EXHIBIT 10.25
FORMATION AGREEMENT
WITH
SOFINOV
FORMATION AGREEMENT
This Agreement to Form (the "Formation Agreement") is
entered into as of the 7th day of August, 1996 by and between Hydrogen Burner
Technology, Inc., a California Corporation ("HBT") and Sofinov Societe
Financiere d'Innovation Inc., a Quebec Corporation ("Sofinov") with reference
to the following facts:
A. HBT is the sole owner of certain rights in and to the patents
and pending patents described in the PHS License (as defined in Section 2.2B
below) (the "Licensed UOB-TM Patents"). Generally, the Licensed UOB-TM- Patents
relate to what is referred to as "Underoxidized Burner Technology" (the "UOB-TM-
Technology"). The terms "UOB-TM- Technology", "Licensed UOB-TM- Patents",
"UOB-TM-Systems", and "Tradenames" and "Trademarks", shall have the
respective meanings assigned to them in the PHS License.
B. HBT formed Phoenix Gas Systems LLC ("PGS") as a California
limited liability company, and currently has a ninety-seven percent (97%)
membership interest in the profits and losses of PGS. Two parties now have the
right to acquire from PGS an additional 2% membership interest, which would
reduce HBT's interest to 95%. It is possible that a strategic partner may
acquire from PGS an additional 5% membership interest for no less than
$1,250,000 before or after Sofinov has made its contribution, which would
decrease the Membership Interests of HBT and the Sofinov Affiliate referred to
below.
C. To partially exploit the UOB-TM- Technology, HBT granted a
license (the "PGS License") to PGS with respect to the field of use described
therein.
D. HBT requires additional capital to exploit the UOB-TM-
Technology, which Sofinov has agreed to provide by acquiring a membership
interest in PHS (as defined in Paragraph E below) and PGS subject to the terms
and conditions herein set forth.
E. HBT and Sofinov have agreed to form a California limited
liability company, which will be known as Phoenix Hydrogen Systems LLC ("PHS"),
for exploitation of the UOB-TM- Technology. To that end, HBT will license to PHS
the Licensed UOB-TM- Patents, the UOB-TM- Technology, the Tradenames and
Trademarks in contemplation of PHS being a sublicensor to PGS and one or more
other operating companies.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, HBT AND
SOFINOV AGREE AS FOLLOWS:
1. FORMATION OF PHS. On or before the Closing Date (as
defined in Section 2.1 below) HBT and one of the "Sofinov Affiliates" (as
described below), shall file Articles of Organization for PHS and execute an
Operating Agreement for PHS substantially in the form attached hereto as Exhibit
A. Appropriate provisions of this Formation Agreement will be incorporated in
said Operating Agreement for PHS.
1
2. INVESTMENT BY SOFINOV AND HBT IN PHS.
2.1 AMOUNT AND TIMING OF INVESTMENT BY SOFINOV.
Subject to the conditions precedent set forth in Section 2.2 below, Sofinov,
through two affiliates (each a "Sofinov Affiliate" and both, the "Sofinov
Affiliates") shall contribute Four Million Dollars ($4,000,000) (the "Sofinov
Contribution") in the aggregate to the capital of PHS and PGS and acquire a
30% membership interest in PHS (the "PHS Interest") and a membership interest
in PGS equal to 30% of HBT's membership interest in PGS immediately preceding
this transaction subject to the provisions of Paragraph B on page 1 hereof (the
PGS Interest," and together with the PHS Interest, the "Interests"). The
Sofinov Contribution shall be made on August 23, 1996 or such other date as the
parties may reasonably agree upon (the "Closing Date"), at a closing (the
"Closing") to be held at the offices of Alschuler Grossman & Pines LLP, 2049
Century Park East, 39th Floor, Los Angeles, California 90067.
2.2 CONDITIONS TO CLOSING. Sofinov's obligation
to make the Sofinov Contribution is conditioned upon the occurrence of each of
the following, each, any or all of which may be waived by Sofinov.
A. The PGS License shall have been
assigned by HBT to PHS and shall have been modified to conform to the
requirements of the PHS License (including its conversion into a sublicense) and
this Formation Agreement. The form of the PGS License, as so amended, is
attached hereto as Exhibit B.
B. HBT and PHS shall have executed a
license (the "PHS License") (in the form attached hereto as Exhibit C), whereby
HBT grants to PHS, in perpetuity (but in the event this is not permitted then
for the longest period permitted by law), subject only to the provisions of the
PGS License (as amended) as to a certain field of use, an exclusive,
irrevocable worldwide license for the use, exploitation, and sublicense of the
Licensed UOB-TM- Patents, the UOB-TM- Technology and the Tradenames and
Trademarks.
C. The members of PGS shall have
executed a revised Operating Agreement for PGS to conform to the requirements
of this Formation Agreement substantially in the form attached hereto as
Exhibit D.
D. Each of the agreements referred to
in Schedule A hereto (collectively, along with this Formation Agreement,
referred to as the "Documents") shall have been duly executed and delivered; and
each act required by the Documents shall have been performed.
E. RIGHT OF FIRST REFUSAL GRANTED BY
HBT SHAREHOLDERS. HBT shall have delivered to Sofinov an agreement (the "First
Refusal Agreement") executed by each of the current shareholders of HBT (in the
form attached hereto as Exhibit E) granting to Sofinov a right of first refusal
to purchase the HBT shares owned by them. HBT shall require that any new
shareholder of HBT execute the First Refusal Agreement as a condition to
acquiring any shares of HBT, and HBT shall amend its Articles of Incorporation,
if required,
2
and legend each of its share certificates to provide notice that the shares of
HBT are subject to the terms and conditions of a First Refusal Agreement dated
as of August 23, 1996, a copy of which is available for examination in HBT's
office.
F. All corporate and other proceedings
to be taken and all waivers and consents, approvals, qualifications and/or
registrations required to be obtained or effected in connection with the
issuance, execution, delivery and performance of the Documents and transactions
contemplated thereby shall have been taken, obtained or effected and all
documents incident thereto shall be satisfactory in form and substance to both
parties. Any filings required to be made to the State of California in
connection with the formation of PHS shall have been made.
G. Sofinov shall have received from
counsel for HBT its attorney's opinion letter addressed to Sofinov, dated as
of the Closing Date, substantially in the form attached hereto as Exhibit F.
H. The benefits of each
UOB-TM- Technology Contract (as defined in Section 7.12) covered by the PGS
License shall have been assigned to PGS.
I. HBT and PGS shall not, between the
date of this Formation Agreement and the Closing Date, have (i) suffered any
material adverse change; or (ii) entered into any material contract, including
the sale of shares or issuance of membership interest, except as contemplated by
Paragraph B of the Preamble and Sections 2.1 and 2.3 hereof. HBT and PGS shall,
between the date of this Formation Agreement and the Closing Date, have operated
their businesses in the ordinary course.
J. Each representation and warranty
made by each party hereto shall be true, complete and correct in all material
respects on and as of the Closing Date.
2.3 INVESTMENT BY HBT. On or before the Closing
Date, HBT shall contribute to PHS the PHS License which the parties agree has a
fair market value of Nine Million Three Hundred Thirty Three Thousand Three
Hundred Thirty Three Dollars ($9,333,333). In consideration thereof, HBT will
receive a 70% membership interest in PHS.
2.4 STRUCTURING. HBT acknowledges that it has
been advised that (a) Sofinov intends to ultimately dispose of the interests and
any other interest it may acquire in any other operating company yet to be
created to exploit the Licensed UOB-TM- Patents and the UOB-TM- Technology, such
disposal to be effectuated by means of a sale of stock in a corporation, (b)
Sofinov will make its investments in PHS, PGS and all other operating companies
through one or more entities controlled by Sofinov, and (c) each such separate
entity may be merged or otherwise consolidated with PGS or another operating
company, as the case may be, concurrently with or following the incorporation of
such operating company in anticipation of an Initial Public Offering or
otherwise. Each party shall use its best efforts to accommodate the others'
structuring needs and preferences.
3
2.5 USE OF SOFINOV CONTRIBUTION. The parties
agree that the Sofinov Contribution will be used consistent with the uses
described in Schedule B hereto.
3. RESTRICTION ON TRANSFERS AND HYPOTHECATION. HBT
agrees that it will not voluntarily or by operation of law, assign, hypothecate,
give, transfer, mortgage, sublet, license, or otherwise transfer or encumber, or
allow a lien to be placed upon all or any part of the Licensed UOB-TM- Patents
or the UOB-TM- Technology.
4. PARTICIPATION IN HBT BOARD MEETING. At all times
while Sofinov has any interest of no less than ten percent (10%) in PHS, PGS or
any affiliate of either of them (including the operating companies to be formed
pursuant to Section 8) HBT shall give written notice (the "Meeting Notice") to
Sofinov prior to each meeting or action in lieu of a meeting by HBT's Board of
Directors (the "HBT Board"). The form, substance and date of delivery of each
Meeting Notice shall be identical to the notices given to each member of the HBT
Board. Sofinov shall be permitted to designate one or more nominees (but only
one at a time) who shall be permitted to attend and participate in, but not vote
at, each meeting of the HBT Board. The action taken by the HBT Board in
approving the execution of this Formation Agreement and the consummation of the
transactions contemplated hereby shall be deemed to be the approval of the HBT
Board of this Section 4. If requested by Sofinov, HBT shall amend its By-Laws or
other organizational documents to reflect and evidence the obligations described
hereunder.
5. REIMBURSEMENT FOR CERTAIN FEES AND COSTS. PHS shall,
(a) upon demand by Sofinov (which demand may only be made if and after the
Sofinov Affiliate has made the Sofinov Contribution) reimburse Sofinov for legal
fees and expenses incurred by Sofinov, and (b) upon demand by HBT reimburse HBT
for reasonable legal fees and expenses incurred by HBT; in the case of each of
Sofinov and HBT, up to a maximum of Fifty Thousand Dollars ($50,000), in
connection with the negotiation and preparation of the Documents and
transactions referred to herein.
6. REPRESENTATIONS AND WARRANTIES BY SOFINOV. Sofinov
represents and warrants to HBT as follows:
6.1 ORGANIZATION; POWER AND AUTHORITY OF
SOFINOV. Sofinov is a corporation duly organized, validly existing and in good
standing under the laws of the Province of Quebec, Canada with the requisite
corporate power and authority to own, lease and operate its properties, to carry
on its business as presently conducted and as proposed to be conducted and to
carry out the transactions contemplated by this Formation Agreement and the
other Documents executed by it.
6.2 ORGANIZATION; POWER AND AUTHORITY OF THE
SOFINOV AFFILIATES. On or prior to the Closing Date, each of the Sofinov
Affiliates will be a corporation and/or limited liability company (as the case
may be) duly organized, validly existing and in good standing under the laws of
the State of California, each with the requisite power and authority to own,
lease and operate its properties, to carry on its business as presently
conducted and as
4
proposed to be conducted and to carry out the transactions contemplated by
this Formation Agreement and the other Documents executed in connection with
any of the foregoing.
6.3 INVESTMENT INTENT.
A. Sofinov and the Sofinov
Affiliates will be acquiring the Interests for their own account, for
investment and not with a view to the distribution thereof within the meaning
of the Securities Act of 1933.
B. Sofinov understands that (i) the
Interests have not been registered under the Securities Act of 1933 and (ii)
the Interests must be held by the Sofinov Affiliates unless a subsequent
disposition thereof is registered under the Securities Act of 1933 or is
exempt from registration thereunder.
C. Sofinov represents that it has
not employed any broker or finder in connection with the transactions
contemplated by this Formation Agreement.
D. Sofinov further represents that
it and the Sofinov Affiliates are (or, as applicable, will be) each an
"accredited investor" within the meaning of Rule 501 under the Securities Act
of 1933.
6.4 AUTHORIZATION. The execution and delivery
of this Formation Agreement and the other Documents to which Sofinov or any
Sofinov Affiliate, as each appears as a party to each of these agreements, is
or will be a party have been duly authorized by each (as applicable) and this
Formation Agreement and the other Documents are valid and legally binding
obligations of Sofinov or any such Sofinov Affiliate, as the case may be,
enforceable against it in accordance with their respective terms.
6.5 CONFLICT. The execution, delivery and
performance by Sofinov or any Sofinov Affiliate, as the case may be, of this
Formation Agreement and the other Documents to which each is a party do not
violate, conflict with or constitute a breach or default in any material
respect under any material contract, agreement or instrument to which Sofinov
or any such Sofinov Affiliate is a party or by which either is bound.
6.6 CONTINUING EFFECT OF REPRESENTATIONS.
Each representation made in this Section 6 and elsewhere in the Formation
Agreement shall be true, correct and complete in all material respects as of
the Closing Date.
7. REPRESENTATIONS AND WARRANTIES BY HBT. HBT
represents and warrants to Sofinov as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY. HBT is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California with the requisite corporate power and
authority to own, lease and operate its properties, to carry
5
on its business as presently conducted and as proposed to be conducted and to
carry out the transactions contemplated by this Formation Agreement and the
other Documents.
7.2 CORPORATE POWER; AUTHORIZATION OF THE
DOCUMENTS; NO CONFLICTS. HBT has the corporate power to execute, deliver and
perform its obligations under this Formation Agreement and the other
Documents to which it is a party. The execution, delivery and performance by
HBT of the Documents to which it is a party have been duly authorized by all
requisite corporate and shareholder action by HBT and each such Document
constitutes a legal, valid and binding obligation of HBT, enforceable against
it in accordance with its terms. The execution, delivery and performance of
the Documents to which HBT is a party and the consummation of the
transactions contemplated thereby and compliance with the provisions thereof
by HBT, the acquisition by Sofinov of the Interests and the contribution of
the PHS License will not (a) violate or conflict with any provision of any
applicable law, or any ruling, writ, injunction, order, judgment or decree of
any governmental authority (a "Judgment") applicable to HBT, PHS or PGS or
any of their respective properties or assets, (b) conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute
(with due notice or lapse of time, or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any note,
indenture, guaranty or mortgage or any material lease, license, franchise,
contract, agreement, commitment, arrangement, understanding or instrument,
oral or written, to which HBT, PHS or PGS is a party or by which any of
their respective properties or assets is bound or affected or (c) result in
the creation or imposition of any encumbrance upon any of the material
properties or assets of HBT, PHS or PGS.
7.3 AUTHORIZATION. The authorization,
issuance, and delivery of the Interests has been duly authorized by all
requisite corporate and shareholder action of HBT and manager and member
action of PHS and PGS and, when issued and delivered in accordance with the
terms of the Documents, the Interests will be validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof, and not subject to preemptive or any other, similar
rights. The terms, designations, powers, preferences and relative
participating, optional and other special rights, and the qualifications,
limitations, and restrictions, of the Interests are as stated in the
respective Operating Agreements for PHS and PGS.
7.4 NO CONSENT OR APPROVAL REQUIRED. No
consent of any natural person, company, partnership, joint venture,
corporation, business trust, unincorporated organization or other entity (a
"Person") and no consent, approval or authorization of, or declaration to or
filing with, any federal, state, municipal or other government department,
commission, board, bureau, agency or instrumentality, or any court, arbitral
tribunal or arbitrator, and any nongovernmental regulating body, to the
extent that the rules and regulations or orders of such body have the force
of law, in each case whether of the United States of America or any foreign
country (a "Governmental Authority"), is or will be required for the valid
authorization, execution and delivery of any Document to which HBT, PHS or
PGS is a party or for the consummation of the transactions contemplated
thereby, or for the valid authorization, issuance and delivery of the
Interests, other than those consents,
6
approvals, authorizations, declarations or filings which have been obtained
or made, as the case may be.
7.5 PROPRIETARY RIGHTS.
A. HBT is the sole owner of, and
has the sole right to use, the Licensed UOB-TM- Patents, the UOB-TM-
Technology, the Tradenames and the Trademarks, free and clear of any liens,
claims, encumbrances or other rights, subject only to the PHS, License and
the PGS License.
B. The Licensed UOB-TM- Patents and
the UOB-TM- Technology (as of the Closing Date) represent all of HBT's rights
in or relating to all inventions, technology and information acquired by or
licensed to HBT relating to the UOB-TM-.
C. Following its due execution and
delivery, the PHS License will be a valid and legally enforceable agreement.
D. Except as set forth in the PHS
License and the PGS License, no royalties, percentages, honoraria, fees or
payments of any kind are or will be payable by PHS and PGS, respectively, to
any other Person by reason of their respective exploitation and use of the
Licensed UOB-TM- Patents and the UOB-TM- Technology.
E. HBT has no knowledge, and has no
reason to believe that (a) any of the rights associated with the PHS License
and the PGS License violate, or will violate any contract of HBT with any
Person, or infringes, or will infringe, any intellectual property rights of
any Person, and (b) there exists any prior art that is more pertinent to the
patentability of the UOB-TM- Technology than the references cited by the U.S.
Patent and Trademark Office in connection with prosecution of the Licensed
UOB-TM- Patents (as of the Closing Date). There is no pending nor threatened
claim nor litigation contesting the validity of or HBT's exploitation rights
in and to the UOB-TM- Technology nor has HBT received any notice that any of
the UOB-TM- Technology conflicts, or will conflict, with the asserted rights
of others.
F. Following modification of the
PGS License, as provided above, neither PGS (except under the PHS/PGS
License) nor any other Person (other than PGS, Southern California Gas
(pursuant to the agreement described in Section 7.5G below), and Unitel
(pursuant to the agreement described in Section 7.5G below), will have any
exploitation rights or any other rights in and to the Licensed UOB-TM-
Patents or the UOB-TM- Technology.
G. Except for (i) the PHS License,
(ii) the PGS License, (iii) the Agreement for Hydrogen Producing
Underoxidized Burners dated June 15, 1993, between HBT and the Southern
California Gas Company, and (iv) the Agreement dated March 28, 1996 between
HBT and Unitel Technologies, Inc. for distribution of UOB-TM- Systems in
India, HBT on behalf of itself, PGS, PHS or any other Person, has not granted
or transferred,
7
or agreed to grant or transfer, any exploitation rights or other right or
interest in and to the Licensed UOB-TM- Patents or the UOB-TM- Technology,
except that PGS has entered into a loan and security agreement with
Peter/Mat Partners and others dated July 1, 1996, pursuant to which PGS has
granted to Peter/Mat a security interest in all of PGS, equipment and
inventory.
7.6 LITIGATION. There is no action, suit,
claim, arbitration, proceeding or investigation at law or in equity or by or
before any Governmental Authority now pending or threatened against or
affecting HBT, PGS, PHS, the Licensed UOB-TM- Patents, the UOB-TM-
Technology, the Tradenames or the Trademarks. There are no judgments to which
HBT or PGS is a party or by which any of its properties or assets are bound.
7.7 NO DEFAULTS. Neither HBT nor PGS is in
default under its Articles of Incorporation or By-Laws or its Articles of
Organization, as applicable, or any Contract (as defined in Section 7.12).
There exists no condition, event or act which constitutes, or which after
notice, lapse of time or both, would constitute, a default under any of the
foregoing.
7.8 EQUITY INVESTMENTS. Except for its
interest in PHS (when formed), PGS and its former interest in PGS, Inc., a
California corporation that was dissolved in December 1995, HBT has never
had, nor does it presently have, any subsidiaries, nor has it owned, nor does
it presently own, any capital stock or other proprietary interest, directly
or indirectly, in any Person.
7.9 CAPITALIZATION. The authorized and issued
capital stock of HBT and the owners thereof are as set forth in Schedule C
hereto.
7.10 PGS INTEREST. The membership interests
in, and the capital contributions to, PIGS are as reflected in Schedule D
attached hereto. Prior to the Closing Date, HBT will not transfer or issue,
or cause or allow PGS to transfer or issue, any other interest in the
profits and losses of PGS, except that HBT shall, at any time prior to the
Closing Date be permitted (after notice to Sofinov) to cause PGS to issue to
a strategic partner a five percent (5%) interest in the profits and losses of
PGS for a capital contribution, in cash, of no less than One Million Two
Hundred Fifty Thousand Dollars ($1,250,000).
7.11 TRUE AND CORRECT COPIES. From the
inception of the relationship between HBT and Sofinov until the date of
execution of this Formation Agreement each party has delivered, or caused to
be delivered, to the other copies of agreements, correspondence and other
documents (collectively, the "Due Diligence Documents"). Each of the Due
Diligence Documents is (and will be) a true and correct copy of its original,
unless a copy of a copy, in which event it is (and will be) a true and
correct copy of such copy.
7.12 MATERIAL CONTRACTS. Attached hereto as
Schedule E is a complete and accurate list of all material contracts,
indentures, mortgages, agreements, leases, licenses, purchase orders, sales
orders, and other instruments to which either HBT or PGS is a party or by
which either of them is bound (the "Contracts"). All of the Contracts listed
on Schedule E
8
are in full force and effect and are valid and binding obligations of the
parties thereto. To the knowledge of HBT, no party to a Contract has given
notice of termination of, or taken any action inconsistent with the
continuation of, the Contract. HBT has provided to Sofinov complete and
accurate copies of each Contract listed on Schedule E. Each contract and
sales order entered into by HBT or PGS in connection with the exploitation of
the UOB-TM- Technology is listed on Schedule E, and is so identified (the
"UOB-TM- Technology Contracts").
7.13 COMPLIANCE WITH LAW. To the best of HBT's
knowledge and belief, the UOB-TM- Technology and each product produced as a
result of the exploitation of the UOB-TM- Technology complies with all United
States laws which govern the development, use, or sale of the UOB-TM-
Technology.
7.14 CONTINUING EFFECT OF REPRESENTATIONS.
Each representation made in this Section 7 and elsewhere in this Formation
Agreement shall be true, correct and complete in all material respects as of
the Closing Date.
8. FORMATION OF OPERATING COMPANIES.
8.1 OPERATING COMPANIES. Sofinov and HBT
intend to create and own a variety of operating companies. Each operating
company shall sublicense from PHS the right to use the Licensed UOB-TM- Patents,
the UOB-TM- Technology, the Tradenames and the Trademarks in the exploitation of
a specified field of use for the UOB-TM- Technology. All of the terms,
conditions, rights, obligations, and requirements described in this Section 8
shall apply to each of the operating companies so formed, including PGS, and
shall be set forth in the operating agreement and/or other appropriate
operational or organizational document for each of the operating companies as
required.
8.2 OWNERSHIP INTERESTS.
A. Except for PGS, each operating
company shall be owned as to (a) 70% by HBT; and (b) 30% by one or more newly
formed California corporations (or limited liability companies), each of
which shall be 100% owned by one or more companies designated by Sofinov (the
"Sofinov Subsidiary"); provided, however, that each operating company's
ownership shall be subject to dilution as described below.
B. Upon the agreement of Sofinov
and HBT to form a new operating company to exploit a new field of use of the
UOB-TM- Technology, Sofinov (through the Sofinov Subsidiary) shall have the
first right to make the full amount of the required capital investment, or a
lesser contribution. If the Sofinov Subsidiary elects to make the full
investment, the new operating company shall be owned 70% by HBT and 30% by
the Sofinov Subsidiary. If Sofinov declines to make the full investment, or
Sofinov and HBT do not agree on the ownership interest that the Sofinov
Subsidiary would receive in exchange for its capital contribution, the
parties may seek a third party investor. If a third party agrees to make the
investment (the "Investment"), HBT's 70% interest and the Sofinov
Subsidiary's 30% interest will be equally diluted (i.e., if the third party
makes the investment for 20% of the company,
9
both HBT's interest and the Sofinov Subsidiary's, interest will be diluted by
20%, leaving the third party with 20%, HBT with 56%, and the Sofinov
Subsidiary with 24%).
C. After a third party offer is
made, Sofinov and HBT shall first have a joint right of first refusal, to be
exercised by written notice to be delivered to each other within thirty (30)
days of receipt by both parties of any bona fide third party offer, which the
parties intend to accept, to match the third party offer, Sofinov and HBT
contributing 30% and 70% of the Investment, respectively. In the event that
Sofinov and HBT both elect to exercise their joint right of first refusal,
and make a capital contribution of 30% and 70% respectively of the
Investment, then the percentage ownerships of the Sofinov Subsidiary and HBT
remain at 30% and 70% respectively.
D. In the event HBT shall not have
accepted, or not timely have accepted, its (joint) right of first refusal in
accordance with Section 8.2C, then Sofinov shall have a right of first
refusal to match the third party offer for such portion of the Investment as
will cause Sofinov to have a percentage interest in the Company which
together with its diluted interest will add up to a maximum of 30%. Such
right of first refusal shall be exercised by written notice to be delivered
to HBT within sixty (60) days of Sofinov's original receipt of the bona fide
third party offer. In that event, the Sofinov Subsidiary will receive a
proportionate ownership in the Company that the third party was to receive,
and it will retain its diluted interest in the Company. (In the case that the
third party was to receive a 20% interest for the entire Investment, the
Sofinov Subsidiary would receive 6% for contributing 30% of the Investment,
plus retaining its 24%, HBT would retain its 56%, and the third party would
receive a 14% interest for contributing 70% of the Investment.)
E. The number of days within which
the rights of first refusal provided for in Sections 8.2C and 8.2D are to be
exercised shall be proportionally reduced when the third party offer is valid
for a number of days less than sixty-five (65) days.
8.3 ROYALTY PAYMENTS FOR RIGHT TO USE THE
UOB-TM- TECHNOLOGY. At the time of the formation of each operating company,
HBT and Sofinov shall mutually agree to the amount of the royalty payment due
from the operating company to PHS in consideration of PHS' sublicensing the
Licensed UOB-TM- Patents, the UOB-TM Technology, the Tradenames and the
Trademarks to the operating company with respect to certain field of use.
Subject to paragraph 7.2 of the PHS License attached hereto as Exhibit C, to
the extent the royalty payments from the operating companies are greater than
the payment due from PHS to HBT, PHS shall retain the difference.
8.4 INITIAL PUBLIC OFFERING, REPURCHASE OF
STOCK.
A. HBT and Sofinov shall use their
reasonable efforts to complete an IPO for each operating company (not HBT),
as soon as market and business conditions warrant.
10
B. During the ten (10) year period
following the formation of the operating company (except that for PGS, the
ten (10) year period commences on the Closing Date), the timing, terms and
pricing of any IPO shall be subject to Sofinov's consent, which consent shall
not be unreasonably withheld.
8.5 RIGHT OF FIRST REFUSAL; COME ALONG RIGHTS.
A. The Sofinov Subsidiary and the
Co-Owner(s) of the operating company (as defined in Section 8.7) shall grant
to each other a right of first refusal to match any third party offer
received by either of them for the sale of all or any portion of such party's
interest or stock in the operating company, provided, however, that the
remaining party shall not be required to match any unique terms offered by
the third party but shall instead have the right to offer cash to the selling
party in an amount equivalent to such unique terms.
B. The Sofinov Subsidiary and the
Co-Owner(s) of the operating company shall grant to each other "come along"
rights, whereby if either of them receives a third party offer for the sale
of all or any portion of such party's interest or stock in the operating
company, the other party shall be permitted to participate, pro rata, in such
sale.
8.6 PUT OPTION. Each investment by a Sofinov
Subsidiary in a new operating company (other than PGS) is hereinafter
referred to in this Section 8.6 as an "Investment" or the "Investments" and
the interest (such as, but not limited to membership interests and shares of
stock) evidencing the investment is hereinafter referred to as "Sofinov's
Interest." HBT shall provide to Sofinov and each Sofinov Subsidiary an exit
strategy for each of its Investments by granting to each Sofinov Subsidiary
the options (each, a "Put Option") described in this Section 8.6.
Upon a Sofinov Subsidiary's exercise of its Put Option with
respect to its specific Investment, the "Co-Owner(s)" (as that term is
defined below) shall be jointly and severally required to repurchase (subject
to the provisions of Section 8.6K) Sofinov's Interest at its then fair market
value. As used herein, the word "Co-Owner" refers to each person or entity
who is the co-owner, directly or indirectly, of not less than six percent
(6%) of the entity in which the Sofinov Subsidiary has made the Investment.
The terms of each Put Option shall be:
A. For each Investment, each
Sofinov Subsidiary shall have a separate Put Option.
B. Each Put Option shall terminate
upon the occurrence of an IPO for the company in which the Sofinov Subsidiary
has made the Investment.
11
C. The Sofinov Subsidiary may
exercise its Put Option only by giving written notice (the "Exercise Notice")
to the Co-Owner(s) of its intent to so exercise such Put Option.
D. Each Put Option may be exercised
only on a date that is not earlier than six (6) years after the date that the
Sofinov Subsidiary first made its Investment.
E. For a period of no less than
thirty (30) days after the Sofinov Subsidiary gives the Exercise Notice, the
Sofinov Subsidiary and the Co-Owners shall attempt to agree upon a price for
Sofinov's Interest. If they are unable to agree, then, on any date which is
more than thirty (30) days after the Exercise Notice, the Sofinov Subsidiary
may notify the Co-Owner(s) (the "Appraisal Notice") that it intends to
determine the fair market value of Sofinov's Interest through an appraisal
mechanism. The Appraisal Notice shall be accompanied by the name of the
Appraiser ("Sofinov's Appraiser") selected by the Sofinov Subsidiary to
appraise Sofinov's Interest. Within thirty (30) days after the Appraisal
Notice, the Co-Owner(s) shall notify (the "Counter-Appraisal Notice") the
Sofinov Subsidiary of the name of the appraiser the Co-Owner(s) has selected
to appraise Sofinov's Interest. During the ninety (90) day period following
the date of the Counter Appraisal Notice the two appraisers shall separately
determine the fair market value of Sofinov's Interest. The operating company
shall provide the Appraisers with an in-house financial statement as close as
possible to the "Exercise Date". The ninety (90) day period shall be extended
by the time it takes to provide the in-house financial statements, including
both Profit and Loss and Balance sheet.
F. If the Co-Owner(s) fails or
refuses to select an appraiser within the thirty (30) day period, then the
value of Sofinov's Interest as determined by Sofinov's Appraiser shall be
deemed to be its fair market value.
G. If the fair market value of
Sofinov's Interest, as determined by one of the appraisers, is within ten
percent (10%) of the value as determined by the second appraiser, then the
fair market value shall be deemed to be the average of the two appraisals. If
the difference in the valuations of the two appraisers is more than ten
percent (10%), then the two appraisers shall select a third appraiser (the
"Third Appraiser") who shall, within ninety (90) days after his appointment,
determine the fair market value of Sofinov's Interest, which may not, in any
event, be lower than the lowest nor higher than the highest of the values as
determined by Sofinov's Appraiser and the Co-Owner's appraiser.
H. Each appraiser selected must be
experienced in appraising businesses of the type being appraised.
I. The fair market value of
Sofinov's Interest shall be determined without reference to a minority
discount or a control premium.
J. The Sofinov Subsidiary shall pay
the fees for Sofinov's Appraiser; the Co-owner(s) shall pay the fees for the
Co-Owner's appraiser; and the Sofinov
12
Subsidiary and the Co-owner(s) shall each pay one half (1/2) of the fees for
the Third Appraiser.
K. Subject to the provisions of
Section 8.6L, within one hundred twenty (120) days after determination of the
fair market value of Sofinov's Interest (a) the Sofinov Subsidiary shall
transfer the Sofinov Interest to the Co-Owner(s) and (b) the Co-Owner(s) will
pay the Sofinov Subsidiary, in cash, the fair market value for the Sofinov
Interest. The transfer by the Sofinov Subsidiary shall be without any
representations or warranties except that the Sofinov Subsidiary (1) owns the
Sofinov Interest free and clear of any liens or encumbrances and (2) is
lawfully empowered to transfer the Sofinov interest to the Co-Owner(s).
L. In the event of failure of the
Co-Owner(s) to purchase the Sofinov Interest as described in this Section
8.6, the Co-Owner(s) and Sofinov shall work together, in good faith, to sell
the operating company (or its assets). If the Co-Owner(s) fail to actively
and aggressively market the operating company in good faith (with the active
assistance of Sofinov), and/or if the joint efforts of the Co-Owner(s) and
Sofinov do not result in the sale of such company at the best available price
for a period of one year following the 120 days referred to in Section 8.6K,
then Sofinov (or the Sofinov Subsidiary, as applicable) shall have the right
to vote the shares or ownership interests of the Co-Owner(s) for the sole
purpose of (a) electing a committee of the Board of Directors or Managers
that will be fully authorized to bind such Board of Directors or managers to
pursue a sale of the operating company, and (b) voting as shareholders or
members to approve a sale of the company at a price and on terms that are
reasonably acceptable to Sofinov. The proceeds of the sale of the operating
company pursuant to this Section 8.6L shall be allocated among the
shareholders or members (as the case may be) in accordance with their
respective equity interests in the operating company. Alternatively, the
Sofinov Subsidiary may offer to purchase, for cash, all of the direct or
indirectly held interest of HBT in the operating company at its then current
fair market value, determined in accordance with the appraisal procedures
described in this Section 8.6. The Sofinov Subsidiary shall give HBT written
notice of its offer to purchase, which offer HBT shall accept, and the
closing of the sale shall be consummated within thirty (30) days of the
delivery to HBT of the Sofinov Subsidiary's offer to purchase.
8.7 CERTAIN GOVERNANCE ISSUES.
A. Each operating company
("Company") shall have a board (the "Board") consisting of seven managers (if
an LLC) or seven directors (if a corporation). The members (if an LLC) or the
shareholders (if a corporation) of each Company shall meet at least once per
year. The managers (if an LLC) or the directors (if a corporation) of each
Company shall meet at least once every three (3) months at a meeting of the
Board where the physical presence of four (4) directors or managers including
one (1) Sofinov representative shall constitute a quorum. In the absence of a
quorum in accordance with the preceding sentence, the majority of the
directors or managers present may vote to adjourn the meeting, but no other
business may be transacted. Upon due notice of the adjourned meeting, the
13
physical presence of four (4) directors or managers shall constitute a quorum
without the physical presence of a Sofinov representative being required.
Representation on the Board shall be proportionate to each
member's or shareholder's profit interest in the entity; provided, however,
that so long as Sofinov or a Sofinov Subsidiary is a member or shareholder of
the entity, it will have at least one manager or one director on the Board.
In calculating the representation of Sofinov (or a Sofinov Subsidiary) on the
Board, if there is a fractional interest of 1.5 or more, that interest will
be deemed to be the next highest whole number.
The Company shall reimburse the reasonable travel expenses
(not to include first class air travel) incurred by (a) one representative of
each shareholder (if a corporation) or member (if an LLC) in connection with
attending one meeting of the shareholders or members per year, and (b) each
director (if a corporation) or manager (if an LLC) who is not also involved
in the day-to-day management of the Company in connection with attending one
meeting of the Board every three (3) months, it being understood and agreed
that the Company shall not reimburse any travel expenses incurred in
connection with attending meetings other than as herein provided.
B. More than 50% of the Board, and
more than 50% of the shareholders or members, of each Company shall be
required to approve each of the following actions; provided, however, that so
long as Sofinov or a Sofinov Subsidiary holds any shares of or a membership
interest in the Company, Sofinov or the Sofinov Subsidiary, as a shareholder
or member, and the representative(s) of Sofinov or the Sofinov subsidiary in
his/her position on the Board, must approve each of the following actions):
(a) Any changes to the
fundamental nature of the Company or the business carried on by it;
(b) The transfer or other
disposition of all or any substantial portion of the assets of the Company or
any portion of its interest in another company;
(c) The acquisition of an
interest in any other LLC, corporation, partnership, firm or business,
subject to the provisions of Section 8.9;
(d) Any agreement, or
modification of an existing agreement, relating to dealings between the
Company and any of its members or shareholders, or affiliates of such members
or shareholders;
(e) The issuance of any
membership interests, shares of stock whether common or preferred, or any
debt obligations or other instruments convertible into shares, common or
preferred, or membership interests of the Company;
14
(f) Any changes in the charter
documents of the Company;
(g) The liquidation,
dissolution or winding up of the Company;
(h) Any assignment by the
Company for the benefit of its creditors or the voluntary filing by the Company
of any voluntary plan of reorganization;
(i) The annual operating and
capital expenditure budget for the Company;
(j) The annual business plan
for the Company;
(k) The borrowing of any money
or other incurrence of debt by the Company in excess of $100,000;
(l) The voluntary creation of
any lien against any of the assets of the Company;
(m) Any "Distribution" (as
that term is defined in the California Corporations Code) or any loan to any
officer, director, manager, employee, shareholder, member (or any affiliate of
any of them); provided, however, that, (i) payments received by PHS pursuant to
paragraph 8.2 of the PGS License shall not be subject to the requirement of
this Section 8.7B, and (ii) so long as the Distribution does not violate any
insolvency test or other applicable provision of the law of the jurisdiction is
which the Company was formed or incorporated, the Board of the Company shall for
each fiscal year approve a cash distribution in an amount no less than 40% of
the net income allocated to each member or shareholder of the Company; and
(n) Subject to Section 8.7D
hereof, any transaction (a) between the Company and any director, shareholder,
manager, or member (collectively, a "Related Party") or any Affiliate (as
defined below) of a Related Party; or (b) between the Company and any other
person or other entity in which a Related Party or an Affiliate of a Related
Party has a material financial interest. For purposes of this Formation
Agreement, "Affiliate" shall mean any individual, partnership, corporation,
trust, limited liability company, or entity or association, directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with any Related Party.
C. So long as Sofinov or a Sofinov
Subsidiary holds any shares of or a membership interest in the Company, the
Company will first, in good faith, advise, consult with, and request the non-
binding recommendation of the Sofinov Subsidiary, and thereafter obtain the
approval of more than 50% of the Board, and of more than 50% of the Shareholders
or Members, with respect to the following actions:
15
(1) The granting of any
exclusive territories, applications or other rights with respect to all or any
portion of the UOB-TM- Technology or any field of use;
(2) The contract terms on
which key employees of the Company are hired, including, without limitation,
salary range and length of contract.
D. Notwithstanding Section 8.7B(n)
hereof, the CEO of the Company shall be permitted to cause the Company to enter
into any agreement with HBT for continued research and development work and
improvements of the UOB-TM- Technology that shall have been included in the
Company's annual business plan so long as (i) any such agreement does not create
obligations for the Company in excess of $50,000, (ii) all such agreements
together do not create obligations for the Company in an aggregate amount
exceeding $300,000 during any fiscal year, and (iii) in each instance that the
CEO causes the Company to enter into such agreement he shall report such event
at the next meeting of the Board of Managers.
8.8 FINANCIAL STATEMENTS. Each operating company
shall maintain its books and records in accordance with generally accepted
accounting principles in the United States, consistently applied, and shall have
its financial records audited on an annual basis by a nationally recognized
accounting firm that is mutually acceptable to HBT and Sofinov. Each operating
company shall:
A. Ninety (90) days following the end
of its fiscal year provide, without cost, to each member (if an LLC) or
shareholder (if a corporation) financial statements which shall have been
audited (unless with respect to any subsidiary, the Board of the operating
company has not required that its annual financial statements be audited) by the
auditors of the operating company.
B. Sixty (60) days following the end
of each of the quarters in its fiscal year, provide, without cost, to each
member (if an LLC) or shareholder (if a corporation) unaudited quarterly
financial statements, certified to be true and correct by the Chief Financial
Officer or most senior officer of the operating company, as well as management
reports signed by the CEO of the operating company.
C. Thirty (30) days preceding the end
of any fiscal year, provide, without cost, to each member (if an LLC) or
shareholder (if a corporation) a detailed capital expenditure, operating and
research and development budget for the operating company and any subsidiary
(unless, with respect to any subsidiary, the Board of the operating company has
not required it to prepare any one or more of such budgets) covering all of the
next fiscal year.
D. Without cost, provide, upon demand,
to each member (if an LLC) or shareholder (if a corporation) any other
information which the latter may, from time to time, reasonably require.
16
E. The same obligations as those
provided for in Sections 8.8A through 8.8D above shall apply to any subsidiary
of the operating company (except to the extent that the Board of its parent
operating company has waived such requirement pursuant to Sections 8.8A and/or
8.8C).
8.9 LIMITATIONS ON RESTRICTIONS. Without
negating any of the foregoing rights set forth in this Section 8, which shall
apply to the formation and operation of each operating company, Sofinov shall
not prevent the formation of a new operating company for the exploitation of
UOB-TM- Technology for a new field of use. The restrictions described in this
Section 8 shall terminate as to each operating company for which there is an IPO
concurrently with the IPO for such Company, or when Sofinov, one of the Sofinov
Affiliates or a Sofinov Subsidiary no longer owns stock or a membership interest
in the Company.
8.10 INJUNCTIVE RELIEF. HBT acknowledges that the
rights, obligations, and limitations in this Section 8 are of unique importance
to Sofinov, and that breach by HBT of any of the terms of this Section 8 will
result in irreparable harm to Sofinov that cannot be compensated by monetary
damages. Therefore, in the event of a breach or threatened breach of this
Section 8, Sofinov shall have the right to seek temporary and permanent
injunctive relief, (including for, but not limited to, the purpose of seeking or
obtaining interim injunctive relief in order to preserve the status quo pending
conclusion of an arbitration proceeding pursuant to Section 9.10) in the
Superior Court of Los Angeles County, Central District without being required
to post a bond or other security, provided, however, that Sofinov shall not seek
to stop the day-to-day operations of any Company which are carried out in the
ordinary course of its business. If appropriate, Sofinov will promptly proceed
to commence an arbitration proceeding in accordance with Section 9.10.
9. MISCELLANEOUS.
9.1 INTEGRATION. This Formation Agreement
constitutes the entire agreement and understanding of the parties with respect
to the transaction contemplated hereby. Except for that certain confidentiality
agreement by and between HBT and Sofinov dated October, 1995, all of the terms
of which remain in full force and effect, this Formation Agreement supersedes
all prior agreements, arrangements and understandings related to the subject
matter hereof. No representation, promise, inducement or statement of intention
has been made by any of the parties hereto not embodied in this Formation
Agreement or in the documents referred to herein, and no party shall be bound
by, or liable for, any alleged representation, promise, inducement or statements
of intention not set forth or referred to herein.
9.2 GOVERNING LAW, JURISDICTION AND VENUE. This
Formation Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California.
17
9.3 BINDING EFFECT. All of the terms, covenants,
representations, warranties and conditions herein shall be binding upon, and
inure to the benefit of, and be enforceable by, the parties hereto, and their
respective successors, assignees and delegates, including, but not limited to,
successor corporations.
9.4 WAIVER. This Formation Agreement may not be
amended, modified, superseded or cancelled, nor may any of the terms, covenants,
representations, warranties or conditions hereof be waived, except by a written
instrument executed by the party against whom such amendment, modification,
supersedure, cancellation or waiver is charged. The failure of any party at any
time or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by any party of
any condition, or of any breach of any term, covenant, representation, or
warranty contained herein, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such condition or breach
or waiver of any other condition or of any breach of any other term, covenant,
representation or warranty.
9.5 CONSTRUCTION. The captions and headings
contained herein are for convenient reference only, and shall not in any way
affect the meaning or interpretation of this Formation Agreement. All references
in this Formation Agreement to a "person" mean and refer to natural persons,
partnerships, corporations, trusts, associations, governmental agencies and any
other entity of any kind whatsoever. Notwithstanding any rule or maxim of
construction to the contrary, any ambiguity or uncertainty in this Formation
Agreement shall not be construed against either party based upon authorship of
any of the provisions hereof.
9.6 COUNTERPARTS AND FACSIMILE SIGNATURES. This
Formation Agreement may be executed by facsimile signature and executed in two
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
9.7 ATTORNEYS' FEES. In the event that any party
shall bring an action in connection with the performance, breach or
interpretation of this Formation Agreement, or in any action related to the
transaction contemplated hereby, the prevailing party in such action, as may be
determined by the court or other tribunal (such as the Arbitrator) having
jurisdiction, shall be entitled to recover from the losing party in such action,
also as determined by the court or other tribunal having jurisdiction, all
actual costs and expenses of such litigation, including attorneys' fees, court
costs, costs of investigation, accounting, and other costs reasonably related to
such litigation, in such amount as may be determined in the discretion of the
court or other tribunal having jurisdiction of such action.
9.8 SEVERABILITY. In the event that any
provision hereof is determined to be illegal or unenforceable, such
determination shall not affect the validity or enforceability of the remaining
provisions hereof, all of which shall remain in full force and effect.
18
9.9 FURTHER DOCUMENTS. The parties each hereby
covenant and agree that, from time to time, after the date hereof, at the
reasonable request of any party, and without further consideration, they will
execute and deliver such other documents and take such other action as may be
reasonably required to carry out in all respects the transactions contemplated
and intended by this Formation Agreement.
9.10 ARBITRATION. Any controversy or claim,
whether based on contract, tort, statute, indemnity, or other legal theory
(including but not limited to any claim of fraud or misrepresentation,) arising
out of or related to this Formation Agreement, or any subsequent agreement
between the Parties, shall be settled by arbitration before a retired Judge or
Justice chosen by the parties through the Judicial Arbitration and Mediation
Service ("JAMS") of Los Angeles County. The parties agree that JAMS will provide
a list of five available Judges or Justices from which the parties will choose a
single Judge or Justice to arbitrate their dispute. If the parties cannot agree
on a single Judge or Justice, each party will have the right to reject or strike
up to two (2) Judges or Justices from the list of five. The arbitrator will then
be chosen from the remaining Judge(s) or Justice(s) by blind draw supervised by
JAMS. In rendering his or her award, the retired Judge or Justice ("Arbitrator")
shall have no authority or jurisdiction to modify or change any provision of
this Formation Agreement or to award punitive damages. The Arbitrator shall have
the authority to determine the arbitrability of any dispute between the parties
and shall also have the authority to establish procedural rules to govern the
arbitration of any dispute between the parties. Any judgment upon the award
rendered by the Arbitrator shall be final and binding and may be entered in any
court having jurisdiction thereof.
It is agreed that prompt handling and disposition of
any dispute is important to the parties, and the Arbitrator is hereby instructed
to assume adequate managerial initiative and control over discovery and other
aspects of the arbitration proceeding, to schedule prompt and expedited
discovery to be taken by either party, and to expedite the proceeding as much
as he or she deems reasonable, but in all events to try to effect within 180
days of filing, and a final award within 20 days of the close of evidence.
9.11 NOTICES. All notices, requests, demands and
other communications required or permitted to be given under this Formation
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (1) when hand delivered to the other party; or (2) when received when sent
by facsimile at the address and number set forth below (provided, however, that
notices given by facsimile shall not be effective unless either (a) a duplicate
copy of such facsimile notice is promptly given by depositing same with
first-class postage prepaid and addressed to the parties as set forth below, or
(b) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted under this Section 9.
11 additionally, any notice given by facsimile shall be deemed received on the
next business day if such notice is received after 5:00 p.m. (recipient's time)
or on a nonbusiness day; or (3) five (5) business days after the same have been
deposited in a post office with first-class or certified mail, return receipt
requested, postage prepaid and addressed to the parties as set forth below; or
(4) the next business day after the same have been deposited with a national
overnight or next business day delivery
19
service reasonably approved by the parties (Federal Express, DHL Worldwide
Express and US Express Mail being deemed approved by the parties), postage
prepaid, addressed to the parties as set forth below provided that the sending
party receives a confirmation of delivery from the delivery service provider.
SOFINOV: Sofinov Societe Financiere d'Innovation Inc.
1981, avenue McGill College
Montreal (Quebec) H3A 3C7
Canada
Attention: President
Telephone: (514) 847-2613
FAX: (514) 847-2628
HBT: Hydrogen Burner Technology, Inc.
3925 East Vernon Street
Long Beach, CA 90815
Attention: President
Telephone: (310) 597-2442
Fax: (310) 597-8780
9.12 GENDER AND TENSE. As used in this Formation
Agreement, the masculine, feminine and neuter gender, and the singular or plural
number, shall each be deemed to include the other or others whenever the context
so indicates.
9.13 TIME. Time is of the essence in this
Formation Agreement.
9.14 EXHIBITS. Any exhibit or schedule referred
to in this Formation Agreement shall be attached to this Formation Agreement and
be incorporated into this Formation Agreement by the reference to same.
9.15 PARTIES IN INTEREST. Nothing in this
Formation Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Formation Agreement on any persons
other than the parties to it and their respective successors and assigns, nor is
anything in this Formation Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this Formation
Agreement, nor shall any provision give any third persons a right of subrogation
or action over or against any party to this Formation Agreement.
9.16 DATE AND DELIVERY OF FORMATION AGREEMENT.
Notwithstanding anything to the contrary contained in this Formation Agreement,
the parties intend that this Formation Agreement shall be deemed effective,
executed and delivered for all purposes under this Formation Agreement, and for
the calculation of any statutory time periods based on the date and agreement
between parties is effective, executed, and/or delivered, as of the date set
forth on the first page of this Formation Agreement.
20
9.17 ASSIGNMENT. Neither party shall voluntarily
or by operation of law assign, hypothecate, give, transfer, mortgage, sublet,
license or otherwise transfer or encumber all or any part of its rights, duties
or other interest in this Formation Agreement or the proceeds thereof,
(collectively "Transfer"), other than the royalties payable to HBT, without the
other party's prior written consent, which consent shall not be unreasonably
withheld or delayed. Any attempt to make a Transfer in violation of this
provision shall be a material default under this Formation Agreement, and any
Transfer in violation of this provision shall be null and void. This Section
9.17 is subject to the provisions of Section 9.10.
9.18 COUNTING OF DAYS. If a party is required to
complete the performance of an obligation under this Formation Agreement by a
date certain and such date is a Saturday, Sunday or Federal bank holiday,
collectively, a "Nonbusiness Day," then the date for the completion of such
performance will be the next succeeding day that is not a Nonbusiness Day.
10. EXECUTION OF FORMATION AGREEMENT. Each party has been
represented by counsel in the negotiation and execution of this Formation
Agreement. This Formation Agreement was executed voluntarily without any duress
or undue influence on the part of, or on behalf of, the parties hereto. The
parties acknowledge that they have read and understood this Formation Agreement
and its legal effect.
IN WITNESS HEREOF, this Agreement is executed in duplicate by the
respective, duly authorized officers of the parties as of the day and year first
above written.
Hydrogen Burner Technology, Inc., a California
Corporation
Attest: By: [ILLEGIBLE]
-------------------------------------------
Its: President 8/9/96
------------------------------------------
Sofinov Societe Financiere d'Innovation Inc.,
a Quebec Corporation
By: [ILLEGIBLE]
-------------------------------------------
Its: Attorney-in-fact
------------------------------------------
21
SCHEDULE A
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Schedule A List of documents (this schedule)
Schedule B Use of Proceeds of Sofinov Contribution.
Schedule C HBT authorized and issued stock and the owners.
Schedule D PGS Membership Interests and Capital Contributions.
Schedule E Material contracts to which HBT or PGS is a party,
including UOB-TM- Technology contracts.
Exhibit A PHS Operating Agreement
Exhibit B PGS License
Exhibit C PHS License
Exhibit D PGS Operating Agreement
Exhibit E First Refusal Agreement
Exhibit F Form of Stell Opinion Letter
22
SCHEDULE B
FORMATION AGREEMENT
INITIAL FLOW OF FUNDS
FROM SOFINOV TO PGS/PHS
HYDROGEN BURNER TECHNOLOGY, INC.
From PHS License Fee $250,000
From PHS Reimburse Due Diligence 50,000
Net Received $300,000
PHOENIX HYDROGEN SYSTEMS PHOENIX GAS SYSTEMS
From Sofinov Funding 2,000,000 From Others Funding $1,250,000
To HBT License Fee (250,000) From Sofinov Funding 2,000,000
To HBT Due Diligence (50,000) Balance Business Plan $3,250,000
To Sofinov Due Diligence (50,000) Note: The funds are to be used as follows:
Balance Reserves $1,650,000 R&D $500,000
Marketing 650,000
Capital Equip. 400,000
Working Capital 1,700,000
----------
Total $3,250,000
==========
Note: The $1,650,000 reserves are to be
used to lend to PGS (if needed), to pay
HBT the remaining License Fee when
conditions are met, and to use as the
Board of Managers may direct.
SOFINOV PHOENIX FUEL CELL SYSTEMS PHOENIX COMBUSTION SYSTEMS
To PHS Funding ($2,000,000) Future R&D $0 Future R&D $0
To PGS Funding (2,000,000)
To PFCS Future 0
To PCS Future 0
From PHS Reimburse Due Diligence 50,000
Net Paid ($3,950,000)
23
SCHEDULE C
HBT AUTHORIZED AND ISSUED STOCK AND THE OWNERS
AUTHORIZED STOCK: Ten million shares (10,000,000)
ISSUED SHARES: TO WHOM NO. OF SHARES
- ----------------------------------------- -------------
David and Susan Moard = 1,000,000
Leonard and Rosalind Greiner = 1,000,000
Joseph and Maxine Stell = 35,555
Ronald and Maryann Stell = 44,444
Eric and Nancy Stell = 8,889
Albert M and Thelma S Herzig = 44,444
Co-Trustees of the Herzig
Family Trust As Amended
DV and Harriet Wedeman = 44,444
Thom and Brenda McMahon = 44,444
John and Linda Okerblom = 24,000
Barry Bhatt = 44,444
---------
TOTAL SHARES ISSUED = 2,290,664
24
SCHEDULE D
FORMATION AGREEMENT
Schedule of Phoenix Gas Systems LLC Membership Interests:
Peter Susi One Percent (1%) $250,000
Mathewson Green One Percent (1%) $250,000
Robert Okerblom/Kishor Popat One Percent (1%) $250,000
Hydrogen Burner Technology, Inc. Ninety-Seven Percent (97%) Value of HBT's
contribution, by
mutual agreement, is
$24,250,000
Options:
Peter Susi One Percent (1%) $250,000
Mathewson Green One Percent (1%) $250,000
SCHEDULE E
FORMATION AGREEMENT
Schedule of Phoenix Gas Systems LLC existing material contracts:
MG Industries contract dated April 21, 1995
BOC Gases contract dated November 21, 1995
Unitel Technologies contract dated March 28, 1996
Schedule of Hydrogen Burner Technology, Inc.'s existing material contracts:
H Power contract dated November 3, 1995
Ontario Hydro Technologies contract dated April 12, 1996
EXHIBIT C
LICENSE AGREEMENT
This License Agreement is entered into between Hydrogen Burner
Technology, Inc., a California corporation (hereinafter "HBT") and Phoenix
Hydrogen Systems LLC, a California limited liability company (hereinafter "PHS")
this 7th day of August, 1996.
HBT at this time is primarily a Research and Development
(hereafter "R&D") company. Its present principal product is known as the
Under Oxidized Burner (hereinafter "UOB-TM-"), also known as Partial
Oxidation Reformer. UOB-TM-, as referred to herein, will include all HBT's
patented and patent pending technology, including, but not limited to, the
Under Oxidized Burner, Water Vaporization System, Water and/or Gas Shift
Reactor, Air and Fuel Injectors and Control System Software, all of which is
included within numerous issued and pending patents (or being prepared for
filing), a list of which is attached hereto as Appendix A. In the development
of UOB-TM-, HBT has likewise accumulated considerable know-how, trade
secrets, computer programs, designs, drawings, plans and specifications,
marketing, sales, good will and other information, hereinafter collectively
referred to as "Other Assets." The R&D being performed at HBT is anticipated
to produce alternative sizes, improvements and variations to the issued and
pending patents and the creation of additional inventions which may likely
result in additional patents, know how and trade secrets, all of which are
and will be included within this License.
HBT has caused, or will cause, the formation of a Limited
Liability Company under the laws of the State of California using the name
Phoenix Hydrogen Systems LLC (hereinafter "PHS") and intends to own a major
share of PHS' total capital accounts. The other Member of PHS will be an
affiliate (hereinafter "Sofinov Affiliate") of Sofinov-Societe Financiere
d'Innovation Inc., a company incorporated under the Company Act of Quebec
(hereinafter "Sofinov"), which will make one or more contributions, aggregating
Four Million Dollars ($4,000,000) (referred to collectively as the "Sofinov
Contribution"), to PHS and/or Phoenix Gas Systems LLC, the latter being a
California limited liability company (hereinafter "PGS"). One of the purposes of
forming PHS as a separate entity is to commercialize the UOB-TM- in the major
markets of the world, to finance the manufacturing, sales and service of UOB-TM-
throughout the world, and to finance R&D where appropriate to produce
alternatives, different sizes, improvements and additional inventions. PHS will
have two or more members who will contribute property or cash to the LLC.
PHS will acquire from HBT a worldwide exclusive license (the
"License") to make, use and sell in perpetuity (but in the event such term is
not permitted, then for the longest period permitted by law), the UOB-TM-
Technology (as hereinafter defined) and service the same in the United States
and appropriate foreign Hydrogen markets, which constitutes substantially all of
the value of the UOB-TM- Technology, subject to the terms and provisions
hereinafter set forth. The license being granted herein is limited only by the
provisions of the license heretofore granted to PGS, as such license is amended
as of the date hereof and converted into a sublicense between PHS and PGS, as to
a limited field of use. A major
reason for acquiring the License is to permit PHS to sublicense others to make,
use and sell the products made possible with the use of the UOB-TM- Technology.
NOW THEREFORE, in consideration of the above recitals and each and all of the
terms and provisions hereinafter contained it is agreed as follows:
1. DEFINITIONS
The following words and phrases will have the meanings set
forth below, unless the context requires a different meaning:
1.1 "UOB-TM- Technology" shall mean all inventions
technology and information presently known of hereafter developed or acquired by
or licensed to HBT relating to the UOB-TM-, including, but not limited to, the
UOB-TM- Reactor, Water Vaporization System, Water and/or Gas Shift Reactor, Air
and Fuel Injectors, Control System Software, all technology where hydrogen is
used as a fuel for fuel cell systems and combustion systems, or where hydrogen
is used as a feed stock, and any other fields of use (whether known or unknown)
for the U0B-TM- Technology, and all know-how, trade secrets, computer programs,
designs, drawings, plans, specifications, goodwill, and marketing, sales, and
other information of HBT relating to the U0B-TM-, limited only by the terms and
provisions of the license heretofore granted to PGS, as such license is amended
as of the date hereof and converted into a sublicense between PHS and PGS as to
a limited field of use.
1.2 "Licensed UOB-TM- Patents" shall mean all patents
relating to the UOB-TM- Technology and including all U.S. patents issued and
issuing from any pending application or from a continuation, continuation in
part, or divisional application which is based, in whole or in part on an
application for one or more of such U.S. patents; all reissues of the foregoing
patents, all foreign counterpart patents which are based, in whole or in part,
on, any of the foregoing applications for U.S. patent; and any other future
patent rights that may be included herein under the provisions of this License
Agreement.
1.3 "UOB-TM- System" shall mean the UOB-TM- together with
all ancillary components, or devices, which are especially made or especially
adapted for the construction of systems and which are used along with or are
attached to the U0B-TM- and covered by the License to PHS. The cost of each such
ancillary component or device shall be added to the price of the U0B-TM- to form
the price of a "UOB-TM- System" which will bear the trademark UOB-TM-, which
trademark shall be placed on all equipment components and devices sold by PHS
and/or by any sub-licensee. All patented devices and such ancillary components
and/or devices bearing the trademark UOB-TM- will result in a UOB-TM- System
which will be the basis upon which the total royalty owed to HBT will be
computed.
1.4 "Net Selling Price" shall mean invoiced selling
price, f.o.b. PHS' or its sublicensee's facility, after deduction of all regular
and customary trade and quantity discounts, freight allowances, and cash
discounts, but before deduction of agent's commissions.
2
1.5 "Tradenames" and "Trademarks" shall mean the name and
mark UOB-TM-, and any other names or marks now or later adopted, used or
acquired by HBT that refer or relate to the UOB-TM- Technology.
2. EXCLUSIVE LICENSE
2.1 HBT hereby grants to PHS a world-wide, exclusive and
irrevocable license to make, use, offer for sale, sell, sublicense and otherwise
exploit, in perpetuity (but in the event such term is not permitted, then for
the longest period permitted by law), the Licensed UOB-TM- Patents, the UOB-TM-
Technology and the Tradenames and Trademarks (collectively, the "Licensed
Property"). The license includes all uses, and is subject only to the license to
PGS as such license is amended as of the date hereof and converted into a
sublicense between PHS and PGS.
2.2 HBT will promptly disclose to PHS, free of charge, at
HBT's facility in Long Beach, California or its then headquarters, all UOB-TM-
Technology presently known or hereafter developed or acquired by or licensed to
HBT.
2.3 HBT's OBLIGATION TO ASSIST PHS
HBT agrees, in each instance for the first 24 months that
any new field of use has been developed under this License Agreement and upon
reasonable request by PHS, to cooperate fully to assist PHS (and/or its
sublicensee), free of charge, in the testing, engineering and manufacturing
of UOB-TM- Systems in such new field of use and to consult with and provide
technical assistance and problem solving for UOB-TM- Systems to enable PHS
(and/or its sublicensee) to make, have made, use or sell UOB-TM- Systems in
such new field of use and to generally exercise its rights under the License
granted hereunder. To accomplish such assistance after the first 24 months
with respect to each such new field of use, HBT shall provide free of charge
fifty (50) man-days per calendar year, not including travel time. In each
instance, after said first 24 months, (a) PHS shall reimburse HBT for the
reasonable travel and living expenses incurred by HBT's personnel in
providing such assistance away from HBT's principal office/plant, and (b) HBT
shall, upon request by PHS provide assistance in excess of fifty (50)
man-days, in which event PHS shall pay HBT in accordance with paragraph 2.4.
2.4 PHS shall reimburse HBT for training and assistance
in excess of the man-days specified in paragraph 2.3 above at HBT's standard
rate at the time of the request. All such reimbursements shall be made in U.S.
Dollars within thirty (30) days of receipt by PHS of HBT's invoice. A man-day
shall be an eight hour day. The rate for overtime and work over weekends and
holidays shall be negotiated as it is required.
2.5 HBT and PHS shall confer, in good faith, on the
inventions and countries for which additional patent protection will continue to
be sought in pending applications, or for which applications for patents will be
prepared, filed and prosecuted on such additional inventions as are presently
known or hereafter developed or acquired by HBT relating to the UOB-TM-
Technology. HBT shall bear all costs associated with any such patent
3
applications. If HBT fails to pursue such patent protection on an invention or
in a country desired by PHS, then PHS may pursue such patent protection in HBT's
name and if a patent issues, HBT shall reimburse PHS for all reasonable costs
associated therewith.
2.6 OBLIGATION TO MARKET AND SELL
PHS will in good faith pursue the marketing, manufacture and
sale of the UOB-TM- throughout the world by PGS and its other public.
2.7 RELATIONSHIP OF THE PARTIES
The relationship of the parties shall be that of independent
contractors, and nothing contained herein shall be deemed to create any
relationship of agency, joint venture, partnership or employment. Neither party
hereto shall have any power to commit, contract for or otherwise obligate the
other to any third person.
2.8 HBT will pay all maintenance fees, taxes and
annuities which are necessary to maintain the Licensed Property in full force
and effect for the maximum period provided by law in each country where they
exist. If HBT fails to do so, it will give notice and opportunity to PHS to pay
such maintenance fees, taxes and annuities, and HBT shall reimburse PHS for the
cost thereof, unless it has determined and convinces PHS that it is not
economically productive to spend the money to maintain the patent in any
particular country.
3. RESERVED RIGHTS
In recognition of the fact that HBT is primarily a research
and development company and that PHS will be primarily depending on HBT for the
development of future inventions, technology, know-how, trade secrets and other
uses for the Licensed Property, HBT will be using the Licensed Property, but
only in connection with research and development work. HBT shall be entitled to
retain all revenue earned directly from this research and development work, but
shall not be permitted to otherwise exploit the Licensed Property on such
research and development work, products and results.
4. FURTHER CONCEPTIONS, INVENTION, IMPROVEMENTS
4.1 In the event PHS or any of its employees or
sublicensees should conceive of any inventions or improvements to the UOB-TM-,
whether or not PHS or any of its employees, licensees or public shall
apply for a patent thereon and whether or not said inventions or improvements
shall have been reduced to practice, any rights therein or patents resulting
therefrom shall belong to HBT and any patents resulting therefrom shall be
assigned to HBT and, insofar as such rights and/or patents are used or applied
in connection with the UOB-TM- Technology, shall be a part of the License to PHS
without additional cost to PHS. Any agreement of sub-license between PHS and any
proposed sub-licensee shall contain the substance of this paragraph 4.1 as a
part of the agreement.
4
4.2 In consideration of the foregoing, HBT shall grant to
PHS a royalty-free, worldwide, exclusive and irrevocable license with respect to
each such right and/or patent assigned to HBT to make, use, offer for sale,
sell, sublicense and otherwise exploit such right and/or patent. Each such
license shall include all uses and applications other than those which relate to
the UOB-TM- Technology.
4.3 PHS shall promptly advise HBT in writing of any such
improvements or inventions referred to in paragraph 4.1 above and disclose to
HBT all information needed by HBT to utilize such improvements or inventions to
the fullest extent possible.
4.4 In the event HBT shall receive from any third party a
license or right to make, use or sell any invention, technology, know-how, trade
secret or copyrightable matter which is usable with the UOB-TM- Technology or by
PHS to improve its performance or to broaden its usefulness, HBT shall disclose
the same to PHS, unless prohibited by said third party. HBT shall use its best
efforts to negotiate that such disclosure to PHS shall be permitted subject only
to the same restrictions as those to which HBT shall be submitted. Whenever
reasonably practicable, HBT shall invite PHS to participate in the negotiation
of any such third party license or right. In the event HBT is obligated to pay
any royalty for the use or sublicense of any such third party license or right,
PHS shall, in addition to its royalty payments as provided in this Agreement,
pay to HBT the amount of royalties so paid by HBT plus the reasonable cost of
administrating said use or sublicense. No payments are due by PHS, however, in
the event that such use or sublicense of such third party license permits PHS to
increase the selling price of its product in such amount that the increase in
the royalty to HBT under this License is sufficient to satisfy the obligation of
HBT to such third person plus the reasonable cost of administering said use or
sublicense. In the event the increase is not sufficient for that purpose, then
PHS shall pay to HBT such further sum as shall be necessary to offset that
obligation to such third party plus the reasonable cost of administering said
use or sublicense.
5. CONFIDENTIALITY
5.1 Each party hereto agrees (i) to use all reasonable
precautions to maintain confidential Information (as hereinafter defined) it has
received from the other party and to limit disclosure of Information to those of
its employees or agents as is reasonably required to carry out the purposes of
this Agreement; and (ii) not to disclose, nor permit its agents and employees to
disclose, Information to any third party, except as required to effect sales of
products or as required-by any sub-license it may enter into.
The term "Information" shall mean any and all information
relating to the Licensed Property, as well as the operations of the parties
hereto and of any sublicensee, but shall not include:
(i) Information which, at the time of disclosure, was in
the possession of the non-disclosing party as shown by its written records;
5
(ii) Information which, at the time of disclosure by the
disclosing party, has been previously published and is in the public domain;
(iii) Information which subsequently comes into the public
domain without breach of an obligation hereunder by the non-disclosing party; or
(iv) Information which comes into the non-disclosing
party's possession from a third party having no obligation to the disclosing
party to keep such information confidential.
Notwithstanding the exceptions enumerated in the
above subparagraphs (i)-(iv), no documents, prints, drawings, computer discs,
parts, equipment or other materials or property of a party hereto provided to
the other hereunder or generated by either party from information provided to it
hereunder shall be disclosed to third parties without the prior written
permission of the party who first provided the information.
5.2 Each party shall cause all Information to be
conspicuously labeled to indicate the secret and confidential nature thereof,
and to take all reasonable steps to prevent unauthorized access, reproduction or
use thereof.
6. OBLIGATION TO PAY
The obligation to pay royalties to HBT shall continue until
the expiration of the last patent included within the Licensed UOB-TM- Patents,
provided, however, that the following shall apply:
6.1 The royalty as described in Section 7.1 below, shall
end upon the termination of the last of the nine (9) U.S. patents (together with
the international patents associated therewith) and patents pending (or being
prepared for filing) set forth in Appendix A on the date hereof. If, following
such termination, there are any Licensed UOB-TM- Patents in force, then the
royalty shall be equitably adjusted to reflect the value of the remaining patent
rights, but in no event shall the adjusted royalty rates be in excess of the
original royalty rates.
6.2 If any of the Licensed UOB-TM- Patents are
invalidated or the benefits conferred by the License no longer justify the
royalties then in effect, HBT agrees that the royalties shall be equitably
adjusted downward.
6.3 No payment shall be effective until received by the
party to whom it is owed.
7. PAYMENT OF ROYALTIES
During the term of this License, PHS shall pay to HBT the
following royalties and other monies in U.S. Dollars:
6
7.1 Royalties equivalent to two percent (2%) of the Net
Selling Price of any U0B-TM- System sold by PGS or any other sublicensee of PHS
under this License which is covered in whole or in part by one or more claims of
valid Licensed UOB-TM- Patents where manufactured or sold by PGS or any such
sublicensee. In the event that at any time in the future PHS shall manufacture
and sell any UOB-TM- System, the foregoing sentence will also apply to the Net
Selling Price of any such UOB-TM- System sold by PHS.
7.2 If at any time, (a) PHS requires additional funds
(hereinafter "Additional Funds") to exploit the Licensed Property for a use for
which it has not previously been exploited (hereinafter "New Use") through a
"New Affiliate" (as that term is defined in paragraph 7.5 below), and (b)
Sofical Investment Company LLC or any affiliate thereof (referred to
collectively as "Sofinov") either declines to provide all or a portion of the
Additional Funds, or Sofinov and PHS cannot agree on terms upon which Sofinov
will provide all or a portion of the Additional Funds, and (c) an entity
unrelated to Sofinov provides all the Additional Funds (i.e., Sofinov provides
none of the Additional Funds) by acquiring an interest in a New Affiliate, then
the royalty fee payable by PHS to HBT, relating to the New Use only, shall be
increased from two percent (2%) to four and one-half (4 1/2%), provided,
however, that such increased royalty fee payable by PHS to HBT shall in no
event exceed the royalty received by PHS from the New Affiliate.
7.3 Notwithstanding anything herein provided to the
contrary, PHS shall not be obligated to pay any royalties to HBT under paragraph
7.1 unless and until it has received the required royalty payment from the
sublicensee in question.
7.4 PAYMENT FOR LICENSE
As part of the consideration to acquire this exclusive License
and the use of the Other Assets, PHS shall pay to HBT One Million Dollars
($1,000,000) payable as follows:
(1) Two Hundred Fifty Thousand Dollars ($250,000)
concurrent with the execution of the PHS Operating Agreement by all Members;
(2) Seven Hundred Fifty Thousand Dollars ($750,000) upon
the earliest to occur of:
a. (i) The aggregate sales of UOB-TM- Systems made by
PGS amount to Twenty Two Million Dollars
($22,000,000) and
(ii) In any one fiscal year, PGS has net profits of
$3,500,000 using generally accepted accounting
principles; or
b. At such time as a strategic third party in one
or a series of transactions is or becomes a
Member in PGS and his or its cash contributions
taken together with the cash contributions of
the existing members (other than HBT and the
Sofinov Affiliate)
7
amount to $2,500,000, in exchange for an
aggregate membership percentage interest in PGS
of no more than ten percent (10%).
7.5 As used herein, the term "New Affiliate" means and
refers to each new entity created to exploit a new use for the UOB-TM-
Technology.
8. STATEMENT AND PAYMENTS
8.1 Within thirty (30) days after the end of each
calendar quarter during the term of this License Agreement, PHS shall advise HBT
in writing (hereinafter "Royalty Statement") of the revenues upon which the
royalty is based, including the names, addresses and telephone numbers of each
such purchaser and the amount sold to each purchaser, and shall pay the royalty
due based on such revenues, less credits, returns and allowances during the
reporting period.
8.2 Upon reasonable, advance written request by HBT to
PHS, HBT shall be permitted to audit those books and records of PHS that are
relevant to the information provided in the Royalty Statement. Such audit shall
be conducted during normal business hours at the location PHS regularly
maintains its books and records. (HBT shall not be permitted to conduct more
than two audits during each calendar year.) If it is determined that PHS made
any mistake in its Royalty Statement, which mistake resulted in an underpayment
to HBT, then PHS shall immediately pay HBT the additional amount owed; or, if
PHS overpaid HBT, HBT shall immediately refund such overpayment. HBT shall pay
all of the costs of its audits, unless it is determined that PHS underpaid the
amount due to HBT by an amount in excess of the greater of (a) ten percent (10%)
of the amount then due or (b) Ten Thousand Dollars ($10,000), in which event PHS
shall immediately reimburse HBT for all of HBT's reasonable and necessary costs
in connection with the audit. Any Royalty Statement which is not challenged
within two (2) years after its delivery shall be conclusively deemed to be final
and binding.
8.3 In the event payment is not made timely, and there is
no dispute as to the amount and after a fifteen (15) days' notice to cure it is
still not paid, HBT may commence legal action to collect the same. Any payment
or judgment thereafter shall bear interest at ten percent (10%) per annum from
due date as further provided by paragraph 16.7 herein.
9. OBLIGATION TO OBSERVE TRADEMARK REQUIREMENTS
All products manufactured by PHS, PGS, or any New Affiliate
involving the UOB-TM- or in any manner under the Licensed UOB-TM- Patents must
clearly bear the trademark UOB-TM- and any copyright notice or interim mark of
HBT.
10. RETENTION OF RECORDS
PHS agrees that at all times during the term of this
Agreement, it shall keep accurate books of account and other records that shall
contain all details relating to the
8
manufacture and sale of products made using the Licensed UOB-TM- Patents, and
including all the information required for the Royalty Statement to accompany
such royalty payment as described in Article 8 above. PHS shall keep these
books of account and other records carefully preserved available for
inspection by HBT for a period of at least four (4) years.
11. WITHHOLDING OF ROYALTIES
PHS may withhold from the royalty payments required to be
remitted to HBT the proper amount of income tax applicable thereto as
required by any Government to be withheld at the time of payment of the
royalty, and other monies actually owed by HBT to PHS. Upon payment of such
tax, PHS shall provide HBT with a tax receipt which documents the payment
thereof.
12. PATENT WARRANTY; INFRINGEMENTS
12.1 HBT represents and warrants that it has no
knowledge, and has no reason to believe, as of the date of execution of this
License Agreement (a) that there exist any patent rights held by others that
would be infringed by the making, using and selling of U0B-TM- Systems or use
of the Licensed U0B-TM- Patents or the U0B-TM- Technology, (b) that there
exists any prior art that is more pertinent to the patentability for the
UOB-TM- Technology than the references cited by the U.S. Patent and Trademark
Office in connection with prosecution and/or issue of the patents listed in
Appendix A, and (c) that there are no third party claims against HBT, its
affiliates or other licensees, for infringement or misappropriation of any of
the know-how, inventions, improvements, patent rights or other intellectual
property or trade secrets which constitutes or is part of the Licensed
UOB-TM- Patents or the UOB-TM-Technology.
12.2 If a claim is made or proceedings are commenced
against PHS or any of its sublicensees, or any customer or user of PHS or any
sublicensee, for the alleged infringement of patent rights allegedly owned by
others by reason of any products which are based upon the Licensed UOB-TM-
Patents or the UOB-TM- Technology, PHS shall advise HBT promptly, and having
been so advised, or HBT becoming otherwise aware of such claim or proceeding,
HBT shall defend, indemnify and hold PHS and its sublicensees harmless
therefrom. In such event, HBT shall pay for and provide a defense against any
such claims by utilizing counsel which is acceptable to PHS and who is
experienced in such matters. If PHS fails to promptly notify HBT of the
existence of a claim as to which HBT is obligated to indemnify, defend and
hold harmless, such lack of prompt notification shall not invalidate HBT's
obligations hereunder, other than to the extent HBT has been damaged by such
failure.
12.3 HBT and PHS shall be obligated to notify each
other promptly of any infringements of the Licensed U0B-TM- Patents or other
rights in the UOB-TM- Technology. In the event that any such infringement
occurs at a commercial level and affects, or is likely to affect, the
profitability of PHS or any sublicensee, HBT agrees that it will vigorously
pursue any and all available steps to end the infringement, including the
institution of legal proceedings, if appropriate, at its sole expense.
However, PHS and any affected sublicensee shall assist to the extent of their
ability to provide witnesses and documents and any other information without
cost to HBT.
9
12.4 In the event that (a) HBT lacks the necessary
funds to meet any of its obligations set forth in paragraphs 12.2 and 12.3
and (b) PHS has such funds available, PHS will advance such reasonable amount
of money (the "Advanced Funds") to HBT as will cause HBT to have the
necessary funds to meet such obligation(s). PHS shall then have the right to
repay to itself the Advanced Funds out of royalties due and payable by it to
HBT, as well as out of net profits which would otherwise have been
distributed to HBT as a member of PHS, until it shall have been fully repaid.
If HBT nonetheless fails to carry out any of its obligations set forth in
paragraphs 12.2 and 12.3, PHS may suspend royalty payments to HBT under this
License Agreement while the infringement continues, and PHS shall have the
right, but not the obligation to take steps, including legal action in HBT's
name, to end the infringement.
13. BREACH, ARBITRATION, INJUNCTIVE RELIEF
13.1 CURE PERIOD. If either party (hereinafter
"Claiming Party") believes that the other party (hereinafter "Breaching
Party") has breached all or any of its obligations under the License
Agreement, then, subject to paragraph 13.3 below, before the Claiming Party
may take any action (including the institution of arbitration proceedings) in
connection with the alleged breach, the parties agree that:
(a) The Claiming Party must advise the
Breaching Party, in writing, of the precise nature of the alleged breach, the
provision(s) of the License Agreement which the Claiming Party alleges have
been breached and the period (hereinafter "Cure Period") of time that the
Breaching Party has in which to cure the alleged breach, which period of time
may not be less than thirty (30) days;
(b) During the Cure Period, the Breaching
Party may attempt to cure the alleged breach. The Cure Period will be
automatically extended for up to an additional ninety (90) days if (1) the
Breaching Party begins to cure the alleged breach during the Cure Period, (2)
the Breaching Party acts diligently to complete the cure and (3) the alleged
breach is of a type that cannot reasonably be cured within the term of the
initial Cure Period;
(c) If, following the expiration of the Cure
Period (extended, if applicable) the Claiming Party still believes the
Breaching Party is in breach of any of its obligations under the License
Agreement, then the parties shall, during the next succeeding thirty (30) day
period (hereinafter "Negotiation Period") attempt to negotiate a resolution
of their differences;
(d) If the parties are unable to resolve
their differences during the Negotiation Period, then the parties shall
invoke the arbitration provisions set forth hereinbelow.
13.2 ARBITRATION. Any controversy or claim, whether
based on contract, tort, statute, indemnity, or other legal theory, arising
out of or related to this License Agreement, or any subsequent agreement
between the parties or any breach thereof shall be settled by arbitration
before a retired Judge or Justice chosen by the parties through the Judicial
10
Arbitration and Mediation Service ("JAMS") of Los Angeles County. The parties
agree that JAMS will provide a list of five available Judges or Justices from
which the parties will choose a single Judge or Justice to arbitrate the
dispute. If the parties cannot agree on a single Judge or Justice, each party
will have the right to reject or strike two (2) Judges or Justices from the
list of five. The arbitrator will then be chosen from the remaining Judge(s)
or Justice(s) by blind draw supervised by JAMS. In rendering his or her award
the retired Judge or Justice ("Arbitrator") shall have no authority or
jurisdiction to modify or change any provision of this License Agreement or
to award punitive damages. The Arbitrator shall have the authority to
determine the arbitrability of any dispute between the parties and shall also
have the authority to establish procedural rules to govern the arbitration of
any dispute between the parties. Any judgment upon the award rendered by the
Arbitrator shall be final and binding and may be entered in any court having
jurisdiction thereof.
It is agreed that prompt handling and disposition of any
dispute is important to the parties and the Arbitrator is hereby instructed
to assume adequate managerial initiative and control over discovery and other
aspects of the arbitration proceeding, to schedule prompt and expedited
discovery to be taken by either party, to manage and control discovery and
provide for substantially continuous work, whereby expediting the proceeding
as much as he or she deems reasonable, but in all events to try to effect a
final award within 180 days of filing, and within 20 days of the close of
evidence.
13.3 INJUNCTIVE RELIEF. Notwithstanding paragraphs
13.1 and 13.2 above, a Claiming Party may at any time seek appropriate
injunctive relief (including for, but not limited to, the purpose of seeking
or obtaining interim injunctive relief in order to preserve the status quo
pending conclusion of an arbitration proceeding pursuant to paragraph 13.2)
without following the procedures in paragraphs 13.1 and 13.2 above if (1) it
reasonably believes that there is insufficient time to follow these
procedures and (2) its interests will be substantially at risk if it is
unable to obtain immediate injunctive relief, provided, however, that the
Claiming Party shall not seek to stop the day-to-day operations of the
Breaching Party which are carried out in the ordinary course of business. If
appropriate, the Claiming Party will promptly proceed to commence an
arbitration proceeding in accordance with paragraph 13.2.
14. TRADENAME AND TRADEMARK
14.1 HBT hereby grants to PHS the right and license to
use the Tradename and Trademark " UOB-TM- in connection with the use and
exploitation of the licensed UOB-TM- Patents and the UOBT-TM- Technology and
on and in connection with the manufacture, advertising, distribution and sale
of UOB-TM- Systems. The Trademark shall at all times be used in the same form
as registered in the US Patent and Trademark Office. Advertising using the
Tradename or Trademark shall be in good taste and similar in quality to the
advertising activities in which PHS uses its own tradename and trademarks.
14.2 Use of the Tradename and Trademark by PHS and its
sublicensees is limited to the Licensed UOB-TM- Patents, the UOB-TM-
Technology and UOB-TM- Systems, unless otherwise approved in writing by HBT.
11
14.3 PHS agrees that all goodwill generated by use of a
Trademark or Tradename hereunder shall inure to the benefit of HBT.
15. TERMINATION OF AGREEMENT
The parties acknowledge that the License granted hereunder
is irrevocable. However, in the event it is determined that all or a portion
of the License is, nonetheless, revocable under certain circumstances, then
in no event shall the License granted hereunder be terminated, nor shall any
party attempt or purport to terminate it before there is a final and binding
adjudication by a court of competent jurisdiction or the Arbitrator pursuant
to paragraph 13.1 (if applicable) and 13.2 that the License granted hereunder
is terminated.
16. MISCELLANEOUS
16.1 INTEGRATION. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the transaction
contemplated hereby. This Agreement supersedes all prior agreements,
arrangements and understandings related to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made
by any of the parties hereto not embodied in this Agreement or in the
documents referred to herein, and no party shall be bound by, or liable for,
any alleged representation, promise, inducement or statements of intention
not set forth or referred to herein.
16.2 GOVERNING LAW JURISDICTION AND VENUE. This
Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of California.
16.3 BINDING EFFECT. All of the terms, covenants,
representations, warranties and conditions herein shall be binding upon, and
inure to the benefit of, and be enforceable by, the parties hereto, and their
respective successors, assignees and delegates, including, but not limited
to, successor corporations.
16.4 WAIVER. This Agreement may not be amended,
modified, superseded or cancelled, nor may any of the terms, covenants,
representations, warranties or conditions hereof be waived, except by a
written instrument executed by the party against whom such amendment,
modification, supersedure, cancellation or waiver is charged. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or of any breach of any term, covenant,
representation, or warranty contained herein, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any
such condition or breach or waiver of any other condition or of any breach of
any other term, covenant, representation or warranty.
16.5 CONSTRUCTION. The captions and headings contained
herein are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this Agreement. All references in this Agreement
to a "person" mean and refer to natural persons, partnerships, corporations,
trusts, associations, governmental agencies and any other
12
entity of any kind whatsoever. Notwithstanding any rule or maxim of
construction to the contrary, any ambiguity or uncertainty in this Agreement
shall not be construed against either party based upon authorship of any of
the provisions hereof.
16.6 COUNTERPARTS AND FACSIMILE SIGNATURES. This
Agreement may be executed by facsimile signature and executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
16.7 ATTORNEYS' FEES. In the event that any party shall
bring an action in connection with the performance, breach or interpretation
of this Agreement, or in any action related to the transaction contemplated
hereby, the prevailing party in any such action, as may be determined by the
court or other tribunal (such as the Arbitrator) having jurisdiction, shall
be entitled to recover from the losing party in such action, also as
determined by the court or other tribunal having jurisdiction, all actual
costs and expenses of such litigation, including attorneys' fees, court
costs, costs of investigation, accounting, and other costs reasonably related
to such litigation, in such amount as may be determined in the discretion of
the court or other tribunal having jurisdiction of such action.
16.8 SEVERABILITY. In the event that any provision
hereof is determined to be illegal or unenforceable, such determination shall
not affect the validity or enforceability of the remaining provisions hereof,
all of which shall remain in full force and effect.
16.9 FURTHER DOCUMENTS. The parties each hereby
covenant and agree that, from time to time, after the date hereof, at the
reasonable request of any party, and without further consideration, they will
execute and deliver such other documents and take such other action as may be
reasonably required to carry out in all respects the transactions
contemplated and intended by this Agreement.
16.10 NOTICES. All notices, requests, demands and other
communications required or permitted to be given under this Agreement shall
be in writing and shall be conclusively deemed to have been duly given (1)
when hand delivered to the other party; or (2) when received when sent by
facsimile at the address and number set forth below (provided, however, that
notices given by facsimile shall not be effective unless either (a) a
duplicate copy of such facsimile notice is promptly given by depositing same
in a post office with first-class postage prepaid and addressed to the
parties as set forth below, or (b) the receiving party delivers a written
confirmation of receipt for such notice either by facsimile or any other
method permitted under this paragraph 16.10; additionally, any notice given
by facsimile shall be deemed received on the next business day if such notice
is received after 5:00 p.m. (recipient's time) or on a nonbusiness day; or
(3) five (5) business days after the same have been deposited in a post
office with first-class or certified mail, return receipt requested, postage
prepaid and addressed to the parties as set forth below; or (4) the next
business day after the same have been deposited with a national overnight or
next business day delivery service reasonably approved by the parties
(Federal Express, DHL WorldWide Express and US Express Mail being deemed
approved by the parties), postage prepaid,
13
addressed to the parties as set forth below, provided that the sending party
receives a confirmation of delivery from the delivery service provider.
PHS: Phoenix Hydrogen Systems, LLC
3925 East Vernon Street
Long Beach, California 90815
Attention: CEO
Telephone: (310) 597-2442
Fax: (310) 597-8780
With a copy to: Sofinov Societe Financiere d'Innovation Inc.
1981, avenue McGill College
Montreal (Quebec)
H3A 3C7
Attention: President
Telephone: (514) 847-2613
Fax: (514) 847-2628
HBT: Hydrogen Burner Technology, Inc.
3925 East Vernon Street,
Long Beach, California 90815
Attention: President
Telephone: (310) 597-2442
Fax: (310) 597-8780
16.11 GENDER AND TENSE. As used in this Agreement, the
masculine, feminine and neuter gender, and the singular or plural number,
shall each be deemed to include the other or others whenever the context so
indicates.
16.12 TIME. Time is of the essence in this Agreement.
16.13 EXHIBITS. Any exhibit or appendix referred to in
this Agreement shall be attached to this Agreement and be incorporated into
this Agreement by the reference to same.
16.14 PARTIES IN INTEREST. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the parties to
it and their respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third persons to any party to this Agreement, nor shall any provision give
any third persons a right of subrogation or action over or against any party
to this Agreement.
16.15 DATE AND DELIVERY OF AGREEMENT. Notwithstanding
anything to the contrary contained in this Agreement, the parties intend that
this Agreement shall be deemed effective, executed and delivered for all
purposes under this Agreement, and for the
14
calculation of any statutory time periods based on the date an agreement
between parties is effective, executed, and/or delivered, as of the date set
forth on the first page of this Agreement.
16.16 ASSIGNMENT. HBT shall not, voluntarily or by
operation of law, assign, hypothecate, give, transfer, mortgage, sublet,
license or otherwise transfer or encumber all or any part of its rights,
duties or other interest in this Agreement other than its royalties or the
proceeds thereof (collectively "Transfer"), without the prior written consent
of PHS. Any attempt to make a Transfer in violation of this provision shall
be a material default under this Agreement, and any Transfer in violation of
this provision shall be null and void.
16.17 COUNTING OF DAYS. If a party is required to
complete the performance of an obligation under this Agreement by a date
certain and such date is a Saturday, Sunday, religious holiday or Federal
holiday (collectively, a "Nonbusiness Day"), then the date for the completion
of such performance will be the next succeeding day that is not a Nonbusiness
Day.
16.18 CUMULATIVE OF REMEDIES. No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies at law or in equity, subject to the
provisions of paragraphs 13.2 and 13.3.
16.19 EXECUTION OF AGREEMENT. Each party has been
represented by counsel in the negotiation and execution of this Agreement.
This Agreement was executed voluntarily without any duress or undue influence
on the part of, or on behalf of, the parties hereto. The parties acknowledge
that they have read and understood this Agreement and its legal effect. Each
party acknowledges that it has had a reasonable opportunity to obtain
independent legal counsel for advice and representation in connection with
this Agreement. Each party further acknowledges that it is not relying on,
and it is not for the purposes of, the negotiation, execution, and delivery
of this Agreement, a client of the legal counsel employed by the other party
to this Agreement.
15
IN WITNESS HEREOF, this Agreement is executed in duplicate by the
respective, duly authorized officers of the parties as of the day and year
first above written.
HYDROGEN BURNER TECHNOLOGY, INC.
"HBT"
Attest: By:
--------------------------------------------
Name (Printed):
-------------------------
Title:
----------------------------------
PHOENIX HYDROGEN SYSTEMS, LLC
"PHS"
Attest: By:
--------------------------------------------
Name (Printed):
-------------------------
Title:
----------------------------------
16
APPENDIX A
U.S. Patent No. 5,207,185 - dated May 4, 1993
U.S. Patent No. 5,299,536 - dated April 5, 1994
U.S. Patent No. 5,441,546 - dated August 15, 1995
U.S. Patent No. 5,437,123 - dated August 1, 1995
U.S. Patent No. 5,529,484 - dated June 25, 1996
U.S. Patent No. 5,546,701 - dated August 20, 1996
A patent application was filed June 6, 1996 and is presently
pending.
Two additional patents are in the process of preparation for
filing and should be filed before the end of 1996.
EXHIBIT B
SUB-LICENSE AGREEMENT
This Sub-license Agreement is entered into between Phoenix
Hydrogen Systems LLC (hereinafter "PHS" and Phoenix Gas Systems, LLC
hereinafter "PGS") this 7th day of August, 1996.
Hydrogen Burner Technology, Inc. (hereinafter "HBT") and
PGS entered into a license agreement on March 28, 1996 (the "Original PGS
License"), pursuant to which HBT granted to PGS a world-wide exclusive
license to make, use and sell the UOB-TM- Technology with respect to a
specific field of use described therein and herein.
HBT entered into a license agreement with PHS as of the
date hereof (the "PHS License") pursuant to which HBT has granted to PHS, in
perpetuity (but in the event this is not permitted then for the longest
period permitted by law) an exclusive irrevocable worldwide license to make,
use, offer for sale, sell, sub-license and otherwise exploit the Licensed
UOB-TM- Patents, the UOB-TM- Technology, the Trade Names and Trademarks (all
as defined herein and in the PHS License) for all uses.
HBT has assigned the Original PGS License to PHS. The
parties hereto desire to restate and amend the terms and conditions of the
original PGS License in this Sub-license Agreement.
NOW THEREFORE in consideration of the above recitals and
each and all of the terms and provisions hereinafter contained it is agreed
as follows:
1. DEFINITIONS
The following words and phrases will have the meanings set
forth below, unless the context requires a different meaning:
1.1 "UOB-TM- Technology" shall mean all inventions,
technology and information presently known or hereafter developed or acquired
by or licensed to HBT relating to the UOB-TM-, including, but not limited to,
the UOB-TM- Reactor, Water Vaporization System, Water and/or Gas Shift
Reactor, Air and Fuel Injectors, Control System Software, all technology
where hydrogen is used as a fuel for fuel cell systems and combustion
systems, or where hydrogen is used as a feed stock, and any other fields of
use (whether known or unknown) for the UOB-TM- Technology, and all know-how,
trade secrets, computer programs, designs, drawings, plans, specifications,
goodwill, and marketing, sales, and other information of HBT relating to the
UOB-TM-, limited only by the terms and provisions of the license heretofore
granted to PGS, as such license is amended as of the date hereof and
converted into a sublicense between PHS and PGS as to a limited field of use.
1.2 "Licensed UOB-TM- Patents" shall mean all patents
relating to the UOB-TM- Technology and including all U.S. patents issued and
issuing from any pending application or from a continuation, continuation in
part, or divisional application which is based, in whole or in part on an
application for one or more of such U.S. patents; all reissues of the foregoing
patents, all foreign counterpart patents which are based, in whole or in part,
on, any of the foregoing applications for U.S. patent; and any other future
patent rights that may be included herein under the provisions of this License
Agreement.
1.3 "UOB-TM- System" shall mean the UOB-TM- together with
all ancillary components, or devices, which are especially made or especially
adapted for the construction of systems and which are used along with or are
attached to the UOB-TM- and covered by the License to PHS. The cost of each such
ancillary component or device shall be added to the price of the UOB-TM- to form
the price of a "UOB-TM- System" which will bear the trademark UOB-TM- , which
trademark shall be placed on all equipment components and devices sold by PHS
and/or by any sub-licensee. All patented devices and such ancillary components
and/or devices bearing the trademark UOB-TM- will result in a UOB-TM- System
which will be the basis upon which the total royalty owed to HBT will be
computed.
1.4 "Net Selling Price" shall mean invoiced selling
price, f.o.b. PHS' or its sublicensee's facility, after deduction of all regular
and customary trade and quantity discounts, freight allowances, and cash
discounts, but before deduction of agent's commissions.
1.5 "Tradenames" and "Trademarks" shall mean the name and
mark UOB-TM-, and any other names or marks now or later adopted, used or
acquired by HBT that refer or relate to the UOB-TM- Technology.
2. EXCLUSIVE SUB-LICENSE
2.1 PHS HEREBY GRANTS TO PGS (sometimes hereafter
referred as "Sublicensee") a world-wide exclusive sub-license to make, use,
market and sell and otherwise exploit, in perpetuity (but in the event such term
is not permitted, then for the longest period permitted by law), the UOB-TM-
Technology, and the Tradenames and Trademarks (collectively the "Licensed
Property"), provided, however, that this Sub-License is limited to the "Field of
Use" defined in paragraphs 3 and 4 hereof.
2.2 PHS' OBLIGATION TO ASSIST SUB-LICENSEE
PHS agrees, during the 24 months from the date of this
Agreement upon reasonable request by Sub-licensee, that it will request HBT to
cooperate fully to assist Sublicensee, free of charge, in the testing,
engineering and manufacturing of UOB-TM- Systems and to consult with and
provide technical assistance and problem solving for UOB-TM- Systems to enable
Sub-licensee to make, have made, use or sell UOB-TM- Systems in the Field of Use
described in paragraph 3 below, and to exercise its rights under the Sub-License
granted hereunder. To accomplish such assistance, after the first 24 months, PHS
shall request HBT
2
to provide free of charge fifty (50) man/days per calendar year, not including
travel time. In each instance, after said first 24 months, (a) Sub-licensee
shall reimburse HBT directly for the reasonable travel and living expenses
incurred by HBT's personnel in providing such assistance away from HBT's
principal office/plant, and (b) PHS shall request HBT, upon request of
Sub-licensee to provide assistance in excess of fifty (50) man-days, in which
event Sub-licensee shall pay HBT directly in accordance with paragraph 2.3.
2.3 Sub-licensee shall reimburse HBT directly for
training and assistance in excess of the man-days specified in Section 2.2
above at HBT's standard rate at the time of the request. All such reimbursements
shall be made in U.S. Dollars within thirty (30) days of receipt by Sub-licensee
of HBT's invoice. A man-day shall be an eight hour day. The rate for overtime
and work over weekends and holidays shall be negotiated as it is required.
2.4 RELATIONSHIP OF THE PARTIES
The relationship of the parties shall be that of independent
contractors, and nothing contained herein shall be deemed to create any
relationship of agency, joint venture, partnership or employment. Neither party
hereto shall have any power to commit, contract for or otherwise obligate the
other to any third person.
2.5 SUB-LICENSEE'S RIGHT TO SUB-LICENSE
PGS shall have the right to grant sublicenses only after
having obtained the prior written approval of PHS in relation to the identity of
the proposed sub-licensee and the terms and conditions of the proposed
sub-license.
3. FIELD OF USE
The Sub-License granted pursuant to this Agreement
shall be limited and confined to a "Field of Use" identified as all conventional
hydrogen markets, including but not limited to chemical, refinery, metals, food,
hydrogen peroxide, glass, electronics, and all other uses where Hydrogen is not
used as a fuel but instead as a feed stock to industrial products and processes.
4. LIMITATION OF LICENSE
The Sub-license granted pursuant to this Agreement
does not include uses in other fields of use which directly use Hydrogen as a
fuel, including fuel cells and internal combustion engines (both transportation
and stationary), turbines, boilers, burners, process heaters and other uses not
within Sub-licensee's "Field of Use". If future technology provides an overlap
in the Field of Use, PHS will include the same in the sub-license.
3
5. FURTHER CONCEPTIONS, INVENTION, IMPROVEMENTS
5.1 In the event PGS or any of its employees or
sublicensees should conceive of any inventions or improvements to the
UOB-TM-, whether or not PGS or any of its employees, licensees or sublicensees
shall apply for a patent thereon and whether or not said inventions or
improvements shall have been reduced to practice, PHS and PGS agree that any
rights therein or patents resulting therefrom shall belong to HBT and any
patents resulting therefrom shall be assigned to HBT and, insofar as such
rights and/or patents are used or applied in connection with the UOB-TM-
Technology within the Field of Use, shall be a part of the Sub-License to PGS
without additional cost to PGS.
5.2 PGS shall promptly advise PHS and HBT in writing of
any such improvements or inventions referred to Section 5.1 and disclose to PHS
and HBT all information needed by PHS and HBT to utilize such improvements or
inventions and shall assist in any way possible to allow PHS and HBT to use such
improvements or inventions to the fullest extent possible.
5.3 In the event PHS shall receive from HBT a sub-license
of a license or right received by HBT from any third party to make, use or sell
any invention, know-how or trade secret which is usable with the UOB-TM-
Technology or by PGS to improve its performance or to broaden its usefulness
within the Field of Use, PHS shall disclose the same to PGS unless prohibited by
said third party. In the event PHS is obligated to pay any royalty for the use
or sub-license of any such sub-license or right, PGS shall pay to PHS that
amount plus 15% of that amount for administrative costs in order to use the
same. No payments are due by PGS, however, in the event that such use or
sub-license of such third party license permits PGS to increase the selling
price of its product in such amount that the increase in the royalty to PHS
under this Sub-License is sufficient to satisfy the obligation of PHS to HBT
plus 15% of said obligation, then no further royalty shall be due by PGS to PHS.
In the event the increase is not sufficient for that purpose, then PGS shall pay
to PHS such further sum as shall be necessary to offset that obligation to HBT
plus 15% of such obligation.
6. CONFIDENTIALITY
6.1 Each party hereto agrees (i) to use all reasonable
precautions to maintain confidential, Information (as hereinafter defined) it
has received from the other party and to limit disclosure of Information to
those of its employees or agents as is reasonably required to carry out the
purposes of this Agreement; and (ii) not to disclose, nor permit its agents and
employees to disclose, Information to any third party, except as required to
effect sales of products.
The term "Information" shall mean any and all
information relating to the Licensed Property , as well as the operations of the
parties hereto and of any sublicensee, but shall not include:
4
(i) Information which, at the time of
disclosure, by the disclosing party has been previously published and is in the
public domain;
(ii) Information which, at the time of disclosure
by the disclosing party, has been previously published and is in the public
domain;
(iii) Information which subsequently comes into
the public domain without breach of an obligation hereunder by the
non-disclosing party; or
(iv) Information which comes into the
non-disclosing party's possession from a third party having no obligation to the
disclosing party to keep such information confidential.
Notwithstanding the exceptions enumerated in the
above subparagraphs (i)-(iv), no documents, prints, drawings, computer discs,
parts, equipment or other materials or property of a party hereto provided to
the other hereunder or generated by either party from information provided to it
hereunder shall be disclosed to third parties without the prior written
permission of the disclosing party.
6.2 Each party shall cause all Information to be
conspicuously labeled to indicate the secret and confidential nature thereof,
and to take all reasonable steps to prevent unauthorized access, reproduction or
use thereof.
7. OBLIGATION TO PAY
7.1 The obligation to pay royalties to PHS shall continue
until the expiration of the last patent included within the Licensed UOB-TM-
Patents, provided, however, that the following shall apply:
7.2 The royalty as described in section 8.1 below, shall
end upon termination of the last of the nine (9) U.S. patents (together with the
international patents associated therewith) and patents pending (or being
prepared for filing) set forth in Appendix A on the date hereof. If, following
such termination, there are any Licensed UOB-TM- Patents in force, then the
royalty shall be equitably adjusted to reflect the value of the remaining patent
rights, but in no event shall the adjusted royalty rates be in excess of the
original royalty rates.
7.3 If any of the Licensed UOB-TM- Patents are
invalidated or the benefits conferred by the License no longer justify the
royalties then in effect, PHS agrees that the royalties shall be equitably
adjusted downward.
7.4 No payment shall be effective until received by the
party to whom it is owed.
5
8. PAYMENT OF ROYALTIES
8.1 During the term of this Sub-License, PGS shall pay to
PHS in U.S. Dollars royalties equivalent to five percent (5%) of the Net Selling
Price of any UOB-TM- System sold by PGS which is covered in whole or in part by
one or more claims of valid Licensed UOB-TM- Patents where manufactured or sold
by PGS.
8.2 As part of the consideration to acquire this
exclusive Sub-License, PGS shall pay to PHS One Million Dollars ($1,000,000.00),
provided, however, that this amount shall be payable only out of 25% of PGS'
annual net profits commencing December 31, 1996 until the amount shall have been
paid in full. Said amounts shall be paid within thirty (30) days after receipt
of financial statements.
9. REPORT AND PAYMENT OF STATEMENTS
9.1 Within fifteen (15) days after the end of each
calendar quarter during the term of this Sub-License, PGS shall advise PHS in
writing (hereinafter "Royalty Statement") of the revenues upon which the royalty
is based, including the names, addresses and telephone numbers of each such
purchaser and the amount sold to each purchaser, and shall pay the royalty due
based on such revenues, less credits, returns and allowances during such
reporting period. If not paid timely, the amount due shall bear interest at ten
percent (10%) per annum from date due until paid.
9.2 Upon reasonable, advance written request by PHS to
PGS, PHS shall be permitted to audit those books and records of PGS that are
relevant to the information provided in the Royalty Statement. Such inspection
shall be conducted during normal business hours at the location PGS regularly
maintains its books and records. (PHS shall not be permitted to conduct more
than two audits during each calendar year.) It is determined that PGS made any
mistake in its Royalty Statement, which mistake resulted in an underpayment to
PHS, then PGS shall immediately pay PHS the additional amount owed; or, if PGS
overpaid PHS, PHS shall immediately refund such overpayment. PHS shall pay all
of the costs of its audits, unless it is determined that PGS underpaid the
amount due to PHS by an amount in excess of the greater of (a) ten percent (10%)
of the amount then due or (b) Ten Thousand Dollars ($10,000), in which event PGS
shall immediately reimburse PHS for all of PHS' reasonable and necessary costs
in connection with the inspection. Any Royalty Statement which is not challenged
within two (2) years after its delivery shall be conclusively deemed to be final
and binding.
9.3 In the event payment is not made timely, and there is
no dispute as to the amount and after a fifteen (15) days' notice to cure it is
still not paid, PHS may commence legal action to collect the same. Any payment
or judgment thereafter shall bear interest at ten percent (10%) per annum from
due date as further provided by paragraph 17.7 herein.
6
10. OBLIGATION TO MARKET AND SELL
PGS will use all due diligence to aggressively market and sell
the UOB-TM- throughout the world.
11. OBLIGATION TO OBSERVE TRADEMARK REQUIREMENTS
All products manufactured by PGS involving the
UOB-TM- or in any manner under the Licensed UOB-TM- Patents must clearly bear
the trademark UOB-TM- and any copyright or interim mark of HBT.
12. RETENTION OF RECORDS
PGS agrees that at all times during the term of this
Agreement, it shall keep accurate books of account and other records that shall
contain all details relating to the manufacture and sale of products made using
Licensed UOB-TM- Patents and including all the information required for the
Royalty Statement to accompany such royalty payment as described in Section 9
above. PGS shall keep these books of account and other records carefully
preserved available for inspection by the PHS for a period of at least four (4)
years.
13. WITHHOLDING OF ROYALTIES WHERE REQUIRED
PGS may withhold from the royalty payments required
to be remitted to PHS the proper amount of income tax applicable thereto as
required by any Government to be withheld at the time of payment of the royalty,
and other monies actually owed by PHS to PGS. Upon payment of such tax, PGS
shall provide PHS with a tax receipt which documents the payment thereof.
14. PATENT WARRANTY
14.1 PHS represents and warrants that it has no knowledge,
and has no reason to believe, as of the date of execution of this Sub-License
Agreement (a) of the existence of any patent rights held by others that would be
infringed by the making, using and selling of UOB-TM- Systems or use of the
Licensed UOB-TM- Patents or the UOB-TM- Technology and (b) that there are no
third party claims against HBT or PHS, HBT's affiliates or other licensees, for
infringement or misappropriation of any of the know-how, inventions,
improvements, patent rights or other intellectual property or trade secrets
which constitutes or is part of the Licensed UOB-TM- Patents or the UOB-TM-
Technology.
14.2 If a claim is made or proceedings are commenced
against PGS, or any customer or user of PGS, for the alleged infringement of
patent rights allegedly owned by others by reason of any products which are
based upon the Licensed UOB-TM- Patents or the UOB-TM- Technology, PGS shall
advise PHS and HBT promptly, and having been so advised, or PHS or HBT becoming
otherwise aware of such claim or proceeding, PHS shall cause HBT to defend,
indemnify and hold PGS harmless therefrom. In such event, PHS will cause HBT to
7
pay for and provide a defense against any such claims. If PGS fails to promptly
notify PHS of the existence of a claim as to which PHS is obligated to cause
HBT to indemnify, defend and hold harmless, such lack of proper notification
shall not invalidate PHS' obligations hereunder, other than to the extent PHS
and/or HBT have been damaged by such failure.
14.3 PGS and PHS shall be obligated to notify each other
promptly of any infringements of the Licensed UOB-TM- Patents or other rights
in the UOB-TM- Technology. In the event that any such infringement occurs at a
commercial level and affects, or is likely to affect, the profitability of PGS,
PHS undertakes that it will cause HBT to vigorously pursue any and all available
steps to end the infringement, including, if appropriate, the institution of
legal proceedings at its sole expense. However, PGS shall assist to the extent
of its ability to provide witnesses and documents and any other information
without cost to PHS and HBT.
14.4 If for any reason HBT fails to indemnify, defend and
hold harmless as referred to in paragraph 14.2 hereof, or to pursue steps to end
an infringement as referred to in paragraph 14.3 hereof, PGS shall notify PHS of
its dissatisfaction, upon which if PHS agrees, PHS may take the appropriate
steps, including legal action in HBT's name, to end the infringement. In the
event that PHS fails to take such steps within ninety (90) days from the date of
PGS' notice, PGS may suspend royalty payments to PHS until such time as PHS
takes such steps.
15. TRADENAME AND TRADEMARK
15.1 PHS hereby grants to PGS by sub-license the right to
use the Tradename and Trademark UOB-TM- on and in connection with the
manufacture, advertising, distribution and sale of UOB-TM- Systems. The
Trademark shall at all times be used in the same form as registered in the U.S.
Patent and Trademark Office. Advertising using the Tradename or Trademark shall
be in good taste and similar in quality to the advertising activities in which
PGS uses its own tradename and trademarks.
15.2 Use of the Tradename and Trademark by Sub-licensee is
limited to the Licensed UOB-TM- Patents, the UOB-TM- Technology and UOB-TM-
Systems within the Field of Use, unless otherwise approved in writing by PHS.
15.3 PGS and PHS agree that all goodwill generated by use
of a Trademark or Tradename hereunder shall inure to the benefit of HBT as the
owner thereof.
16. BREACH, ARBITRATION, INJUNCTIVE RELIEF
16.1 CURE, PERIOD. If either party (hereinafter "Claiming
Party") believes that the other party (hereinafter "Breaching Party") has
breached all or any of its obligations under the License Agreement, then,
subject to paragraph 13.3 below, before the Claiming Party may take any action
(including the institution of arbitration proceedings) in connection with the
alleged breach, the parties agree that:
8
(a) The Claiming Party must advise the Breaching
Party, in writing, of the precise nature of the alleged breach, the provision(s)
of the Sub-License Agreement which the Claiming Party alleges have been breached
and the period (hereinafter "Cure Period") of time that the Breaching Party has
in which to cure the alleged breach, which period of time may not be less than
thirty (30) days;
(b) During the Cure Period, the Breaching Party
may attempt to cure the alleged breach. The Cure Period will be automatically
extended for up to an additional ninety (90) days if (1) the Breaching Party
begins to cure the alleged breach during the Cure Period, (2) the Breaching
Party acts diligently to complete the cure and (3) the alleged breach is of a
type that cannot reasonably be cured within the term of the initial Cure Period;
(c) If, following the expiration of the Cure
Period (extended, if applicable) the Claiming Party still believes the Breaching
Party is in breach of any of its obligations under the Sub-License Agreement,
then the parties shall, during the next succeeding thirty (30) day period
(hereinafter "Negotiation Period") attempt to negotiate a resolution of their
differences;
(d) If the parties are unable to resolve their
differences during the Negotiation Period, then the parties shall invoke the
arbitration provisions set forth hereinbelow.
16.2 ARBITRATION. Except as provided in paragraph 9.3, any
controversy or claim, whether based on contract, tort, statute, indemnity, or
other legal theory, arising out of or related to this Sub-License Agreement, or
any subsequent agreement between the parties or any breach thereof shall be
settled by arbitration before a retired Judge or Justice chosen by the parties
through the judicial Arbitration and Mediation Service ("JAMS") of Los Angeles
County. The parties agree that JAMS will provide a list of five available Judges
or Justices from which the parties will choose a single Judge or Justice to
arbitrate the dispute. If the parties cannot agree on a single Judge or Justice,
each party will have the right to reject or strike two (2) Judges or Justices
from the list of five. The arbitrator will then be chosen from the remaining
Judge(s) or Justice(s) by blind draw supervised by JAMS. In rendering his or her
award the retired Judge or Justice ("Arbitrator") shall have no authority or
jurisdiction to modify or change any provision of this Sub-License Agreement or
to award punitive damages. The Arbitrator shall have the authority to determine
the arbitrability of any dispute between the parties and shall also have the
authority to establish procedural rules to govern the arbitration of any dispute
between the parties. Any judgment upon the award rendered by the Arbitrator
shall be final and binding and may be entered in any court having jurisdiction
thereof.
It is agreed that prompt handling and disposition of any
dispute is important to the parties and the Arbitrator is hereby instructed to
assume adequate managerial initiative and control over discovery and other
aspects of the arbitration proceeding, to schedule prompt and expedited
discovery to be taken by either party, to manage and control discovery and
provide for substantially continuous work, whereby expediting the proceeding
9
as much as he or she deems reasonable, but in all events to try to effect a
final award within 180 days of filing, and within 20 days of the close of
evidence.
16.3 INJUNCTIVE RELIEF. Notwithstanding paragraphs 16.1
and 16.2 above, a Claiming Party may at any time seek appropriate injunctive
relief (including for, but not limited to, the purpose of seeking or obtaining
interim injunctive relief in order to preserve the status quo pending conclusion
of an arbitration proceeding pursuant to paragraph 16.2 herein) without
following the procedures in paragraphs 16.1 and 16.2 above if (1) it reasonably
believes that there is insufficient time to follow these procedures and (2) its
interests will be substantially at risk if it is unable to obtain immediate
injunctive relief, provided, however, that the Claiming Party shall not seek to
stop the day-to-day operations of the Breaching Party which are carried out in
the ordinary course of business. If appropriate, the Claiming Party will
promptly proceed to commence an arbitration proceeding in accordance with
paragraph 16.2.
17. MISCELLANEOUS
17.1 INTEGRATION. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the transaction
contemplated hereby. This Agreement supersedes all prior agreements,
arrangements and understandings related to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made by
any of the parties hereto not embodied in this Agreement or in the documents
referred to herein, and no party shall be bound by, or liable for, any alleged
representation, promise, inducement or statements of intention not set forth or
referred to herein.
17.2 GOVERNING LAW JURISDICTION AND VENUE. This Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of California.
17.3 BINDING EFFECT. All of the terms, covenants,
representations, warranties and conditions herein shall be binding upon, and
inure to the benefit of, and be enforceable by, the parties hereto, and their
respective successors, assignees and delegates, including, but not limited to,
successor corporations.
17.4 WAIVER. This Agreement may not be amended, modified,
superseded or cancelled, nor may any of the terms, covenants, representations,
warranties or conditions hereof be waived, except by a written instrument
executed by the party against whom such amendment, modification, supersedure,
cancellation or waiver is charged. The failure of any party at any time or times
to require performance of any provision hereof shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of any
condition, or of any breach of any term, covenant, representation, or warranty
contained herein, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
waiver of any other condition or of any breach of any other term, covenant,
representation or warranty.
10
17.5 CONSTRUCTION. The captions and headings contained
herein are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this Agreement. All references in this Agreement to
a "person" mean and refer to natural persons, partnerships, corporations,
trusts, associations, governmental agencies and any other entity of any kind
whatsoever. Notwithstanding any rule or maxim of construction to the contrary,
any ambiguity or Uncertainty in this Agreement shall not be construed against
either party based upon authorship of any of the provisions hereof.
17.6 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement
may be executed by facsimile signature and executed in two or more counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
17.7 ATTORNEYS' FEES. In the event that any party shall
bring an action in connection with the performance, breach or interpretation of
this Agreement, or in any action related to the transaction contemplated hereby,
the prevailing party in any such action, as may be determined by the court or
other tribunal (such as the Arbitrator) having jurisdiction, shall be entitled
to recover from the losing party in such action, also as determined by the court
or other tribunal having jurisdiction, all actual costs and expenses of such
litigation, including attorneys' fees, court costs, costs of investigation,
accounting, and other costs reasonably related to such litigation, in such
amount as may be determined in the discretion of the court or other tribunal
having jurisdiction of such action.
17.8 SEVERABILITY. In the event that any provision hereof
is determined to be illegal or unenforceable, such determination shall not
affect the validity or enforceability of the remaining provisions hereof, all of
which shall remain in full force and effect.
17.9 FURTHER DOCUMENTS. The parties each hereby covenant
and agree that, from time to time, after the date hereof, at the reasonable
request of any party, and without further consideration, they will execute and
deliver such other documents and take such other action as may be reasonably
required to carry out in all respects the transactions contemplated and intended
by this Agreement.
17.10 NOTICES. All notices, requests, demands and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be conclusively deemed to have been duly given (1) when
hand delivered to the other party; or (2) when received when sent by facsimile
at the address and number set forth below (provided, however, that notices given
by facsimile shall not be effective unless either (a) a duplicate copy of such
facsimile notice is promptly given by depositing same in a post office with
first-class postage prepaid and addressed to the parties as set forth below, or
(b) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted under this paragraph
16.10; additionally, any notice given by facsimile shall be deemed received on
the next business day if such notice is received after 5:00 p.m. (recipient's
time) or on a nonbusiness day; or (3) five (5) business days after the same have
been deposited in a post office with first-class or certified mail, return
receipt
11
requested, postage prepaid and addressed to the parties as set forth below;
or (4) the next business day after the same have been deposited with a
national overnight or next business day delivery service reasonably approved
by the parties (Federal Express, DHL WorldWide Express and US Express Mail
being deemed approved by the parties), postage prepaid, addressed to the
parties as set forth below, provided that the sending party receives a
confirmation of delivery from the delivery service provider.
PHS: Phoenix Hydrogen Systems LLC
3925 East Vernon Street
Long Beach, California 90815
Attention: President
Telephone: (310) 597-2442
Fax: (310) 597-8780
PGS: Phoenix Gas Systems LLC
3925 East Vernon Street
Long Beach, California 90815
Attention: President
Telephone: (310) 597-2442
Fax: (310) 597-8780
With a copy to: Sofinov Societe Financiere d'Innovation Inc.
1981, avenue McGill College
Montreal (Quebec)
H3A 3C7
Attention: President
Telephone: (514) 847-2613
Fax: (514) 847-2628
and to
HBT: Hydrogen Burner Technology, Inc.
3925 East Vernon Street
Long Beach, California 90815
Attention: President
Telephone: (310) 597-2442
Fax: (310) 597-8780
12
17.11 GENDER AND TENSE. As used in this Agreement, the
masculine, feminine and neuter gender, and the singular or plural number,
shall each be deemed to include the other or others whenever the context so
indicates.
17.12 TIME. Time is of the essence in this Agreement.
17.13 EXHIBITS. Any exhibit or appendix referred to in
this Agreement shall be attached to this Agreement and be incorporated into
this Agreement by the reference to same.
17.14 PARTIES IN INTEREST. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the parties to
it and their respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third persons to any party to this Agreement, nor shall any provision give
any third persons a right of subrogation or action over or against any party
to this Agreement.
17.15 DATE AND DELIVERY OF AGREEMENT. Notwithstanding
anything to the contrary contained in this Agreement, the parties intend that
this Agreement shall be deemed effective, executed and delivered for all
purposes under this Agreement, and for the calculation of any statutory time
periods based on the date and agreement between parties is effective,
executed, and/or delivered, as of the date set forth on the first page of
this Agreement.
17.16 ASSIGNMENT. Neither party shall voluntarily or by
operation of law, assign, hypothecate, give, transfer, mortgage, sublet,
license or otherwise transfer or encumber all or any part of its rights,
duties or other interest in this Agreement other than as to PHS the royalties
or the proceeds thereof (collectively "Transfer"), without the prior written
consent of the other party. Any attempt to make a Transfer in violation of
this provision shall be a material default under this Agreement, and any
Transfer in violation of this provision shall be null and void.
17.17 COUNTING OF DAYS. If a party is required to
complete the performance of an obligation under this Agreement by a date
certain and such date is a Saturday, Sunday, religious holiday or Federal
holiday (collectively, a "Nonbusiness Day"), then the date for the completion
of such performance will be the next succeeding day that is not a Nonbusiness
Day.
17.18 CUMULATIVE OF REMEDIES. No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies at law or in equity, subject to the
provisions of paragraphs 13.2 and 13.3.
17.19 EXECUTION OF AGREEMENT. Each party has been
represented by counsel in the negotiation and execution of this Agreement.
This Agreement was executed voluntarily without any duress or undue influence
on the part of, or on behalf of, the parties hereto. The parties acknowledge
that they have read and understood this Agreement and its legal effect.
13
Each party acknowledges that it has had a reasonable opportunity to obtain
independent legal counsel for advice and representation in connection with
this Agreement. Each party further acknowledges that it is not relying on,
and it is not for the purposes of, the negotiation, execution, and delivery
of this Agreement, a client of the legal counsel employed by the other party
to this Agreement.
IN WITNESS HEREOF, this Agreement is executed in duplicate by the
respective, duly authorized officers of the parties as of the day and year
first above written.
PHOENIX HYDROGEN SYSTEMS LLC
"PHS"
Attest: By:
--------------------------------------------
Name (Printed):
-------------------------
Title:
----------------------------------
PHOENIX GAS SYSTEMS LLC
"PGS"
Attest: By:
--------------------------------------------
Name (Printed):
-------------------------
Title:
----------------------------------
14
APPENDIX A
U.S. Patent No. 5,207,185 - dated May 4, 1993
U.S. Patent No. 5,299,536 - dated April 5, 1994
U.S. Patent No. 5,441,546 - dated August 15, 1995
U.S. Patent No. 5,437,123 - dated August 1, 1995
U.S. Patent No. 5,529,484 - dated June 25, 1996
U.S. Patent No. 5,546,701 - dated August 20, 1996
A patent application was filed June 6, 1996 and is presently
pending.
Two additional patents are in the process of preparation for
filing and should be filed before the end of 1996.
15
EXHIBIT E
FIRST REFUSAL AGREEMENT
This First Refusal Agreement ("First Refusal Agreement") is entered
into by, between and among Sofinov Societe financiere d'innovation Inc.
("Sofinov"), David M. Moard ("Shareholder"), and Hydrogen Burner Technology,
Inc., a California corporation ("HBT"), as of the 7th day of August, 1996,
with reference to the following facts:
A. Shareholder is one of the shareholders of HBT.
B. Sofinov, through one or more affiliates (collectively, the
"Sofinov Affiliate"), has agreed to contribute the total sum of Four Million
Dollars ($4,000,000) (the "Sofinov Contribution") to the capital of Phoenix
Gas Systems, LLC, a California Limited Liability Company ("PGS") and Phoenix
Hydrogen Systems, LLC, a California Limited Liability Company ("PHS").
C. As partial consideration for the Sofinov Contribution,
Shareholder and each of the other shareholders of HBT have agreed to grant to
Sofinov a right of first refusal with respect to the HBT shares owned by
them, and HBT has agreed that it will not issue new shares without first
offering such new shares to Sofinov, and all newly issued shares shall be
subject to the restrictions set forth in this First Refusal Agreement.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE PARTIES
AGREE AS FOLLOWS:
1. ENFORCEMENT PROVISIONS.
1.1 RESTRICTION ON TRANSFERS BY SHAREHOLDER. Except as
provided herein, Shareholder shall not sell, give, will, transfer, devise,
assign, hypothecate, encumber, or otherwise deal in, with or without
consideration, any of its HBT stock (referred to as the "HBT Stock"), whether
now owned or later acquired, or any part of it. This provision does not apply
to transfers described in clauses (a), (b), (c), (d) or (e) of this Section
1.1, if (i) the party to whom the HBT Stock is so transferred executes a
counterpart to this First Refusal Agreement evidencing his agreement to be
bound hereby and (2) following the transfer David Moard and/or Leonard
Greiner hold(s) no less than 50.1% of the voting control of HBT. Under the
circumstances described in the above sentence, Shareholder may transfer the
HBT Stock as follows: (a) a disposition of HBT stock without consideration;
(b) a disposition of HBT Stock as a direct result of an Involuntary Transfer,
as defined in Section 2.2 below; (c) a transfer to HBT and/or any person who
is an existing shareholder of HBT as of the date of this First Refusal
Agreement, all of whom are identified on Exhibit "A" attached hereto; (d) a
transfer to a person or entity listed on Exhibit "A" as an approved
transferee; and (e) a transfer to an employee of HBT in connection with a
general compensation plan, so long as
the aggregate of all transfers and any new issuances by HBT to the employee
group does not exceed 5% of the outstanding shares of stock of HBT.
1.2 LEGEND ON SHARES. Each certificate representing
HBT Stock now owned or hereafter issued by HBT to Shareholder and each
certificate representing newly issued shares of stock in HBT issued by HBT to
any new or existing shareholder of HBT shall have the following legend
clearly imprinted on it:
"The transfer, sale, assignment, hypothecation, encumbrance, or
alienation of the shares represented by this Certificate is
restricted by a First Refusal Agreement dated August __, 1996."
1.3 STAMPING OF CERTIFICATES. Shareholder agrees that,
on the "Closing Date" (as described below), he will present his Certificate
to the Secretary of HBT to have the legend referenced in the foregoing
Section 1.2 imprinted thereon.
1.4 RESTRICTIONS ON AFTER-ACQUIRED SHARES. The terms
of this First Refusal Agreement shall apply to all HBT Stock owned by
Shareholder as of the Closing Date, to any HBT Stock transferred in any
manner by Shareholder, and to any additional HBT Stock that HBT may issue to
Shareholder as a recapitalization, reorganization, stock dividend, stock
split, or reverse stock split, or that Shareholder purchases or otherwise
acquires. HBT agrees that any new shares issued by HBT shall be subject to
the legend conditions set forth in Section 1.2 of this First Refusal
Agreement, and that any new shareholder of HBT will be required, as a
condition of acquiring shares of HBT, to execute a counterpart to this First
Refusal Agreement evidencing his agreement to be bound hereunder.
2. CERTAIN DEFINITION5.
2.1 VOLUNTARY TRANSFER. A "Voluntary Transfer" is the
sale, transfer, assignment, hypothecation, encumbrance or other disposal,
with consideration, by Shareholder not under compulsion to do so, of all or
any part of his HBT Stock. A transfer of the HBT Stock to a revocable inter
vivos trust shall not be deemed a Voluntary Transfer within the terms of this
First Refusal Agreement; provided, however, that the distribution of that
stock to beneficiary(ies) other than the Shareholder-grantor of such a trust
shall be considered a Voluntary Transfer.
2.2 INVOLUNTARY TRANSFER. The following shall be
deemed to be "Involuntary Transfers":
(a) The beginning by Shareholder of any
voluntary proceeding under the bankruptcy laws of the United States or any
foreign, state, local or municipal laws for the benefit of creditors;
2
(b) The failure of Shareholder to terminate
any involuntary proceedings under said bankruptcy laws or state, local or
municipal laws within thirty (30) days of the commencement thereof;
(c) A general assignment for the benefit of
creditors of Shareholder;
(d) The appointment of a receiver,
conservator, trustee in bankruptcy, trustee in a dispute, or the like, to
take charge of any of the HBT Stock owned by Shareholder, which appointment
is not discharged within thirty (30) days;
(e) Any attachment or other lien imposed by a
creditor of Shareholder on any of his HBT Stock, or other assets, not
released within thirty (30) days of imposition;
(f) Any transfer of HBT Stock by Shareholder
to his spouse, whether pursuant to (i) a decree of divorce or dissolution,
(ii) a property settlement agreement, (iii) a separation agreement or (iv)
other marital transfer or division of property, including, but not limited
to, a transfer of all or a part of the HBT Stock in recognition of his
spouse's interest therein or in the event of any other Involuntary Transfer
of all or a part of the HBT Stock;
(g) Any transfer of HBT Stock following, and
as a result of, the death of Shareholder.
3. SOFINOV'S OPTION TO PURCHASE THE HBT STOCK IN THE EVENT OF
A VOLUNTARY TRANSFER OR NEW ISSUANCE.
3.1 SHAREHOLDER'S OFFER. Prior to making a Voluntary
Transfer of all or any portion of his HBT Stock, Shareholder shall first
deliver a written offer (the "Offer") to Sofinov, in accordance with this
Section 3, for all of the HBT Stock that he desires to so transfer. The
effective date of the Offer shall be the date of its delivery to Sofinov.
3.2 ACCEPTANCE OF OFFER. Sofinov shall have thirty
(30) days following the date of an Offer to purchase all or any portion of
the HBT Stock which is offered. To accept the Offer, Sofinov must deliver
notice of its acceptance to Shareholder within the thirty (30) day period.
The purchase price and terms for a Voluntary Transfer shall be the purchase
price and terms as offered by Shareholder, prorated, if applicable, to
reflect a purchase of less than all of the HBT Stock offered. Shareholder
shall be required to represent and warrant that (i) he owns the HBT Stock,
free and clear of any liens or encumbrances, and (ii) he is lawfully
empowered to transfer the HBT Stock without the necessity of acquiring the
consent or approval of any other person. If Sofinov fails to timely accept or
reject an Offer, it shall be deemed that Sofinov has rejected it.
3
3.3 NON-ACCEPTANCE OF OFFER AND RIGHT OF FIRST REFUSAL.
(a) If Sofinov does not timely accept the
Offer, Shareholder has the right to offer to sell all of his offered HBT
Stock to any other person upon such terms and conditions as he deems
advisable, but shall not sell them without giving Sofinov a right of first
refusal (the "Right of First Refusal") to purchase the offered HBT Stock at
the price and upon the terms of a bona fide written offer by such other
person.
(b) To implement this Right of First Refusal,
Shareholder shall deliver to Sofinov, within ten (10) days after Shareholder
receives a bona fide written offer from a third party to purchase
Shareholder's HBT Stock, which offer Shareholder intends to accept, written
notice of the name and address of the proposed purchaser and the terms and
conditions of the proposed purchase. This notice shall be deemed an offer to
Sofinov. Sofinov shall have thirty (30) days after its receipt of the notice
to accept that offer by giving written notice to Shareholder.
(c) So long as HBT is an S-corporation for
Federal income tax purposes, Sofinov's ability to exercise the Right of First
Refusal may be restricted as set forth in this paragraph 3.3(c) if and only
if the proposed purchaser referred to in paragraph 3.3(b) above is a BONA
FIDE purchaser and is a person who would be a shareholder of HBT without
adversely affecting HBT's status as a "small business corporation" for
purposes of Code Section 1361(b) or any other or successor provision
governing HBT's status as an S-corporation for Federal income tax purposes.
If the condition set forth in the preceding sentence is satisfied, then
Sofinov may exercise its Right of First Refusal only if, concurrently with
such exercise, it offers to indemnify each of the active Shareholders (not
including the selling Shareholder) for any adverse Federal or state income
tax consequences suffered by such Shareholder as a consequence of HBT's loss
of its status as an S-corporation.
(d) If neither Sofinov nor a Sofinov
Affiliate purchases all of Shareholder's HBT Stock that was the subject of
the notice, Shareholder may dispose of the remaining HBT Stock that was the
subject of the notice to the transferee identified in the notice, but at no
lower price and on no more favorable terms than those specified in the
notice, and provided further that the sale or transfer to the prospective
transferee is completed within ninety (90) days of the date of the notice.
After such 90-day period, if Shareholder's HBT Stock has not been sold to the
prospective transferee, the HBT Stock shall once again be subject to the
restrictions of this First Refusal Agreement.
(e) Each transferee or any subsequent
transferee of the HBT Stock shall (i) hold the HBT Stock subject to all of
the provisions of this First Refusal Agreement; (ii) make no further transfer
except as provided in this First Refusal Agreement; and (iii) concurrently
with the transfer of the HBT Stock, execute this First Refusal Agreement.
4
3.4 RIGHT OF FIRST REFUSAL UPON ISSUANCE BY HBT.
(a) Except as provided herein, HBT shall not
grant, award or issue any new or additional shares of common or preferred
stock of HBT, or grant, award or issue any rights, warrants or options for
the purchase of common or preferred stock of HBT or stock or other securities
convertible into common or preferred stock of HBT, including but not limited
to rights or options to purchase such convertible stock or other securities
(collectively, "Newly Issued Stock"), without first offering to sell the
Newly Issued Stock to Sofinov as set forth in Section 3.4(b) below. This
provision does not apply to the issuance of Newly Issued Stock to an employee
of HBT in connection with a general compensation plan, so long as the
aggregate of all transfers by HBT shareholders and any new issuances by HBT
to the employee group does not exceed 5% of the outstanding shares, and the
employee executes a counterpart of this First Refusal Agreement evidencing
his agreement to be bound hereunder ("Permitted Employee").
(b) HBT shall deliver to Sofinov, within ten
(10) days after HBT receives a bona fide written offer from a third party who
is not a Permitted Employee to purchase Newly Issued Stock, which offer HBT
intends to accept, written notice of the name and address of the proposed
purchaser and the terms and conditions of the proposed purchase. This notice
shall be deemed an offer to Sofinov. Sofinov shall have thirty (30) days
after its receipt of the notice to accept that offer by giving written notice
to the Secretary of HBT. If Sofinov does not purchase all of the Newly Issued
Stock, HBT may sell the Newly Issued Stock, subject to the limitations
described in clauses (c) and (d) of Section 3.3 of this Agreement. HBT shall
amend its Articles of Incorporation to set forth the provisions of this
Section 3.4 on or prior to the Closing Date, as defined in Section 4.
4. FIRST REFUSAL AGREEMENT CONTINGENT UPON SOFINOV
CONTRIBUTION. This First Refusal Agreement is expressly contingent upon, and
shall not be effective unless and until, the Sofinov Affiliate makes the
Sofinov Contribution (the date it is made being referred to as the "Closing
Date").
5. MISCELLANEOUS PROVISIONS.
5.1 INTEGRATION. This First Refusal Agreement
constitutes the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby, and supersedes all prior
agreements, arrangements and understandings related to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by any of the parties hereto not embodied in this First Refusal
Agreement or in the documents referred to herein, and no party shall be bound
by, or liable for, any alleged representation, promise, inducement or
statements of intention not Set forth or referred to herein.
5.2 GOVERNING LAW, JURISDICTION AND VENUE. This First
Refusal Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California.
5
5.3 BINDING EFFECT. All of the terms, covenants,
representations, warranties and conditions herein shall be binding upon, and
inure to the benefit of, and be enforceable by, the parties hereto, and their
respective successors, assignees and delegatees, including, but not limited
to, successor corporations.
5.4 WAIVER. This First Refusal Agreement may not be
amended, modified, superseded or cancelled, nor may any of the terms,
covenants, representations, warranties or conditions hereof be waived, except
by a written instrument executed by the party against whom such amendment,
modification, supersedure, cancellation or waiver is charged. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or of any breach of any term, covenant,
representation, or warranty contained herein, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any
such condition or breach or waiver of any other condition or of any breach of
any other term, covenant, representation or warranty.
5.5 CONSTRUCTION. The captions and headings contained
herein are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this First Refusal Agreement. All references in
this First Refusal Agreement to a "person" mean and refer to natural persons,
partnerships, corporations, trusts, associations, governmental agencies and
any other entity of any kind whatsoever. Notwithstanding any rule or maxim of
construction to the contrary, any ambiguity or uncertainty in this First
Refusal Agreement shall not be construed against either party based upon
authorship of any of the provisions hereof.
5.6 COUNTERPARTS AND FACSIMILE SIGNATURES. This First
Refusal Agreement may be executed by facsimile signature and executed in two
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
5.7 ATTORNEYS' FEES. In the event that any party shall
bring an action in connection with the performance, breach or interpretation
of this First Refusal Agreement, or in any action related to the transaction
contemplated hereby, the prevailing party in such action, as may be
determined by the court or other tribunal having jurisdiction, shall be
entitled to recover from the losing party in such action, also as determined
by the court or other tribunal having jurisdiction, all actual costs and
expenses of such litigation, including attorneys' fees, court costs, costs of
investigation, accounting, and other costs reasonably related to such
litigation, in such amount as may be determined in the discretion of the
court or other tribunal having jurisdiction of such action.
5.8 SEVERABILITY. In the event that any provision
hereof is determined to be illegal or unenforceable, such determination shall
not affect the validity or enforceability of the remaining provisions hereof,
all of which shall remain in full force and effect.
6
5.9 FURTHER DOCUMENTS. The parties each hereby
covenant and agree that, from time to time, after the date hereof, at the
reasonable request of any party, and without further consideration, they will
execute and deliver such other documents and take such other action as may be
reasonably required to carry out in all respects the transactions
contemplated and intended by this First Refusal Agreement.
5.10 NOTICES. All notices, requests, demands and other
communications required or permitted to be given under this First Refusal
Agreement shall be in writing and shall be conclusively deemed to have been
duty given (1) when hand delivered to the other party; or (2) when received
when sent by facsimile at the address and number set forth below (provided,
however, that notices given by facsimile shall not be effective unless either
(a) a duplicate copy of such facsimile notice is promptly given by depositing
same with first-class postage prepaid and addressed to the parties as set
forth below, or (b) the receiving party delivers a written confirmation of
receipt for such notice either by facsimile or any other method permitted
under this subparagraph; additionally, any notice given by telex or facsimile
shall be deemed received on the next business day if such notice is received
after 5:00 p.m. (recipient's time) or on a nonbusiness day; or (3) five (5)
business days after the same have been deposited in a post office with
first-class or certified mail, return receipt requested, postage prepaid and
addressed to the parties as set forth below; or (4) the next business day
after same have been deposited with a national overnight or next business day
delivery service reasonably approved by the parties (Federal Express, DHL
WorldWide Express and US Express Mail being deemed approved by the parties),
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party
receives a confirmation of delivery from the delivery service provider.
TO SOFINOV: Societe financiere d'innovation Inc.
1981, avenue McGill College
Montreal (Quebec)
H3A 3C7
Attention: President
Telephone: (514) 847-2613
Telecopy: (514) 847-2628
TO SHAREHOLDER:
---------------------------------------
Address:
-------------------------------
---------------------------------------
Attention:
-----------------------------
Telephone: ( )
----------------------------
Telecopy: ( )
----------------------------
7
TO HBT: Hydrogen Burner Technology, Inc.
3925 Vernon Street
Long Beach, California 90815
Attention: President
Telephone: (310) 597-2442
Telecopy: (310) 597-8780
5.11 GENDER AND TENSE. As used in this First Refusal
Agreement, the masculine, feminine and neuter gender, and the singular or
plural number, shall each be deemed to include the other or others whenever
the context so indicates.
5.12 TIME. Time is of the essence in this First Refusal
Agreement.
5.13 PARTIES IN INTEREST. Nothing in this First Refusal
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this First Refusal Agreement on any persons
other than the parties to it and their respective successors and assigns, nor
is anything in this First Refusal Agreement intended to relieve or discharge
the obligation or liability of any third persons to any party to this First
Refusal Agreement, nor shall any provision give any third persons a right of
subrogation or action over or against any party to this First Refusal
Agreement.
5.14 DATE AND DELIVERY OF FIRST REFUSAL AGREEMENT.
Notwithstanding anything to the contrary contained in this First Refusal
Agreement, the parties intend that this First Refusal Agreement shall be
deemed effective, executed and delivered for all purposes under this First
Refusal Agreement, and for the calculation of any statutory time periods
based on the date an agreement between parties is effective, executed, and/or
delivered, as of the date set forth on the first page of this First Refusal
Agreement.
5.15 ASSIGNMENT. Neither party shall, voluntarily or
by operation of law assign, hypothecate, give, transfer, mortgage, sublet,
license or otherwise transfer or encumber all or any part of its rights,
duties or other interest in this First Refusal Agreement, or the proceeds
thereof (collectively, Assignment), without the other party's prior written
consent, which consent shall not be unreasonably withheld or delayed. Any
attempt to make an Assignment in violation of this provision shall be a
material default under this First Refusal Agreement, and any Assignment in
violation of this provision shall be null and void.
5.16 COUNTING OF DAYS. If a party is required to
complete the performance of an obligation under this First Refusal Agreement
by a date certain and such date is a Saturday, Sunday or Federal bank holiday
(collectively, a "Nonbusiness Day"), then the date for the completion of such
performance will be the next succeeding day that is not a Nonbusiness Day.
8
5.17 CUMULATION OF REMEDIES. No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies at law or in equity.
5.18 EXECUTION OF FIRST REFUSAL AGREEMENT. This First
Refusal Agreement was executed voluntarily without any duress or undue
influence on the part of, or on behalf of, the parties hereto. The parties
acknowledge that they have read and understood this First Refusal Agreement
and its legal effect. Each party acknowledges that it has had a reasonable
opportunity to obtain independent legal counsel for advice and representation
in connection with this First Refusal Agreement. Each party further
acknowledges that it is not relying on, and it is not for the purposes of,
the negotiation, execution, and delivery of this First Refusal Agreement, a
client of the legal counsel employed by any of the other parties to this
First Refusal Agreement,
IN WITNESS HEREOF, this Agreement is executed in duplicate by the
respective, duly authorized officers of the parties as of the day and year
first above written.
"SOFINOV"
SOFINOV SOCIETE FINANCIERE
D'INNOVATION INC.,
---------------------------------------------
Attest: By:
------------------------------------------
Its:
-----------------------------------------
"SHAREHOLDER"
Attest: David M. Moard
---------------------------------------------
---------------------------------------------
"HBT"
HYDROGEN BURNER TECHNOLOGY, INC.,
a California corporation
Attest: By:
------------------------------------------
Its:
-----------------------------------------
9
EXHIBIT A
FIRST REFUSAL AGREEMENT
Existing HBT shareholders (Paragraph 1.1 (c), Page 1):
David & Susan Moard
Leonard & Rosalind Greiner
Joseph & Maxine Stell
Ronald & Maryann Stell
Eric & Nancy Stell
Albert & Thelma Family Trust
D.V. & Harriet Wedeman
Thomas & Brenda McMahon
John & Linda Okerblom
Bharat & Varsha Bhatt
Approved transferees (Paragraph 1.1 (d), Page 1):
Hydrogen Burner Technology, Inc.
Larry Frost
Richard Woods
Hazen Burford