February 3, 2005
February 3, 2005
Xxxxxx Xxxx
000 Xxxx Xxxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
Xxxxx Xxxxxx
0000-0/0 Xxxxxxx Xxxx Xxxxxx
Xxxxx 000, Xxx Xxx, XX 00000
Re: Letter of Agreement (“LOA”) to form a new LLC Company between Encore Clean Energy, Inc. (“Encore”), Xxxxx Xxxxxx (“Xxxxxx”) and Xxxxxx Xxxx (“Xxxx”)
Dear Sirs,
This Letter of Agreement will confirm our recent discussions and negotiations concerning the formation of a new Limited Liability Company (“LLC”) upon the terms and conditions as generally described herein.
Whereas, Encore Clean Energy, Inc. (hereinafter “Encore”) -- a Delaware corporation, is in the business of developing the economic benefits to be derived from its exclusive license stake in multiple business applications of certain provisional patents, patent-pending, clean-energy generating technologies. Encore is desirous of accelerating development of the relevant provisional patents described herein.
Whereas, Xxxx has developed and individually owns certain patents (“the Patents”) accepted, provisional or otherwise and which are under exclusive license to Encore that are fully described as:
1. | Provisional Patent with USPTO filing number 60/625,638,
titled, “OCEAN THERMAL ENGINE”, with filing date of
November 5, 2004. |
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2. | Provisional Patent with no number assigned to date,
titled, “THERMAL PUMP AND THERMAL ENGINE POWERED BY EXTEMELY
LOW TEMPERATURE DIFFERENTIALS” with filing date of December
24, 2004. |
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3. | Provisional Patent to be filed, titled, “THERMAL
MAGNETO-HYDRODYNAMIC (MHD) GENERATOR” |
Whereas, Xxxx and Xxxxxx have developed and jointly own certain product concepts and patents (“the Patents”) accepted, provisional or otherwise and which are under exclusive license to Encore that are fully described as:
4. | Provisional Patent, yet to be filed, titled “Hydraulic
Construction Equipment and Hybrid Gas- Electric Vehicles, Powered By Their
Own Tailpipe Waste Heat Exhaust” |
The new LLC’s business will be to perform research and development services towards constructing working proof of concept prototypes utilizing these provisional patents and any subsequent improvements. If any such prototypes prove to be a viable design, the LLC will endeavor to establish manufacturing facilities by forming manufacturing joint venture partnerships with manufacturing facilities in U.S., China and Latin America, and by making territorial sales and marketing agreements with select companies in the U.S, Latin America, Europe, China, India, Japan, Australia and other countries around the world, marketing our products to both retail and wholesale customers.
Therefore, in consideration of the following terms and conditions, the parties hereby agree to form a Limited Liability Company to be called the VAPOR HYDRAULIC POWER SYSTEMS LLC (“LLC”), or other mutually acceptable name, to exclusively develop, manufacture and market the resulting energy producing devices.
All business activity will be conducted through the LLC and the following initial ownership will be established as follows: Encore Clean Energy, Inc. will receive an initial 56% ownership, Xxxxxx Xxxx will receive an initial 22% ownership, Xxxxx Xxxxxx will receive an initial 12% ownership, and an initial 10% ownership stake will be reserved for an Investor group investing a minimum of $1 million into the LLC. Encore, Xxxx and Xxxxxx agree that the LLC will also issue to the investor group a two (2) year warrant to purchase up to an additional 10% interest thereby diluting Encore, Xxxx and Xxxxxx on a pro-rata basis.
1. | LLC Structure - The partnership shall be
styled as a limited liability company formed under the laws of Delaware
(“LLC”). The form and specific terms of the LLC agreement
shall be similar to the LLC formed by Encore and Xxxx with the Xxxxx Foundation.
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2. | Management Committee – A four-person
management committee shall function as the Board of the LLC. Xxxxx Xxxxxx
and Xxx Xxxxxx shall serve as representatives on behalf of Encore, Xxxxxx
Xxxx and one designate from the Investor Group shall also serve as representatives.
The Management Committee shall be delegated certain authority by the LLC,
and each management committee representative shall have one vote on all
voting matters. |
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3. | Management and Marketing – Daily management
of the LLC’s R&D and manufacturing activities shall be overseen
by Xxxxx Xxxxxx and Xxxxxx Xxxx, or manager chosen by them, with marketing
strategies development and tactical implementation input from Encore Clean
Energy, Inc. |
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4. | Funding of the LLC – Within 45 days
of the execution of this Agreement, at least $25,000 must be invested
in the LLC by one or more Investors, and paid $15,000 to Xxxx and
$10,000 to Xxxxxx, or Xxxx shall have the right, at his sole discretion,
to terminate this Agreement. If Xxxx elects to terminate this Agreement,
then all rights and ownership of any all patent applications will revert
back to the original inventors without any further obligation to the LLC.
Within 90 days of the execution of this Agreement, one or more Investors
must invest a total of USD $1 million into the LLC in order for the
LLC to become effective and cause Xxxx and Xxxxxx to assign their ownership
in their inventions to the LLC. |
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5. | Investor Warrants -- In addition to a 10%
equity ownership stake in the LLC for its initial $1 million investment,
the LLC agrees to provide Investors with a two (2) year warrant to purchase
up to an additional 10% of the LLC for $3,000,000, to be subscribed
as $300,000 per each 1% interest. |
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6. | Patent Assignments -- Subject to the restrictions
of Paragraph 8, below, and to the LLC raising a minimum of $1 million
in equity capital from investors per Paragraph 4, above,, the parties
hereto will transfer ownership and other exclusive rights to the provisional
patents listed above to the new LLC entity on the terms outlined herein.
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7. | Royalties -- The LLC shall pay to Xxxx an
inventor’s royalty equal to 2% (two percent) of the LLC’s
quarterly gross revenues from all sources, including but not limited to,
product sales and international licensing revenues payable to the LLC.
The LLC shall pay to Xxxxxx an inventor’s royalty equal to 1% (one
percent) of the LLC’s quarterly gross revenues from all sources,
including but not limited to, product sales and international licensing
revenues payable to the LLC. |
8. | The Xxxxx Foundation – The proposed
new LLC understands and acknowledges that both Xxxx and Encore have entered
into other prior agreements with The Xxxxx Foundation of Baltimore, Maryland
that may restrict the LLC’s rights to the application of its technology
with respect to Ocean Thermal Energy Conversion (“OTEC”) devices
for generating electricity. |
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9. | Products to Commercialize – The proposed
LLC intends to initially concentrate its efforts on commercializing hybrid
waste heat-powered vehicles and land-based solar, geothermal and industrial
waste heat-powered electricity-generating systems. |
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10. | Initial R&D Commitment by LLC – The
LLC agrees to commit the financial and manpower resources necessary to
construct an initial proof-of-concept “Vapor Hydraulic Power System”.
The LLC will use its best efforts to complete construction of this initial
working proof-of-concept device within 90 days of the funding of the LLC.
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11. | Conflict of Interest – The parties
acknowledge and agree that Xxxxx Xxxxxx is a member of the Encore Board
of Directors, an Encore stockholder and a signatory to the Encore Clean
Energy, Inc. Code of Ethics Agreement (the “Encore Ethics Agreement”).
Furthermore, the parties acknowledge and agree that Xxxxxx introduced
the parties to and is involved in other deals with Liberty Circle. The
material facts of Xxxxxx’x relationship with Encore and Liberty
and his contemplated interests (ownership, financial, management and/or
otherwise) in the LLC have been disclosed and are known to the Encore
Board of Directors. A majority of the disinterested members of the Board
of Directors of Encore, constituting a majority of the members of the
Board of Directors of Encore, deemed it to be in the best interests of
Encore to enter into this LOA and to waive compliance by Xxxxxx with the
Encore Ethics Agreement. Specifically, Xxxxxx has been approved by a majority
of the disinterested members of the Encore Board of Directors, to participate
as a record and beneficial owner in the LLC, as a member of the LLC’s
contemplated Management Committee, and to negotiate the terms and conditions
of any definitive licensing or other agreement involving any of Xxxxxx,
Encore, Liberty and/or the LLC, without any restrictions or limitations
otherwise mandated by the Encore Ethics Agreement. |
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12. | Consulting Agreement – On receipt of
the investors’ initial $1 million in equity capital, the LLC
shall enter into non-exclusive Consulting Agreements with Xxxxxx Xxxx,
paying Xxxx $20,000 per month for services rendered to the LLC; with
Xxxxx Xxxxxx, paying Xxxxxx $15,000 per month for services rendered
to the LLC and with Encore, paying Encore $20,000 per month for services
rendered to the LLC. |
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13. | Latin America Joint Venture Agreement –
When and if formed, the LLC partners agree to enter into a Joint Venture
Agreement with Liberty Circle Investments, Inc. (“Liberty”)
of the Republic of Panama, whereby the LLC will exclusively license its
patents, know-how and product improvements to the Joint Venture for manufacturing
and selling products based upon such patents and know-how to the Latin
American territory, which includes Mexico, Central America, South America,
the Bahamas and Caribbean nations. The LLC will negotiate in good faith
to secure the best terms possible, however, the LLC partners agree to
approve such Joint Venture Agreement with Liberty if it provides to the
LLC the following minimum terms: (a) $2 million payable to the LLC
for the exclusive licensing rights to the LLC products and patents; (b)
a 25% equity ownership in the Joint Venture to the LLC that entitles the
LLC to receive 25% of any and all net profits distributed to the Joint
Venture’s partners; and (c) the right of the LLC to products manufactured
by the Joint Venture on a “cost plus 25%” profit-margin, wherein
“costs” are defined as actual material, labor and overhead
costs incurred by the Joint Venture to manufacture each product. |
14. | Initial LLC Distribution – When and
if formed, the LLC partners agree that if the Latin American Joint Venture
is formed with Liberty and the LLC receives the $2 million license
fee called for in Section 13 above, then the LLC will make an initial
profit-distribution to the LLC partners of 75% of the monies received,
such that LLC will retain $500,000 to build production units of devices
and $1.5 million will be distributed to the LLC parties, according
to their percentage ownership in the LLC: $840,000 to Encore (56%),
$330,000 Xxxx (22%), $180,000 to Xxxxxx (12%) and $150,000
to the Investor (10%). It is further agreed that if Encore receives an
LLC distribution of at least $750,000, then out of such proceeds,
if these amounts are then still owing, Encore will pay off 100% of the
$95,000 Note, plus interest, that it owes to Xxx Xxxxxx and the $115,000
Note, plus interest, that it owes to Xxxxxx X. Xxxxx. In addition, Xxxx
and Xxxxxx shall have the right, but not the obligation, at their individual
elections, to cause Encore to pay off up to 40% of the debt it owes to
Xxxx and Xxxxxx, payable out of this initial LLC distribution. |
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15. | Announcements- Until formation and funding
of the LLC, no announcement with respect to this Letter of Agreement or
the transactions contemplated herein will be made by any party hereto
without the prior written approval of the other parties |
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16. | Fees and Costs - Each of the parties will
bear the fees and disbursements of the lawyers, accountants and consultants
engaged by them respectively and all other expenses incurred by them respectively
in connection with the proposed agreement. |
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17. | Signatures – This Letter of Agreement
may be executed in several counterparts each of which will be deemed to
be an original and all of which will together constitute one and the same
instrument. |
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18. | Recession Rights – The LLC acknowledges
that in the event of bankruptcy or termination of the LLC, all rights
and ownership of the patent applications will revert back to the original
inventors. |
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19. | This Letter of Agreement represents only the current
thinking of the parties with respect to certain of the major issues relating
to the proposed transaction, and will be superseded by execution of the
draft formal LLC Agreement attached as schedules hereto. |
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20. | Notwithstanding the obligations of the LLC per Section
8, by executing and returning a copy of this letter of Intent, the parties
agree that through May 5th, 2005, no party nor their respective
representatives will (a) take any action to negotiate, promote, encourage
or facilitate (including providing any information to any third party)
any transaction which is inconsistent with this Letter of Agreement, or
(b) disclose the transactions proposed in this Letter of Agreement or
any of its terms to any third party other than on a strictly need-to-know
basis. |
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21. | This Letter of Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. |
Please indicate your acceptance and approval of this Letter of Agreement by signing and returning 3 originals to us no later than February 5, 2005.
Yours Sincerely,
ENCORE CLEAN ENERGY, INC.
Per: | /s/ Xxx Xxxxxx | |
Xxx Xxxxxx |
AGREED TO THIS 2nd DAY OF February, 2005.
Per: | /s/ Xxxxxx Xxxx | |
Xxxxxx Xxxx | ||
Per: | /s/ Xxxxx Xxxxxx | |
Xxxxx Xxxxxx |