of $78,500.
|
| 6. |
Management
overhead allocation for this Phase of the project
$25,000.
|
| 7. |
Total
Cost for Phase 3 is estimated at $287,300. Milestones to be paid
by
@BALANCE in advance.
|
Phase
Gate "Go / No Go" decision to proceed to Custom Sales Agreement
based
on
acceptable testing and mutual agreement of the Parties. There will be
at least
one
functioning prototype available for installation into a well at the end of
the
project.
3.5
Project Timeline
The
project timeline will follow the various Phases mentioned above. The table
below
details an
estimated timeline for project completion with the assumption the project begins
in late July 2006.
|
2006
|
2007
|
|||||||||||
|
JUN
|
JUL
|
AUG
|
SEP
|
OCT
|
NOV
|
DEC
|
JAN
|
FEB
|
MAR
|
APR
|
MAY
|
JUN
|
|
Phase
1 (Eng. & Design)
|
||||||||||||
|
Phase
2 (Manuf.)
|
||||||||||||
|
Phase
3 (Testing)
|
||||||||||||
4.0
Commercialization.
Both
@BALANCE and HVC agree to negotiate in good faith a Custom Sales
Agreement
according to the terms set out in Sec. 3.3.
5.0
Conclusion.
It
is
HVC's wish to get started on this project and dedicate the appropriate personnel
and
resources.
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