Exhibit 10.26
CONFIDENTIAL TREATMENT REQUESTED
[*] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
Technology Development and Transfer Agreement
between
Kawasaki Heavy Industries, Ltd.
and
Catalytica Energy Systems, Incorporated
This Agreement is made as of this 13/th/ day of December, 2000, by and between
Kawasaki Heavy Industries, Ltd. (hereinafter referred to as "KHI"), a Japanese
corporation and having its principal place of business at ▇-▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇-
▇▇▇ ▇-▇▇▇▇▇, ▇▇▇▇-▇▇, ▇▇▇▇, ▇▇▇▇▇; and Catalytica Energy Systems, Incorporated
(hereinafter referred to as "CESI"), a Delaware corporation and having its
principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
U.S.A., either or both of which shall also be hereinafter referred to as a
"Party", and together as the "Parties", respectively.
WHEREAS, CESI has developed expertise and technology of the catalytic
combustion system (hereinafter defined as "XONON Combustion System"), which
incorporates catalytic module(s) which are utilized to oxidize hydrocarbon fuels
in the XONON Combustion System for gas turbines, and CESI has reduced to
practice and commercially demonstrated expertise and technology relating to such
system and module(s) as applied to a Kawasaki model M1A-13A gas turbine at
Silicon Valley Power;
WHEREAS, KHI desires to obtain from CESI the right to use such expertise
and technology to modify and adapt the XONON Combustion System for installation
on Kawasaki gas turbines of output up to [*] nameplate rating developed and/or
to be developed by KHI, including but not limited to Kawasaki model M1A-13A gas
turbine, (hereinafter defined as "Kawasaki Gas Turbines"), and to obtain from
CESI the right to manufacture and sell Adapted Kawasaki Gas Turbines (as defined
below) based upon the expertise and technology which are reduced to practice and
demonstrated by CESI as applied to the Kawasaki model M1A-13A gas turbine at
Silicon Valley Power;
WHEREAS, the Parties wish to collaborate in the modification and
adaptation of the XONON Combustion System to the Kawasaki Gas Turbines and to
the development and commercialization of Kawasaki Gas Turbines in accordance
with terms and conditions as set forth herein;
1
NOW, THEREFORE, in consideration of these premises and of the mutual
covenants herein contained, the parties agree as follows:
1.0 DEFINITIONS
-----------
All capitalized words or phrases used throughout this Agreement shall have
the meanings as defined in this section.
1.1 "Adaptation Program" means the collaborative program, using the
Applied CESI Technology (as hereinafter defined), of application
engineering to modify, adapt and metricate the XONON Combustion
System, including the XONON Modules (as hereinafter defined) to
Kawasaki Gas Turbines.
1.2 "Adaptation Program Technology" means the Technology (as
hereinafter defined) conceived during the Adaptation Program.
1.3 "Adapted Kawasaki Gas Turbines" means Kawasaki Gas Turbines not
larger than [*] adapted and modified under the Adaptation
Program.
1.4 "Adapted M1A-13A" means Kawasaki model M1A-13A gas turbine adapted
under the Adaptation Program.
1.5 "Affiliates" mean, with respect to any Person as hereinafter
defined, any other Person which directly or indirectly controls,
is controlled by, or is under common control with, such Person. A
Person shall be regarded as in control of another Person if it
owns, or directly or indirectly controls, at least fifty percent
(50%) of the voting stock or other ownership interest of the other
Person, or if it directly or indirectly possesses the power to
direct or cause the direction of the management and policies of
the other Person by any means whatsoever.
1.6 "Applied CESI Technology" means the CESI Technology as hereinafter
defined that CESI has reduced to practice and commercially
demonstrated as applied to a Kawasaki model M1A-13A gas turbine at
Silicon Valley Power.
1.7 "Background" means, with respect to the Patents (as hereinafter
defined) and the Technical Information (as hereinafter defined)
that a Party or its Affiliates has acquired or acquires prior to
the Effective Date (as hereinafter defined) or otherwise not (i)
in connection with its work under this Agreement, or (ii) from the
other Party.
1.8 "Catalytic Combustion System" means a gas turbine combustion
system that employs a catalyst upstream of the turbine inlet which
is associated with the combustion process, and shall not include
SCR, SNCR, SCONOxTM or other catalytic devices employed in
pollution clean- up.
1.9 "CESI Technology" means the Technology relating to the XONON
Combustion System and the Xonon Module, including the Background
Technology, Applied
2
CESI Technology, and the Adaptation Program Technology which is now
or hereafter may be owned by CESI and/or possessed by CESI (but
excluding the Adaptation Program Technology developed by KHI
hereunder and jointly developed by CESI and KHI hereunder) with
rights to grant others the developmental and/or commercialization
rights set forth herein.
1.10 "Effective Date" means the date of this Agreement as first set
forth above.
1.11 "Kawasaki Gas Turbines" means Kawasaki designed and manufactured
gas turbines of output up to [*] nameplate rating, both new and
retrofit (that is, installed) developed and/or to be developed by
KHI, including but not limited to Kawasaki model M1A-13A gas
turbine.
1.12 "Patents" mean patents (including patents of importation, patents
of confirmation, patents of improvements, patents and certificates
of addition and utility models, as well as divisions, reissues,
continuations, continuations-in-part, renewals and extensions of
any of the foregoing) and provisional and regular applications
therefor, and patents which may be issued on such applications
covering inventions with respect to which the first application for
patent anywhere was filed prior to the date of any termination of
this Agreement.
1.13 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically
listed herein.
1.14 "Products" mean the XONON Module and the XONON Component.
1.15 "Technical Information" means all technical information, know-how,
trade secrets, experience, manufacturing techniques, software and
other copyrightable works, engineering and other data, drawings,
material and process specifications, whether patented or
unpatented, whether in written, printed, oral or other form,
relating to, in the case of KHI, industrial gas turbines having
ratings up to [*], and, in the case of CESI, the XONON Combustion
System and the XONON Module.
1.16 "Technology" means the Patents and the Technical Information.
1.17 "Third Party" means any Person other than CESI, KHI and their
respective Affiliates.
1.18 "XONON Component" means the fuel/air mixer package, the pre-burner,
and other elements such as combustor hardware components, which are
necessary combustion system modifications to enable optimum
operation of the XONON Module.
1.19 "XONON Module" means CESI catalyst structure as used in gas
turbines, including its container and supporting structure for
fixing the catalyst structure, containing and including the
catalytically active elements for oxidizing hydrocarbon fuels in
the container.
3
1.20 "XONON Module Technology", abbreviated XMT, means all Technology
relating to the XONON Module.
1.21 "XONON Combustion System", abbreviated XCS, means a fuel
combustion apparatus or system to implement XMT for use in gas
turbines including those components, operating processes, and
methods of control, testing, and operation for pre-heating fuel,
mixing fuel and air, combusting or oxidizing fuel, controlling
power output, and control of NOx, Carbon Monoxide(CO) and unburned
hydrocarbon pollutants, comprising in the XONON Module and the
XONON Components.
1.22 "XONON Combustion System Technology" means all Technology relating
to the XONON Combustion System.
1.23 "XONON Control Algorithm(s)" mean the logic developed by or on
behalf of CESI as of the Effective Date to provide necessary
control of the start up, operation, management and protection of
the XONON Combustion System or XONON Module in a gas turbine.
2.0 PROGRAM OBJECTIVES
------------------
2.1 CESI and KHI each shall conduct, at their own expense, their
respective scope of work as set forth in Exhibit 1 attached hereto
as an integral part of this Agreement in a sound scientific
manner, and in compliance in all material respects with all
requirements of applicable laws and regulations and all applicable
good research and manufacturing practices to attempt to achieve
the Adaptation Program objective efficiently and expeditiously.
CESI and KHI each shall proceed diligently with the works
allocated respectively which are set out in Exhibit 1 (hereinafter
referred to as "Allocated Works") by using their respective good
faith efforts to provide, among others, the following resources:
(a) allocation of sufficient time, effort, equipment and
facilities to the Adaptation Program and as each reasonably
believes is necessary carry out its Allocated Works and to
accomplish the objectives thereof, and (b) use of personnel with
sufficient skills and experience as are required to carry out its
Allocated Works and to accomplish the objectives thereof. Works
requested by KHI and performed by CESI outside the Allocated Works
under this Agreement shall be chargeable to KHI and billed on an
agreed upon-costs basis, due in 30 days. Each Party is an
independent contractor.
2.2 KHI and CESI each may subcontract portions of the Adaptation
Program to be performed by it in the normal course of its business
without the prior consent of the other, provided, however, that
every subcontracted or delegated party shall enter into a
confidentiality agreement with the subcontracting party in
accordance with Article 7.0 below and each Party shall be fully
responsible for any activities of its subcontractors or delegated
party under this Agreement.
2.3 KHI and CESI each shall appoint a person (a "Program Manager") to
coordinate its part of the Adaptation Program. The Program
Managers shall be the primary contacts between the parties with
respect to the Adaptation Program. Each Party shall notify the
other within thirty (30) days after the date of this Agreement of
the appointment of its Program Manager and shall notify
4
the other Party as soon as practicable upon changing this
appointment.
2.4 Each Party shall make its employees and relevant reports of non-
employee consultants available, upon reasonable notice during
normal business hours, at each Party's respective places of
employment to consult with the other party on issues arising
during the Adaptation Program and in connection with any request
from any regulatory agency, including regulatory, scientific, and
technical testing issues.
2.5 KHI and CESI each shall keep the other informed of the progress of
their tasks under Allocated Works during the Adaptation Program.
Within thirty (30) days following the end of each quarter during
the term of the Adaptation Program, KHI and CESI shall each
prepare, and provide to the other, a written summary report which
shall describe the application engineering activities performed by
such party during such quarter.
3.0 PAYMENT OF TECHNICAL FEE BY KHI TO CESI
---------------------------------------
KHI will pay CESI, as the consideration for the CESI Technology to be
provided by CESI to KHI under this Agreement, the amounts of [*] for each
of the 1/st/ through [*] Adapted Kawasaki Gas Turbines and of [*] for each
of the [*] through [*] Adapted Kawasaki Gas Turbines, sold by KHI and/or
its Affiliates for installation anywhere in the world, provided, however,
that such payments become due and payable [*] days after KHI's receipt of
the initial payment for each Adapted Kawasaki Gas Turbines respectively
sold. Should [*] Adapted Kawasaki Gas Turbines not be sold during the term
of the Agreement, the balance of payment by KHI shall be forgiven.
However, in case of earlier termination of the Agreement by KHI prior to
the term of the Agreement, due to the reason not attributable to CESI
under Article 10.2, the balance of payment by KHI shall be due and
payable. KHI agrees to make commercially reasonable efforts to sell
Adapted Kawasaki Gas Turbines during the term of this Agreement and CESI
agrees to cooperate with KHI in support of KHI's sales efforts.
4.0 TECHNOLOGY AND USE RIGHTS TRANSFERS
-----------------------------------
4.1 Technology Transfer. Within thirty (30) days after the Effective
--------------------
Date, CESI shall provide KHI with all the available Technical
Information, including but not limited to those as set forth in
Exhibit 3 attached hereto as an integral part of this Agreement,
required to enable KHI to perform its Allocated Works and
manufacture, have manufactured, use and sell the Adapted M1A-13A
and the Adapted Kawasaki Gas Turbines, under this Agreement. KHI
shall provide CESI with all the Technical Information required to
enable CESI to perfrom its Allocated Works.
[*]
4.2 Use Rights Under CESI Technology. In consideration for and upon
---------------------------------
KHI's payment of the Technology Fee to CESI provided in Article 3.0
herein, CESI hereby grants to KHI for the purposes and term of this
Agreement a royalty-free, worldwide, right for KHI and its
Affiliates to use CESI Technology and the inventions and/or
improvements as set forth in Article 4.1:
5
(a) to perform KHI's Allocated Works in the Adaptation Program;
(b) to make, have made, use, lease, and sell the Adapted M1A-13A
incorporating the Products purchased from CESI;
(c) to make, have made, use, lease and sell the Adapted Kawasaki
Gas Turbines incorporating Products purchased from CESI; and
(d) to use and sell the Products to be incorporated into the
Adapted Kawasaki Gas Turbines including Adapted M1A-13A.
4.3 The rights granted in Section 4.1 shall be exclusive during the
term of this Agreement and any subsequent Supply Agreement term,
subject to KHI and its Affiliates and suppliers purchasing all of
their respective requirements for the Products for Gas Turbines
from CESI, and in case that CESI is unable to consistently meet
KHI's and its Affiliates' requirement for Products from a quality
or delivery standpoint, CESI shall promptly establish a second
source of supply (as a vendor to CESI) with a Third Party
manufacturer designated by CESI and approved by KHI (which approval
shall not be unreasonably withheld), solely for the purpose of
satisfying CESI's obligations to supply Products to KHI and its
Affiliates.
4.4 The limited field exclusive rights granted in Section 4.2 shall be
limited to Kawasaki Gas Turbines, and CESI retains and reserves
the rights, to itself or through its licensees, to design, adapt,
make and have made, import, export, use, sell, offer to sell,
service, repair and reconstruct the Products for sale, lease or
transfer to Third Parties non-Kawasaki Gas Turbines applications
employing the CESI Technology.
4.5 Grant Back. KHI and its Affiliates and subcontractors hereby grant
-----------
back to CESI an irrevocable and fully paid-up license to make,
sell, lease, have made, use, export and import, service, repair,
reconstruct the Xonon Combustion System and Xonon Module including
rights to sublicense, to all improvements thereof, whether made
solely by KHI or jointly with its Affliates and/or subcontractors,
which are conceived during the term of this Agreement and the term
of the Supply Agreement to be concluded between KHI and CESI with
respect to supply of the Xonon Module. Such license shall be i)
exclusive with respect to improvements of the Xonon Module, and
ii) Non-exclusive with respect to improvements of the Xonon
Combustion System and Xonon Control Algorithm.[* ].
[* ]. Such Technology or Technical Information as KHI must provide to CESI
under this section shall be provided without cost to CESI and in a
reasonable period of time, however, this clause shall not be construed so
as to unreasonably burden KHI by requiring additional design work on its
part to fulfil its obligation under this Article 4.5.
KHI and its Affiliates shall have no responsiblity for any damages incurred
by CESI and third party including Product Liability arising out of such
grant back, except for intellectual property infringement.
6
4.6 Requirement and Obligation to Use Xonon(TM) Trademark. CESI hereby
------------------------------------------------------
grants to KHI and its Affiliates for the term of this Agreement, a
royalty-free, non-exclusive, worldwide right under CESI's Xonon
trademark, to use the trademark "XononO" in connection with KHI's
and its Affiliates' marketing and sales activities related to the
Products. In this regard, KHI agrees to market the Xonon Modules
and/or Xonon Components under CESI's Xonon trademark, and to state
in its literature that Xonon is technology used under license from
CESI, in language and format to be agreed between CESI and KHI.
This agreement on the part of KHI to use the Xonon trademark also
requires KHI to use the designation "-X" at the end of the model
number of all Kawasaki Gas Turbines employing CESI Technology. In
connection with this grant of trademark use rights, KHI agrees that
it will submit samples of all Xonon trademark usage to CESI for
approval prior to use in KHI advertising, promotion and/or sales
activities and that KHI will promptly discontinue any usage of the
Xonon trademark which CESI specifically objects to and so informs
KHI in writing in a timely manner. This right to use grant does not
confer ownership of any rights in the ▇▇▇▇(s) to KHI.
4.7 Grant of Right to Use Xonon Control Algorithms. CESI hereby grants
-----------------------------------------------
to KHI during the term of this Agreement, a non-exclusive,
royalty-free, perpetual and worldwide license (with rights to
sub-license) applicable to those models of Kawasaki Gas Turbine to
which Xonon was adapted during the term of this Agreement, to
copy, have copied, use, sub-license and offer to sub-license the
Xonon Control Algorithm(s) for use with the Products applied to
Adapted M1A-13A and/or Kawasaki Gas Turbines sold during the term
of this Agreement.
5.0 PRODUCTS SUPPLIED BY CESI TO KHI
--------------------------------
CESI shall supply all of KHI's requirements for the Xonon Module for
incorporation into the Adapted Kawasaki Gas Turbines pursuant to the terms
and conditions as set forth in the Supply Agreement to be executed
separately between CESI and KHI.
6.0 COMBUSTION SYSTEM DESIGN PACKAGE WARRANTY
-----------------------------------------
6.1 [*].
THIS WARRANTY IS IN LIEU OF ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MECHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. All other representations to KHI/KMC and all other
obligations or liabilities do not constitute a warranty. Liability for
incidental or consequential damages is specifically disclaimed. No person
is authorized to give any other warranties or to assume any other
liability on CESI's behalf unless agreed to in writing by CESI.
7.0 CONFIDENTIALITY
---------------
7.1 Nondisclosure and Use Obligations. Except as otherwise provided in
----------------------------------
this Article 7, during the term of this Agreement and for a period
of five (5) years thereafter and in no event, for less than a
total ten (10) years from Effective
7
Date, all information of a confidential nature disclosed pursuant
to this Agreement by one party to another and, in the case of
documents, designated by the disclosing party by an appropriate
stamp, marking or legend as being confidential to the disclosing
party shall be used by the receiving party only for the purposes of
this Agreement and shall be maintained as confidential by the
receiving party, using the same safeguards as it uses to protect
its own confidential information of a similar character. The
receiving party will not publish or disclose to Third Parties any
such received information of a confidential nature without the
prior express written consent of the disclosing party. The
foregoing obligations on use and disclosure of confidential
information shall not apply to any information which:
(a) is shown by objective evidence to be already in the
possession of the receiving party at the time of first
receipt from the disclosing party; or
(b) is shown by objective evidence to be developed
independently by employees of the receiving party who had
not had access to the confidential information; or
(c) is or becomes part of the public domain without breach of
this Agreement by the receiving party; or
(d) is made available by the disclosing party to a third party
without like obligations on disclosure; or
(e) is rightfully obtained by the receiving party from third
person without restriction or breach of this Agreement by
the receiving party; or
(f) in the case of documents, is not designated by an
appropriate stamp, marking or legend as being confidential
to the disclosing party at the time of disclosure.
7.2 Oral information disclosed by one Party to the other shall be
confirmed as confidential by a written summary to be submitted by
the disclosing party to the receiving party within thirty (30) days
after the oral transmission thereof. For purposes of this Article
7, information and data described above shall be referred to as
"Information".
7.3 To the extent it is reasonably necessary or appropriate to fulfill
its obligations or exercise its rights under this Agreement,
(a) a Party may disclose Information it is otherwise obligated
under this Article 7 not to disclose to its directors,
officers, employees, attorneys, accountants, consultants
and sublicensees, on a need-to-know basis on the condition
that such Persons agree to keep the Information
confidential for the same time periods and to the same
extent as such party is required to keep the Information
confidential;
8
(b) a Party may disclose Information, described in Section 8.1
below, that it is otherwise obligated under this Article 7
not to disclose to its Affiliates and outside contractors,
on a need-to-know basis on the condition that such Persons
agree to keep the Information confidential for the same
periods and to the same extent as such party is required
to keep the information confidential; and
(c) a Party may disclose such Information to government, other
regulatory authorities or any competent court to the
extent that such disclosure is required by applicable law,
regulation or court order, or is reasonably necessary to
obtain patents and to commercially market the Adapted M1A-
13A, the Adapted Kawasaki Gas Turbines and the Products,
provided that the disclosing party shall provide prior
written notice to the other Party and sufficient
opportunity to object to such disclosure or to request
confidential treatment thereof.
7.4 Disclosure of Terms. CESI and KHI shall not disclose any terms or
--------------------
conditions of this Agreement to any Third Party without the prior
consent of the other Party, except as required by applicable law.
8.0 PUBLICATION
-----------
8.1 Notice of Publication. During the term of this Agreement, CESI and
----------------------
KHI each acknowledge the other party's interest in publishing
certain of its results to obtain recognition within the scientific
and investment communities and to advance the state of scientific
knowledge. Each Party also recognizes the mutual interest in
obtaining valid patent protection and protecting business
interests. Consequently, either Party, its employees or consultants
wishing to make a publication (including any oral disclosure made
without obligation of confidentiality) relating to work performed
by such Party as part of the Adaptation Program (the "Publishing
Party") shall transmit to the other Party (the "Reviewing Party") a
copy of the proposed written publication at least forty-five (45)
days prior to submission for publication, or an outline of such
oral disclosure at least fifteen (15) days prior to presentation.
The Reviewing Party shall have the right (a) to propose
modifications to the publication for patent reasons or to protect
or delete proprietary information, and (b) to request a reasonable
delay in publication in order to protect patentable or proprietary
information.
8.2 Timing of Publication. If the Reviewing Party requests such a
----------------------
delay, the Publishing Party shall delay submission or presentation
of the publication for a period of ninety (90) days to enable
patent applications protecting each Party's rights in such
information to be filed. Upon the expiry of forty-five (45) days,
in the case of proposed written disclosures, or fifteen (15) days,
in the case of proposed oral disclosures, from transmission to the
Reviewing Party, the Publishing Party shall be free to proceed with
the written publication or the presentation, respectively, unless
the Reviewing Party has requested the delay described above.
9
8.3 Disclosure Regarding Agreement. Neither Party shall make a press
-------------------------------
release or other public disclosure of the fact that this Agreement
has been entered into or any details of its terms without the other
party's prior consent, unless such disclosure is required, on the
advice of counsel, to comply with any local, state or federal law
or regulation, in which case disclosure can be made upon prior
written notice to the other party.
9.0 TECHNOLOGY AND PATENT RIGHTS
----------------------------
9.1 Ownership of Background Technology. The entire right, title and
----------------------------------
interest in all Background Technology shall be retained by the
Party owning it. To the extent a Party is granted any right to use
Background Technology under this Agreement, the use of such
Background Technology shall be limited to the express purposes of
this Agreement and for the defined field as appears in this
Agreement.
9.2 Ownership of Adaptation Technology. The entire right, title and
-----------------------------------
interest in all Adaptation Program Technology (a) conceived by
employees or others acting solely on behalf of CESI or its
Affiliates shall be owned solely by CESI, (b) conceived by
employees or others acting solely on behalf of KHI or its
affiliates shall be owned solely by KHI. Inventions conceived
during the term of this Agreement by employees of CESI and KHI, or
their respective Affiliates, shall be owned jointly by CESI and
KHI. The joint interest of inventions shall be based on employees
or agents of both parties being named as inventors in accordance
with applicable laws of inventorship of the United States. CESI and
KHI each hereby represents that all employees performing its
obligations under this Agreement shall be obligated under a binding
written agreement to assign to the appropriate owner, or as it
shall direct, all Technology conceived by such employees.
9.3 CESI Indemnification. CESI shall indemnify and hold KHI, its
---------------------
Affiliates, customers and sublicensees, harmless, and hereby
forever releases and discharges KHI, its Affiliates, customers, and
sublicensees, from and against all liabilities, damages and
expenses, including attorneys' and experts' fees and costs, arising
out of any claim of patent or copyright infringement or trade
secret misappropriation brought by a Third Party because of any use
of CESI Technology, including the Applied CESI Technology and the
manufacture, use or sale of, or offer to sell, any Product supplied
by CESI to KHI, provided: (1) such use is in accordance with the
Product or the Xonon Control Algorithm specifications; (2) CESI is
notified promptly of receipt of the Third Party claim; and (3) CESI
is given full control of any defense against such claim. If as a
result of the claim, the use by KHI of the CESI Technology,
including the Applied CESI Technology, the Product or Xonon Control
Algorithm is enjoined, then CESI shall at its option (i) obtain the
appropriate license from the Third Party claimant to enable KHI and
its customers to continue such Product or control algorithm use,
(ii) modify the CESI Technology, including the Applied CESI
Technology, the Product or Xonon Control Algorithm so that it no
longer is infringing, but still satisfies agreed upon performance
specifications, or (iii) replace the CESI Technology, including the
Applied CESI Technology, the Product or Xonon Control Algorithm
with a non-
10
infringing the CESI Technology, including the Applied CESI
Technology, the Product or the Xonon Control Algorithm which
satisfies agreed upon performance specifications. In the event CESI
is unable to eliminate the infringement by any of the
aforementioned measures, then CESI and KHI shall meet and agree on
possible alternatives which as a last resort, shall include CESI
taking back any infringing Product or Xonon Control Algorithm and
refunding the purchase price for such Product or Xonon Control
Algorithm, subject to KHI's agreement which shall not be
unreasonably withheld. This indemnity is further subject to the
understanding and agreement that KHI components are not covered by
CESI's warranty under this Article 9.3.
9.4 KHI Patent Indemnification. KHI shall indemnify and hold CESI and
---------------------------
its subcontractors or sublicensees harmless and forever releases
and discharges CESI and its subcontractors or sublicensees from and
against all liabilities, damages and expenses, including attorney's
and experts fees and costs arising out of any claim of patent or
copyright infringement or trade secret misappropriation brought by
a Third Party because of the manufacture, use or sale of, or offer
to sell, the Adapted M1A-13A and/or KawasakiGas Turbines
incorporating the XONON Combustion System (other than claims
attributable to the CESI Technology, including the Applied CESI
Technology, the Products or the XONON Control Algorithm) plus any
use of KHI Technology or Technical Information pursuant to Article
4.5 of this Agreement by KHI, its Affiliates, customers or
sublicensees, provided CESI notifies KHI promptly of receipt of the
Third Party claim and KHI is given full control of any defense
against such claim. Further, as to any CESI technology that is
modified and/or adapted by KHI to function with Kawasaki Gas
Turbines, KHI will fully indemnify CESI within the terms of this
Article 9.4, unless KHI can reasonably show that the failure was
(1) caused directly and solely by a CESI error or omission and (2)
that KHI could not have been reasonably expected to detect such an
error or omission.
9.5 Enforcement of Patents and Other Technology Rights. CESI shall, at
---------------------------------------------------
its sole expense, use its best efforts to enforce CESI owned
Patents and other Technology rights relating to any Products
purchased by KHI against any infringement of such Patents or
unauthorized use or misappropriation of such Technology rights by a
Third Party of which CESI becomes aware. KHI shall promptly notify
CESI if KHI becomes aware of any such infringement or Technology
misappropriation. In the event such action includes the bringing of
a suit against such Third Party, KHI shall provide such assistance
as CESI shall reasonably request, provided that CESI shall
reimburse KHI for all reasonable expenses thereby incurred. Costs
and expenses, including attorney's fees of any lawsuit instituted
by CESI shall be borne by CESI. The amount of recovery paid to CESI
shall belong to and be the sole property of CESI.
9.6 KHI License. In the event KHI conceives inventions or exchanges
------------
Technical Information comprising improvements and/or modifications
to the Xonon Module during the period of this Agreement and for
five (5) years following expiration or termination of this
Agreement and/or if KHI conceives, by participation in whole or in
part of KHI employees who had access to CESI Technology, any
invention comprising an improvement or modification to the
11
Xonon Combustion System and/or Xonon Module or develops Technology
which is derived from CESI Technology, during such period, then KHI
shall grant to CESI an exclusive royalty-free, perpetual world-
wide, irrevocable license (with unrestricted rights to sublicense)
to make, have made, use, sell, lease and/or export Products under
both the aforesaid technical information and any Patents which
result from the aforesaid inventions
9.7 CESI License. In the event CESI conceives inventions or exchanges
-------------
technical information comprising improvements and/or modifications
to KHI Gas Turbines, other than combustion systems, during the
period of this Agreement and for five (5) years following
expiration or termination of this Agreement and/or if CESI
conceives, by participation in whole or in part of CESI employees
who had access to KHI Technology, any invention relating to the
aforesaid gas Turbines or develops gas turbine technology which is
derived from KHI Technology, during such period, then CESI shall
grant to KHI an exclusive royalty-free, perpetual, world-wide,
irrevocable license (with unrestricted right to sublicense) to
make, have made, use, sell, lease and/or export KHI Gas Turbine
under both the aforesaid technical information and any Patents
which result from the aforesaid inventions.
9.8 Patent Filing Procedure. In cases of sole inventors during the term
------------------------
hereof, the inventing party shall retain the sole right to
determine whether or not Patent applications will be filed, and
whether Patents and Patent applications will be maintained, on any
such inventions which are solely conceived by its employees. With
regard to inventions conceived jointly by both parties during the
Adaptation Program under this Agreement and Patents arising from
such joint inventions which shall be the joint property of CESI and
KHI. Both parties shall be free to utilize the same and to license
third parties only as described in Article 4.0 of this Agreement.
With respect to such joint inventions, each party has the right to
file the Patent on such inventions in any country and to jointly
own such Patent to be filed and/or registered. And the party who
has made Patent application shall keep the other party fully
advised of the status of the prosecution of each such jointly
conceived Patent application and shall consult with such other
party in advance with respect to the advisability of continuing
said prosecution in the event of any final rejection, appeal,
interference, or the like, and each party may, at any time by ten
(10) days' notice to the other party, elect not to continue to pays
the services and expenses incurred after the date of said election
with respect to any such Patent or Patent application; provided,
however, that if either party elects to proceed, the other party
who does not want to continue such prosecution or payment shall
assign to the party electing to proceed all rights to the Patent or
Patent application with respect to which the election is being
made. Neither party hereto shall be obligated to make any payments
for or on account of proceedings before any court or any other
tribunal or agency in connection with the maintenance or assertion
of any Patents based on joint inventions.
9.9 No Other Technology Rights. Except as otherwise provided in this
---------------------------
Agreement, under no circumstances shall a Party, as a result of
this Agreement, obtain any ownership interest or other right in any
Technology, know-how, Patents, pending patent applications or
products of the other Party, including items owned, controlled or
developed by the other, or transferred by the other to such Party
at any time pursuant to this Agreement.
12
10.0 TERM AND TERMINATION
--------------------
10.1 Term. The term of this Agreement is five (5) years unless extended
----
in writing for an additional period by mutual agreement of the
parties at least 60 days in advance of the expiry hereof.
10.2 [* ].
10.3 Termination for Cause. Either party may terminate this Agreement for
----------------------
cause upon the occurrence of any of the following:
(a) The other party shall (a) seek the liquidation,
reorganization, dissolution or winding up of itself (other
than dissolution or winding up for the purposes of
reconstruction or amalgamation) or the composition or
readjustment of all or substantially all of its debts, (b)
apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator
of itself or substantially all of its assets, (c) make a
general assignment for the benefit of its creditors, (d)
commence a voluntary case under the Bankruptcy Code, (e)
file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-
up or composition or readjustment of debts, or (f) adopt any
resolution of its Board of Directors or stockholders for the
purpose of effecting any of the foregoing; or
(b) A proceeding or case shall be commenced without the
application or consent of the other party and such
proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the
following shall be entered and continue unstayed in effect,
for a period of ninety (90) days from and after the date
service of process is effected upon the other party, seeking
(a) its liquidation, reorganization, dissolution or winding
up, or the composition or readjustment of all or
substantially all of its debts, (b) the appointment of a
trustee, receiver, custodian, liquidator or the like of
itself or of all or substantially all of its assets, or (c)
similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding up or composition or
readjustment of debts; or
(c) Except as otherwise provided in Article 10.5 below, upon or
after the breach of any material provision of this
Agreement, if the breaching Party has not cured such breach
within ninety (90) days after notice thereof from the other
Party, this Agreement shall terminate for cause, at the
option of the other Party, upon the expiration of such
ninety (90) day cure period.
10.4 [*].
10.5 Effect of Termination. Termination of this Agreement shall not
----------------------
relieve the
13
parties of any obligation accruing prior to such termination. The
provisions of Articles 4.3 and 4.5 [Technology and Use Rights
Transfer], Article 6 [Warranty and Representation by CESI], Article
7 [Confidentiality], Article 9 [Technology and Patent Rights],
Article 11 [Settlement of Disputes] and Article 12 [Indemnity] shall
su rvive the expiration or any termination of this Agreement.
11.0 SETTLEMENT OF DISPUTES
----------------------
In the event that any disputes arise between CESI and KHI which cannot be
amicably settled by the parties, each party shall have the right to
request binding arbitration on the issue. In such event, CESI and KHI
shall agree on a single, qualified, legally and technically trained,
independent arbitrator to review the relevant evidence and render a
decision on such disputes including whether(disputes including but not
limited to) termination is justified under the circumstances. The
arbitration shall be held in Los Angeles, California, U.S.A., unless
otherwise agreed by the parties. Although the rules of commercial
arbitration of the AAA may be employed, its auspices need not be employed.
Both parties shall use all reasonable efforts to select the independent
arbitrator and complete the arbitration within sixty (60) days after the
notice of request for arbitration. The decision of the arbitrator shall be
final and binding, and the non-prevailing party shall pay all of the costs
of the arbitrator. If arbitration is requested hereunder, in no event
shall any remedies provided in this Agreement and triggered by default
under this Article 11.3 be implemented until after the decision of the
arbitrator has been rendered.
12.0 INDEMNITY
---------
12.1 Direct Indemnity. Each party shall indemnify and hold the other
-----------------
party, its Affiliates and sublicensees harmless, and hereby forever
releases and discharges the other party, its Affiliates and
sublicensees, from and against all claims demands, liabilities,
damages and expenses, including attorneys fees and costs (all
"Liabilities"), in respect of personal injury to or death of third
parties, or in respect of loss of or damage to any third party's
property, arising out of any breach of a representation or warranty
contained herein, negligence, recklessness or intentional wrongful
acts or omissions of the indemnifying party, its Affiliates or
sublicensees in connection with the work performed by such party
during and after the term of this Agreement except in each case to
the extent such Liabilities resulted from negligence, recklessness
or intentional wrongful acts or omissions of the other party.
Neither party shall be liable to the other for any special,
indirect, incidental or consequential damages arising out of any
terms or conditions in this Agreement or with respect to the
performance thereof.
12.2 Procedure. A party (the "Indemnitee") that intends to claim
----------
indemnification under Article 12.1 shall promptly notify the other
party (the "Indemnitor") of any Liability or action in respect of
which the Indemnitee or any of its Affiliates intend to claim such
indemnification, and the Indemnitor shall have the right to
participate in, and, to the extent the Indemnitor so desires,
jointly with any other Indemnitor similarly noticed, to assume the
defense thereof with counsel selected by the Indemnitor. The
indemnity obligations under Article 12.0 shall not apply to amounts
paid in settlement of any loss, claim, damage, liability or action
if such settlement is effected without the consent of the
14
Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver notice to the Indemnitor within a reasonable time
after the commencement of any such action, if materially prejudicial
to its ability to defend such action, shall relieve such Indemnitor
of any liability to the Indemnitee under Article 12.0, but the
omission so to deliver notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnitee otherwise than
under Article 12.0. The Indemnitor may not settle the action or
otherwise consent to an adverse judgment in such action that
diminishes the rights or interests of the Indemnitee without the
express written consent of the Indemnitee. The Indemnitee, its
employees and agents, shall cooperate fully with the Indemnitor and
its legal representatives in the investigation of any action, claim
or liability covered by this indemnification at Indemnitor's
expense.
13.0 EXCUSABLE DELAY
---------------
Neither party shall be held liable or responsible to the other party nor
be deemed to have defaulted under or breached this Agreement for failure
or delay in fulfilling or performing any term of this Agreement to the
extent, and for so long as, such failure or delay is caused by or results
from causes beyond the reasonable control of the affected party including
but not limited to fire, floods, embargoes, war, acts of war (whether war
be declared or not), insurrections, riots, civil commotion, strikes,
lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other party. The
foregoing shall be subject to the delayed party using reasonable efforts
to mitigate the adverse consequences of such delay.
14.0 ASSIGNMENT
----------
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations be assigned
or transferred by either party without prior consent of the other party;
provided further, however that (i) each party may assign its rights and
interests, and delegate its obligations, hereunder, effective upon written
notice thereof, to any Affiliate, and (ii) either party may assign its
rights and interests, and delegate its obligations, hereunder, effective
upon written notice thereof, to any Third Party which acquires all or
substantially all of the assets of CESI or KHI, as the case may be, or
which is the surviving third party in a merger or consolidation with
either of CESI or KHI as the case may be, if such Third Party assumes all
of the obligations of CESI or KHI, as the case may be, hereunder. Subject
to the foregoing, any reference to CESI or KHI hereunder shall be deemed
to include the successors thereto and assigns thereof. Notwithstanding
anything to the contrary contained in this Article 14.0, if, without KHI's
prior written consent, either (a) CESI assigns or otherwise transfers its
rights and interests under this Agreement to any Competing Manufacturer
(defined below) including any transfer by merger or asset sale; or (b) any
Competing Manufacturer purchases or otherwise obtains a controlling
ownership interest (defined as 50% or more ownership interest) in CESI;
then this Agreement shall terminate upon KHI's election and written notice
thereof to CESI and such termination shall be deemed a termination for
cause under Article 10.3. For the purposes of this Agreement, "Competing
Manufacturers" shall mean only companies that design, manufacture and sell
gas turbines of less than [*] for power generation or mechanical drive
applications.
15
15.0 SEVERABILITY
-------------
Each Party hereby acknowledges that it does not intend to violate any
public policy, statutory or common laws, rules, regulations, treaty or
decision of any government agency or executive body thereof of any country
or community or association of countries. Should one or more provisions of
this Agreement be or become invalid, the parties shall substitute, by
mutual consent, valid provisions for such invalid provisions which valid
provisions in their economic effect are sufficiently similar to the
invalid provisions that it can be reasonably assumed that the parties
would have entered into this Agreement with such provisions. In case such
provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this
Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
parties would not have entered into this Agreement without the invalid
provisions.
16.0 MISCELLANEOUS
-------------
16.1 Price, Payment and Escalation. Out of scope work to be billed at
------------------------------
CESI's then current US DOE approved rates. Terms are net 30 days,
late payments subject to one point five (1.5) percent (%) per month
charge. Payments must be made by electronic funds transfer to CESI's
bank in US funds, net of all exchange rates, taxes, excepting CESI's
tax on income of its operations, imposts, duties, and foreign
governmental license taxes or fees.
16.2 Notices. Any consent, notice or report required or permitted to be
--------
given or made under this Agreement by one of the parties to the other
shall be in writing, delivered personally or by facsimile (and
promptly confirmed by personal delivery, U.S. First class mail or
courier), U.S. first class mail or courier, postage prepaid (where
applicable), addressed to such other party at its address indicated
below, or to such other address as the addressee shall have last
furnished in writing to the addressor and (except as otherwise
provided in this Agreement) shall be effective upon receipt by the
addressee.
If to CESI: Catalytica Energy Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇.▇.▇.
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. Vice President
16
If to KHI: Kawasaki Heavy Industries, Ltd.
Gas Turbine Division
▇-▇, ▇▇▇▇▇▇▇▇-▇▇▇, ▇▇▇▇▇▇ ▇▇▇-▇▇▇▇, ▇▇▇▇▇
Attention: Yoshihiro Asada
International Sales Manager
Industrial Gas Turbine Center
16.3 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California, without regard
to the conflicts of law principles thereof.
16.4 Agreement Limited to Express Terms. Except as otherwise expressly
----------------------------------
provided in this Agreement, the parties agree that the Adaptation
Program contemplated herein, and any discussions or communications
between the parties relating thereto, shall not restrict, either
party's right to take whatever future actions such party unilaterally
determines to be in its best interest, including the right to
undertake similar programs or relationships with Third Parties
covering subjects related to the matters covered herein, and neither
the holding of any discussions between the Parties, nor the exchange
of any information shall diminish or restrict in any way the right
that any party has to market, lease, sell or otherwise make available
its products and services to any customer or Third Party.
16.5 KHI shall be liable for the breach of this Agreement by any its
Affiliates.
16.6 Entire Agreement. This Agreement contains the entire understanding of
----------------
the Parties with respect to the subject matter hereof. All express or
implied agreements and understandings, either oral or written,
heretofore made are expressly superseded by this Agreement. This
Agreement may be amended, or any term hereof modified, only by a
written instrument duly executed by both parties.
16.7 Headings. The captions to the Articles and Sections hereof are not a
--------
part of the terms but are merely guides or labels to assist in
locating and reading the Articles and Sections hereof.
16.8 Independent Contractors. It is expressly agreed that CESI and KHI
-----------------------
shall be independent contractors and that the relationship between
the two parties shall not constitute a partnership, joint venture or
agency. Neither CESI nor KHI shall have the authority to make any
statements, representations or commitments of any kind, or to take
any action or undertake any obligation, which shall be binding on the
other party, without the prior consent of the other party.
16.9 Waiver. The waiver by either Party of any right hereunder or the
------
failure to perform or of a breach by the other party shall not be
deemed a waiver of any other right hereunder or of any other breach
or failure by said other party whether of a similar nature or
otherwise.
17
16.10 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
AGREED FOR AND ON BEHALF OF AGREED FOR AND ON BEHALF OF
KAWASAKI HEAVY INDUSTRIES, LTD. CATALYTICA ENERGY SYSTEMS, INC.
GAS TURBINE DIVISION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------- --------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_________________________________ __________________________
Title: Director and General Manager of Title: Senior Vice President
Gas Turbine Division
_________________________________ __________________________
18
Exhibit 1
Allocated Works
---------------
CESI and KHI each shall conduct, at their own expenses, their respective scope
of works as follows:
1. CESI:
1) to transfer the Technology relating to the XONON 2.1 Combustion System,
as_defined in Exhibit 3, excluding XONON Module
2) to incorporate XONON 2.1 modification into the SVP configuration, testing
of updated configuration and refinement as required to demonstrate the
capacity to meet the performance specification defined in Exhibit 2.
3) to host additional meetings at CESI's facilities with KHI's engineering
staff to ensure an effective transfer of technical data, and making a
reasonable number of trips to KHI facilities to participate in design
meetings and to provide consultation.
4) to transition the SVP controls information to support KHI's development
of the production control system.
5) to provide reasonable support to KHI's development of an integrated
control system for its' M1A-13X packages.
6) to document specification for maintenance and operation of the XONON 2.1
combustor.
7) to provide 1 week of engineering support to assist in Factory Acceptance
Testing at the Kawasaki Packager's U.S. facility.
8) to provide 3 weeks of engineering support to assist in Site
commissioning.
2. KHI:
1) to modify the XONON 2.1 Combustion System to metricate, cost reduce and
otherwise adapt the design to enhance its integration into the Kawasaki
Gas Turbines, including model M1A-13A model with low flow scroll
configuration.
2) to provide technical information to CESI for the M1A-13A and M1A-13D as
required in support of CESI's XONON 2.1 development activities.
3) to provide engine performance and emissions data from the XONON 2.1
engine testing at Akashi.
19
Exhibit 2
Performance Specifications
--------------------------
CESI Xonon 2.1 system emissions Performance Specification
[* ]
20
Exhibit 3
Technical Information
---------------------
CESI shall provide KHI with all the Technical Information for the Xonon 2.1
combustor as follows:
1. XONON 2.1 ▇▇▇▇ of Material(BOM)
2. Engineering Drawings for Fabricated Combustor Hardware, Sub Assemblies and
the Top Level Assembly
3. By Pass Valve Specifications
4. Part Numbers and Sources for "Off the Shelf" Hardware
5. Drawings for Special Tooling or Handling Equipment used on the Combustor at
SVP
6. "Pro Engineer" part and drawing files for the Combustor Hardware and
Assemblies
7. Written Instructions of the Combustor Assembly Process
8. Written Instructions for the Catalyst Module Change Out Procedure
9. 2-D Finite Element Analyses of XONON 2.1 Combustor Excluding the Catalyst
Module
10. SVP Engine Test results from Silicon Valley Power (SVP) test installation
for Configuration Incorporating XONON 2.1 Upgrades;
a. Combustion system overall aerothermal performance
b. Engine operating data
c. Preburner aerothermal performance
d. Mixing system aerothermal performance
e. Measured temperatures
f. Bypass system measured performance
11. Description of Existing XONON 2.0 Control System and Incremental Changes
for XONON 2.1 Control System
12. I/O list for SVP
END.
21
Exhibit 4
Natural Gas Fuel
----------------
A composition of natural fuel gas for Performance Specifications in Exhibit 2 is
specified as follows:
The turbine is to be operated on gaseous fuel with methane as the dominant
component,
Acceptable maximum concentrations (on an inerts-free basis) of other gaseous
species are as follows :
[* ]
Fuels with compositions outside of the above limits must be referred to
Catalytica for evaluation.
[* ].
Contaminants in the fuel (i.e., species containing elements other than carbon,
hydrogen, and/or oxygen) that could affect catalyst durability or performance
must be removed to acceptable levels, Although they are unlikely to be present
in the fuel supplied to the turbine, the presence of any of the following
elements may require special precautions for cleanup:
[* ]
[* ].
Detection of any of these species in the fuel supplied to the turbine should be
discussed with Catalytica.
NOTE: [* ]. Consult with Catalytica regarding feasibility of specific fuels.
22
Appendix A
1. Drawings
All drawings necessary to procure fabricated components for Xonon Ver. 2.1
must be complete and shipped to KHI by either FedEx or DHL by November 1,
2000.(( Part numbers for purchased items (e.g. bolts, thermocouples,
standard flanges, etc.) will be provided in place of drawings.)) Proof of
shipment shall be by providing the shipping company's tracking number.
[* ]
23