EXHIBIT 10.17
HEADS OF AGREEMENT
Between
OCEAN POWER CORPORATION
And
CIMA CAPITAL, LLC.
This Heads of Agreement ("Agreement") is entered into this 30th day of March,
2000, by and between OCEAN POWER CORPORATION, a Delaware U.S.A. corporation
("OPC"), and CIMA CAPITAL, LLC. a California Limited Liability Company,
("Territory Affiliate").
RECITALS
--------
WHEREAS, OPC has enhanced and/or integrated various existing
technologies for the purpose of modular water and power production, and is
developing new systems, sub-systems and technologies for modular water and power
production (collectively "OPC Water and Power Systems), and
WHEREAS, Territory Affiliate desires to market and sell the water and
power produced by OPC Water and Power Systems, and
WHEREAS, OPC and Territory Affiliate intend to enter into discussions
for the purpose of determining mutually agreeable terms of an Affiliation to
purchase, assemble, construct, install, own, operate and maintain OPC Water and
Power Systems in the Operating Territory and market and sell the water and power
produced therefrom, and
WHEREAS, it is contemplated that OPC will derive profits from the sale
of OPC Water and Power Systems and related services and that OPC and Territory
Partner will each derive income from the sale of water and power produced by
said systems; and
WHEREAS, OPC and Territory Affiliate desire to set forth their
intentions to negotiate the terms of the proposed Affiliation.
NOW, THEREFORE, the parties confirm the following understandings and
intentions.
1. Purpose of Affiliation
The purpose of the proposed Affiliation includes the finance, purchase,
assembly, construction, installation, integration, testing, commissioning,
operation and maintenance of OPC Water and Power Systems in Mexico (the
"Operating Territory") and the marketing and sale of water and power produced by
said systems.
2. Structure of the Affiliation
The Parties shall discuss and negotiate in good faith the terms and conditions
of a Joint Venture Effected In Part Through a Jointly Owed Entity With Exclusive
Rights in the Operating Territory (hereinafter the Affiliation) including the
structure, documentation and operation of the Affiliation. The parties shall be
1
under no obligation to enter into any definitive agreements, but if such
negotiations are successful the parties contemplate entering into several
agreements as necessary to establish and operate the Affiliation in accordance
with the Affiliate System Guidelines attached hereto as Exhibit 1.
3. Formation Procedure (Joint Venture Entity with Exclusive Territory)
(a) Immediately upon execution of this Agreement, Territory
Affiliate shall engage the services of an attorney, licensed
to practice law in the Operating Territory to prepare an
initial draft of the governance documents for a Limited
Liability Entity (Venture Entity) in which OPC will have a
significant minority ownership position. The specific form of
the Venture Entity and its governance documents shall be
chosen and drafted so as to give maximum effect to the
Critical Principles contained in the Affiliate System
Guidelines.
(b) Immediately upon execution of this agreement, OPC shall
prepare initial drafts of a Joint Venture Agreement, License
and Terms of Trade and Terms of Service Agreements in
accordance with the Affiliate System Guidelines.
(c) Immediately upon execution of this agreement OPC and Territory
Affiliate shall each designate an individual responsible for
developing the initial business plan for the Venture Entity
which two individuals will work cooperatively to develop a
business plan in accordance with the Affiliate System
Guidelines.
(d) Within fifteen (15) days after completion and circulation of
the initial draft documents referred to in sub-parts (a)
through (c) above and in no event later than sixty (60) days
after execution of this Agreement, the Parties shall meet and
confer with respect to the progress being made in the
formation procedures, difficulties or issues impeding
completion of the Affiliation and shall confirm in writing
their continued desire to negotiate and establish the
Affiliation in accordance with the understandings expressed in
this Heads of Agreement or any amended understandings as shall
be mutually agreed upon.
4. Pre-formation Costs
Each party shall bear its own costs and expenses in connection with the
negotiation of the definitive agreement pertaining to the formation of the
Affiliation, including attorney's and accountant's fees, except that all
reasonable costs and expenses incurred in connection with the formal licensing
of the Venture with the appropriate governmental authorities in the Operating
Territory shall be reimbursed by the Venture Entity to the party which has
incurred any such cost or expense.
5. Confidentiality
The contents of this Heads of Agreement and the transactions described herein
and all information exchanged or disclosed by or between the Parties during the
negotiations and related due diligence investigations shall not be disclosed by
either party or its affiliates without the written consent of the other party,
2
except that (i) information required to be disclosed by any legal process or by
the laws or regulations in the U.S.A. and/or the Operating Territory may be
disclosed as so required, and (ii) information may be disclosed to directors,
officers, employees, consultants, financial advisors, accountants, or lawyers of
or for the Parties as necessary in the negotiation and formation of the
Affiliation and for no other purpose.
6. Governing Law
The Parties agree that this Heads of Agreement shall be governed by the laws of
California.
7. Effective Date
This Heads of Agreement shall be effective as of the date of its execution and
delivery by the parties hereto.
8. Counterparts
This Heads of Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original, but such counterparts shall together constitute but one and the
same document.
9. Dispute Resolution
In the event of any dispute between the parties relating to the Heads of
Agreement, the matter, upon written request of either party, will be submitted
to the designated senior executives of both OPC and Territory Partner
respectively, who will promptly meet and confer in a good faith effort to
resolve such dispute or disagreement. Any decision of such executives will be
final and binding on the parties. Either party may terminate such discussions at
any time.
Ocean Power Corporation Territory Affiliate
Date: 30 March 2000 Date: 30 March 2000
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------- ---------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President ▇▇▇▇ ▇▇▇▇▇▇, CEO
3
OPC AFFILIATE SYSTEM GUIDELINES
Ocean Power Corporation
Affiliate System Guidelines
I
Purpose
Ocean Power Corporation's Mission: The mission of Ocean Power Corporation is to
become the worlds leading manufacturer of modular water and power generation
systems.
Affiliate System's Mission: The mission of the OPC Affiliate System is to become
the worlds leading provider of potable water and electric power produced by
modular water and power generation systems.
Affiliate System Integrity: OPC desires to establish and maintain an Affiliate
System (a) whose business operations are conducted in accordance with all laws
and regulations in effect in each operating territory, and (b) in a manner
consistent with internationally accepted standards of fair and equitable
business practices.
Affiliate System Efficiency: OPC desires to establish and maintain an Affiliate
System which advances and improves technology and business practices and
implements such advances and improvements throughout the Affiliate System such
that OPC and each of its Affiliates operate in accordance with best global
practices as appropriately applied within the particular legal, cultural,
economic and political framework of each Operating Territory.
Flexible Standardization: OPC recognizes the tremendous diversity of legal,
cultural, economic and political frameworks in which its Affiliate System will
operate and that the structure, documentation and operation of its Affiliations
will necessarily vary to accomodate the legal, cultural, economic and political
framework of each Operating Territory. Nonetheless and regardless of whether an
Affiliation takes the form of an exclusive co-owned venture entity, exclusive or
nonexclusive distribution or sales agreement or some other form; the structure
documentation and operation of each Affiliation must promote and implement the
OPC Mission, the Affiliate System Mission, Affiliate System Integrity and
Affiliate System Efficiency. To that end, OPC has developed these Affiliate
System Guidelines which set out the Critical Principles to be incorporated into
each Affiliation's structure, documentation and operation in such fashion and
through such devises as are most appropriate to the form of the Affiliation and
the legal, cultural, economic and political frameworks in the Operating
Territory.
II
INTELLECTUAL PROPERTY
Goals: System Efficiency demands the stimulation of advances and improvements in
technology and business practices and requires that all resulting advances and
improvements and best global practices be shared and implemented throughout the
Affiliate System. System Efficiency is best served by OPC being recognized as
the worlds leading manufacturer of modular water and power production systems so
1
that each Affiliate is able to trade on OPC's reputation while establishing
itself as a leading provider of water and power in its Operating Territory. To
accomplish these goals the following Critical Intellectual Property Principles
and such other provisions as are necessary to fully implement these Intellectual
Property goals will be firmly incorporated into the structure, documentation
and operation of each Affiliation.
Preferred Embodiment in most instances the Critical Intellectual Property
Principles will be contained in a License Agreement and/or a Terms of Trade
Agreement. However, in jurisdictions where license, franchise, agency,
distributorship, intellectual property or other regulations negatively impact
the breadth and/or enforceability of these Critical Intellectual Property
Principles when so embodied, they may be included in a Joint Venture Agreement,
an Affiliation Agreement or such other devises as mutually agreed
Critical Principle Number 1
Ownership of Know-how: A11 information and devises relating to the design,
manufacture, integration, assembly, shipping, construction; installation,
operation and maintenance of water and power producing systems and sub-systems
is and will remain the sole and exclusive property of OPC and licensed to a
Venture Entity and/or Affiliate to the extent necessary to effectuate the
Affiliation.
Critical Principle Number 2
Trademarks: All words, names, symbols, dress and devices by which OPC's products
and/or services are or can be distinguished from products and/or services- of
others will be considered OPC's Trademarks and are and will remain the sole and
exclusive property of OPC and will be licensed to a Venture Entity and/or
Affiliate to the extent necessary to allow optimum marketing benefit from the
affiliation with OPC.
Critical Principle Number 3
Grant Back: All rights to improvements, advances and derivative technologies
and/or processes created or discovered by or through an Affiliation relating to
the design, manufacture, integration, assembly, shipping, construction.
installation, operation and/or maintenance of water and power producing systems,
sub-systems or related activities and practices will be irrevocably granted back
to OPC and will be included in the Know-how in order that such advances and
improvements and best global practices can be appropriately shared and
implemented throughout the Affiliate System. OPC will consider developing a
compensation plan or policy for inventors in order to encourage the development
of improvements, advances and derivative technologies consistent with these
critical principals.
Critical Principle Number 4
Grant Forward: Any rights given in an Affiliation to utilize any OPC Know-how
will include the right to utilize any improvements, advances, and derivative
technologies and processes of said Know-how including such as are obtained by
OPC through its Grant Back rights.
2
Critical Principle Number 5
Acknowledgment and Challenge: Affiliates will acknowledge OPC's ownership of the
Know-how and Trademarks and any act by an Affiliate which challenges or contests
OPC's ownership of any Know-how and/or Trademark will be considered grounds to
terminate the Affiliation and any Affiliate operations.
Critical Principle Number 6
Approved Water and Power Production Systems: Affiliates will not be allowed to
trade in or utilize water or power production systems, sub-systems, components,
accessories, connections, designs or operating techniques other than as produced
or approved for use by OPC which approval will not be unreasonably withheld.
Critical Principle Number 7
Confidentiality and Use: All Affiliates will agree to keep all Know-how which is
disclosed to them or which otherwise comes into their its possession, strictly
confidential and to utilize said know-how only to the extent necessary to
fulfill their obligations in accordance with the terms of the Affiliation. These
confidentiality and limited use obligations will survive any termination of an
Affiliation.
III
Performance
Goals: In order to accommodate legal, cultural, economic and political
frameworks in each Operating Territory, some Affiliates will allow significant
operational authority and/or control to be exercised by the Affiliate.
Nonetheless, System Efficiency and System Integrity requires that performance
standards be maintained in order to promote the development of the OPC
Trademarks and protect the goodwill residing therein; promote appropriate
implementation of best global practices; and assure adequate continuous
dedication to market penetration and service. Additionally, System Integrity
requires that OPC retain certain oversight rights in order to prevent
inappropriate diversion of resources or activities inconsistent with generally
accepted international standards of fair and equitable business practices. To
that end the following Critical Performance Principles and such other provisions
as are necessary to fully implement these Performance goals, will be firmly
incorporated into structure, documentation and operation of each Affiliation.
Preferred Embodiment: In most instances the Critical Performance Principles will
be implemented through an Affiliation Agreement, License Agreement, Terms or
Trade and/or the governance documents of a Venture Entity. However, in
Territories where license, franchise, agency, distribution, corporate, or other
regulations prevent or impede full enforcement or expression, of these Critical
Performance Principles in that fashion, other devises will be established
through negotiation and mutual agreement.
3
Critical Principle Number 8
Market Penetration: OPC and all Affiliates will agree to minimum investment,
marketing and government relations activities, and minimum purchases and
operating volumes to be achieved and maintained. Provision will be made for loss
of exclusivity; removal and/or replacement of the Affiliate; reorganization of
any Venture Entity, termination of any applicable License(s); and/or termination
of any Affiliation and/or Affiliate operations in the event that the Affiliate
Consistently fails to achieve or maintain the agreed market penetration
requirements after being provided a grace period for curative action.
Critical Principle Number 9
Return on Capital Assets: Provision will be made to ensure that all Affiliates
act in a fashion designed to achieve the highest possible returns through the
sale of water and power consistent with reasonable business judgement, short and
long term market penetration strategies and economic and regulatory conditions
in their Operating Territory. Provision will be made for loss of exclusivity;
removal and/or replacement of the Affiliate; reorganization of any Venture
Entity; termination of any applicable License(s); and/or termination of any
Affiliation and/or Affilate operations in the event an Affiliate acts in a
fashion materially inconsistent with that objective.
Critical Principle Number 10
Solvency and Qualification: Provision will be made for removal and/or
replacement of any Affiliate; reorganization of any Venture Entities;
termination of any applicable License(s); recapitalization of any Venture
Entities; and/or termination of any Affiliation and/or Affiliate operations in
the event that a Venture Entity and/or Affiliate becomes insolvent or
disqualified from conducting any of its necessary functions in the Operating
Territory.
Critical Principle Number 11
Systems Maintenance and Operation: Provision will be made to ensure that all
Affiliates who have system operation or maintenance obligations perform said
obligations in accordance with all then current OPC maintenance and operations
documents and for appropriate remedies in the event of claims arising from
system failures or OPC non-performance.
Critical Principle Number 12
Extraterritorial Operations: Provision will be made to preclude Venture Entities
and/or Affiliates from seeking water or power sales or establishing water or
power operations outside their Operating Territory but allowing and promoting
cooperation between Affiliates and the sharing of opportunities among
Affiliates.
Critical Principle Number 13
Business Plan Approval: On an annual basis all Affiliates will prepare for OPC's
review and approval, a business plan detailing the Venture Entity and/or
Affiliates projected income and expenses, marketing, sales, construction and
maintenance activities, staffing and such other information as OPC may from
time to time reasonably require and including recourse to binding dispute
resolution devises in the event approval is not forthcoming.
Critical Principle Number 14
4
Review and Modification: Provision will be made for periodic review of the
Affiliation structure, documentation and operation and for discussion and
negotiation of modifications to the structure, documentation and operation of
the Affiliation as maybe desirable to more perfectly implement those Affiliation
Guidelines, such other Affiliation Guidelines as may be developed in the future
and to accommodate the changing needs of OPC and/or the Affiliate.
IV
Payments and Distributions
Goals: System Integrity requires that profits generated from the sale of water
and power be distributed to OPC and its Affiliates in a fair and equitable
fashion according to their mutual agreements and understandings. System
Efficiency requires that payments and distributions to OPC be available to OPC
for support of its global operations and that profits be remitted from Venture
Entities in the most advantageous fashion available in the Territory. To that
end the following Critical Payment and Distribution Principles arid such other
provisions as are necessary to fully implement these Payment and Distribution
goals will be firmly incorporated into structure, documentation and operation of
each Affiliation.
Preferred Embodiment: In most instances Critical Payment and Distribution
Principles will be incorporated into the governance documents of Venture
Entities, Terms of Trade and Terms of Service Agreements, and/or Licensing
Agreements. However, when corporate, currency, licensing, tax, customs, local
content or other regulations prevent or impede effective implementation of the
Critical Payment and Distribution Principles in such a fashion, said Critical
Principles will be effectuated other devices as agreed to by the parties.
Critical Principle Number 15
Convertibility and Repatriation: Provision should be made to ensure that, to the
greatest extent possible, payments and distributions to OPC are convertible, in
country, into one or more "G7" currencies and readily transferable out of the
Operating Territory.
Critical Principle Number 16
Distribution of Profots: Provision will be made to ensure that profits from
Affiliate operations are distributed to OPC and the Affiliate to the maximum
extent possible consistent with reasonable business judgement.
Critical Principle Number 17
Taxes: Provision will be made to allow appropriate payments and distributions to
be made to OPC by Venture Entities and/or Affiliates in a fashion, which results
advantageous tax treatment to the Venture Entities, OPC and the Affiliates
consistent with all applicable tax ▇▇▇▇▇ and treaties.
Critical Principle Number 18
Transparency, Accounting and Audits: Affiliates shall maintain books of account
in such form and fashion as is consistant with internationally accepted
accounting practices and OPC shall be given access to all such books and
underlying data on a quarterly basis to allow OPC to confirm that profits and
distributions arc properly calculated and that the Affiliate is operating in
accordance with the Affiliation's structure and documentation.
5
V
Dispute Resolution
Goals: System Efficiency demands that the legal documents utilized in the OPC
Affiliate System be interpreted in a consistent manner. System Integrity
requires that any disputes be resolved in a fair, cooperative, expedient and
enforceable fashion and that dispute resolution proceedings and the evidence,
testimony, discussions, filings and reasoned decisions arising therefrom be and
remain confidential. To that end the following Critical Dispute Resolution
Principles and such other provisions as are necessary to fully implement these
Dispute Resolution goals, will be firmly incorporated into structure,
documentation and operation of each Affiliation.
Preferred Embodiment: All agreements between OPC and its Affiliates and the
governance documents of Venture Entity will require that disputes be resolved
first through good faith negotiation and failing that, through conciliation and
binding arbitration in accordance with then current ICC rules and facilities.
All such documents will refer to model rules, laws and standard forms in common
use in international trade when ever possible and will refer to national laws
only when required. However, when arbitrability, enforceability or other
regulations impede or prevent total, complete and effective implementation of
these Critical Dispute Resolution Principles, then every effort will be made to
ensure that the Critical Principles of the OPC Affiliate System have been
incorporated into the Affiliation's structure, documentation and operation in
such a fashion the all of the Affiliate System Critical Principles are subject
to these Critical Dispute Resolution Principles.
Critical Principle Number 19
Dispute Resolution: Except with respect to specific issues as described in
Critical Principles 20 and 21 below, all disputes between OPC, Venture Entities
and/or Affiliates which can not be resolved first by good faith negotiation and
then by ICC conciliation procedures, will be resolved by a single ICC arbitrator
in accordance with the then current ICC arbitration rules and facilities. No
arbitrator will be of the same nationality as the contestants, and the
arbitration proceedings will be conducted in the English language.
Critical Principle Number 20
Disputes Concerning Sums and Quantities (Baseball Arbitration): All disputes
within Venture Entities and/or between OPC and Venture Entities and/or between
OPC and Affiliates concerning sums or quantities which are not resolved first by
good faith negotiation and then through ICC conciliation proceedings will be
submitted to a single ICC arbitrator who will conduct a baseball arbitration and
render his or her binding decision accordingly. If the dispute concerns contract
interpretation and/or other issues as well as sums and/or quantities, the
arbitration should be bifurcated, with the arbitrator first arbitrating and
rendering his or her decision with respect to the non-sums/quantities issues in
accordance with standard ICC rules and thereafter conducting the baseball
arbitration with respect to the sums and quantities issues.
6
Critical Principle Number 21
License, Operations and Affiliate Termination: Every reasonable means should be
employed to resolve operational inadequacies and disputes in a fashion which
allows OPC and its Affiliate to continue operations together in the Territory in
accordance with the Affiliate System Guidelines. However, anticipating the
possibility that this goal may not always be achievable, provisions will be
incorporated into structure, documentation and operation of all Affiliates which
allow such impasse to be declared and the Affiliate removed or replaced and OPC
allowed to continue operating in the Territory in a fashion and under such terms
as are consistent with the highest principles of equity and fairness. Disputes
in which either Party claims a right to terminate a License, a Venture Entity,
Affiliate Operations, an Affiliation or other agreement which cannot be resolved
first through good faith negotiation and then through ICC conciliation
proceedings will be submitted to a three member ICC arbitration panel. Sums or
quantities issues resulting from the termination of licenses, operations,
Venture Entities, Affiliations or other agreements will be excluded from the
baseball arbitration requirement Arbitration decisions concerning the
termination of licenses, operations or affiliations shall be appleable to a
second panel, constituted in accordance with the ICC rules which appeal parcel
shall have the power to adopted the initial decision, modify the initial
decision, or substitute its own decision but such modification or substitution
shall only be allowed in order to correct clear errors of law or clear and
convincing errors of fact.
Critical Principle Number 22
Remedies: Provision shall be made to preclude any award of punitive or exemplary
damages to any party by way of arbitration or other legal proceeding. The
Secretariat of the International Court of Arbitration of the ICC, the arbitrator
and/or the chairman of the arbitration panel shall be empowered to order
emergency interim relief in the way of injunction or similar equitable relief
which emergency interim relief may be ordered whenever appropriate including
before or during any conciliation process.
Critical Principle Number 23
Reasoned Decisions and Enforceability: All decisions, in every arbitration, will
be reasoned decisions. The Affiliations structure, documentation and operation
will be established so that, to the greatest extent possible all arbitration
decisions are final, non-appealable (except as note in CP#22) and fully
enforceable.
Critical Principle Number 24
Exit Strategies: Provision will be made for exiting or expanding the business
relationships between OPC and its Affiliate and for providing fair compensation
to OPC, its Affiliate and/or any Venture Entity in the event of a merger,
buyout, consolidation or acquisition with the intent of maximizing the return to
OPC, its Affiliate and any Venture Entity.
Date: 30 March 2000
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------- -------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, V.P. ▇▇▇▇ ▇▇▇▇▇▇, CEO
Ocean Power Corporation CIMA Capital, LLC