Exhibit 10(i)
FIRST AMENDED AND RESTATED AGREEMENT TO DEVELOP NATURAL GAS
TREATMENT PROJECTS USING MEHRA GAS TREATING UNITS
This FIRST AMENDED AND RESTATED AGREEMENT TO DEVELOP NATURAL GAS TREATMENT
PROJECTS USING MEHRA GAS TREATING UNITS ("Agreement") effective this 1st day of
January, 2004 is between ADVANCED EXTRACTION TECHNOLOGIES, INC., ("AET"), a
corporation organized under the laws of the State of Texas and having a usual
place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and
GATEWAY PROCESSING COMPANY ("Gateway"), a corporation organized under the laws
of the State of Texas, and having a usual place of business at ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. AET and Gateway are sometimes
hereinafter individually referred to as a "party" and collectively referred to
as "parties".
This Agreement includes Annexes which are appended to this Agreement and
which are incorporated by reference in this Agreement for all purposes. Terms
defined in Article I shall have the same meaning throughout this Agreement
including the Annexes. Defined terms may be used in the singular or in the
plural.
WHEREAS, the parties have previously entered into that Agreement to Develop
Natural Gas Treatment Projects Using Mehra Gas Treating Units dated April 27,
1994, as amended on January 6, 1997, July 1, 1998 and October 1, 2000
("Development Agreement"), and the parties desire to enter into this Agreement
in order to incorporate the amendments, amend Paragraphs 2.3 and 4.3, delete
Paragraph 2.13, renumber Paragraph 2.14 to Paragraph 2.13 and amend Annex II,
and to restate the Development Agreement in its entirety; and
WHEREAS, AET has developed a proprietary gas treating unit (referred to
herein as "Mehra Gas Treating Unit") using a proprietary process ("Mehra
Processsm") for purifying natural gas and recovering valuable coproducts; and
WHEREAS, AET owns "Patent Rights" and valuable "Know-How" concerning the
design, construction and operation of Mehra Gas Treating Units; and
WHEREAS, AET desires to license Mehra Gas Treating Units for treating
natural gas to earn licensing fees and royalties; and
WHEREAS, Gateway desires to design, construct, operate and otherwise
commercialize Mehra Gas Treating Units either individually or jointly with
others;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE 1: DEFINITIONS
As used in this Agreement:
1.1 "Affiliate" shall mean any Person (i) which, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with another Person or (ii) where such Person has substantially the
same executive officers as one or more other Persons. For the purposes of
this definition, "control" shall mean ownership of 25% or more of the
equity interest and/or voting power of the Person.
1.2 "Detailed Design" shall mean the process and instrumentation drawings,
mechanical, electrical, civil, structural and equipment design
specifications, and mechanical and process and instrumentation
specification sheets and all other specifications that a construction
contractor requires to build a Mehra Gas Treating Unit.
1.3 "Know-How" shall mean confidential information, data, and trade secrets
represented to Gateway to be owned by AET concerning the design,
construction, installation and operation of a Mehra Gas Treating Unit,
generally discussed in Annex III.
1.4 "Maximum Rated Feed Capacity" shall mean the sustainable maximum feed rate
for a Unit, measured in Standard Cubic Feet per day, which is established
as part of the Performance Guarantees for the Unit pursuant to Article 4.
1.5 "Mehra Gas Treating Unit" or "Unit" shall mean a process unit which uses
the Mehra Process technology generally discussed in Annex I to treat
natural gas. Treating natural gas includes:
i. Upgrading natural gas to marketable quality by rejecting nitrogen from
natural gas; and
ii. Recovering associated natural gas liquids or other hydrocarbon liquids
from natural gas when present and, in Gateway's sole judgment, it is
economical to do so; and
iii. Recovering helium from natural gas when present and, in Gateway's sole
judgment, it is economical to do so.
A Mehra Gas Treating Unit includes three sections which are integrated and
generally discussed in Annex I:
i. A Mehra Process Section; and
ii. A Compression Section providing, where applicable, compression for
feed gas to the Unit and/or compression for sales gas from the Unit;
and
iii. A Refrigeration Section including a propane refrigeration compressor.
As an option, a Helium Recovery Section comprised of membrane and/or
pressure swing adsorption systems may be added as a fourth section as
generally discussed in Annex I.
1.6 "Mehra Process Section" shall mean a process train comprising an
absorber-stripper tower, one or more flash drums in series, solvent pumps
and heat exchangers. A Mehra Gas Treating Unit may contain two or more
Mehra Process Sections operating in parallel.
1.7 "Natural Gas" or "Gas", whether capitalized or not, shall mean a naturally
occurring mixture of hydrocarbon and non-hydrocarbon gases containing 3
mol% or more of nitrogen found in porous geologic formations beneath the
earth's surface, often in association with petroleum. The principal
desirable constituent is methane. As used herein, this term shall also
include coalbed methane and landfill gases.
1.8 "Patent Rights" shall mean the rights to design, build, construct, operate,
sell, assign, lease, rent, install, repair, maintain, revise, and revamp
Units falling into or within the scope of any claim in the U.S. Patents
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listed in Annex II and all continuations, continuations-in-part, divisions,
reissues, reexaminations, substitutes and other U.S. Patents related to the
Mehra Process for Units owned or licensed directly or indirectly by or to
AET or its Affiliates, including all improvements to the Mehra Process.
1.9 "Person" shall mean an individual, a corporation, voluntary association,
joint stock company, business trust, partnership, proprietorship, or other
legal entity (excluding any governmental body) however constituted.
1.10 "Process Design Basis Package" shall mean process basis specifications,
information, data and instructions, including Know-How, deemed by AET to be
necessary, sufficient and useful to ensure that the Mehra Gas Treating Unit
process basis is properly employed in the process and instrumentation
drawings and other parts of the Detailed Design of the Mehra Gas Treating
Unit by the fabricator of the Unit. The scope of this information is
specified in Annex IV.
1.11 "Proposal Activities" shall mean activities conducted between Gateway and
third parties to develop business opportunities to treat natural gas using
the Mehra Gas Treating Unit.
1.12 "Proposal Technical Support" shall mean the technical information, data,
alternative comparison studies, answers to queries, participation in sales
promotions and other support activities and functions relating to Mehra Gas
Treating Units that AET may provide to Gateway to support Proposal
Activities, including where the specialized knowledge of AET is required.
Proposal Technical Support shall include preliminary planning engineering,
flow plans, energy and material balance and product yields for alternative
feed rates and compositions, evaluation of process alternatives and process
optimization, major equipment specifications, and utility requirements done
in sufficient detail so that Gateway and third parties can make preliminary
estimates of investments and operating costs.
1.13 "Standard Cubic Foot" of gas is the amount of gas in a volume of one cubic
foot at 760 mm Hg (seven hundred and sixty millimeters of mercury) absolute
pressure at a temperature of 60 (sixty) degrees Fahrenheit.
1.14 "Start-up" shall mean the period of time after the Unit is mechanically
complete in the field and natural gas flow to the Unit is initiated.
Start-up shall be considered complete when the Mehra Gas Treating Unit
operates for 200 (two hundred) continuous hours in steady state at design
conditions with no more than 20 hours cumulative downtime during the
200-hour period.
ARTICLE 2: GRANTS AND CONDITIONS
2.1 AET hereby grants to Gateway, subject to terms, covenants, conditions and
limitations set forth in this Agreement, the exclusive rights and licenses,
including Know-How and Patent Rights, in the United States to design,
construct, build, license, operate, sell, install, assign, lease, rent,
repair, maintain, revise and revamp Mehra Gas Treating Units either
individually or jointly with others including by sublicense and subcontract
for individual Units ("Grant"). Furthermore, AET shall grant the rights and
licenses set forth in this Agreement to any purchasing entity or assignee
if such rights, licenses or grants are required to consummate the
transaction or to operate or maintain the Unit.
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2.2 The Grant to Gateway shall apply to Mehra Gas Treating Units used in, or in
anyway involved with, the production of natural gas. AET hereby agrees that
it shall not design, construct, build, operate, install, lease, sell, rent
or assign a Mehra Gas Treating Unit for treating natural gas in the United
States nor grant a right or license for a Mehra Gas Treating Unit to any
other party for treating natural gas in the United States for as long as
Gateway's exclusive Grant is in force and effect.
2.3 If as of December 31, 2004 or as of any December 31st thereafter Gateway
(including any sublicensee, subcontractor, purchasing entity or assignee of
Gateway pursuant to Paragraph 2.1, and including any grantee or assignee of
AET approved by Gateway) has not installed, sold or leased a Unit or Units,
which have initiated Start-up, with a combined Maximum Rated Feed Capacity
at least equal to the Target Capacity as defined below, then AET shall have
the right to cause this Agreement to be modified as set forth herein by
giving written notice to Gateway within sixty (60) days after the end of
the calendar year for which the Target Capacity has not been met. If such
written notice is given on a timely basis, then effective at the end of a
thirty-day period following receipt of said notice by Gateway, the first
sentence of Paragraph 2.1 of this Agreement will be modified by deleting
the word "exclusive". The Target Capacity for December 31, 2004 is 20,000
Mcf per day. The Target Capacity will increase by 10,000 Mcf per day as of
the end of each calendar year thereafter.
The Maximum Rated Feed Capacity (15,300 Mcf per day) of the Unit installed
at a facility near Madisonville, Texas pursuant to License Agreement to
Practice Nitrogen Rejection Technology dated December 24, 2001 among AET,
Gateway and Hanover Compression Limited Partnership ("Hanover") is to be
included in the combined Maximum Rated Feed Capacity of Units as of
December 31, 2004 and each December 31 thereafter in determining whether or
not the Target Capacity has been achieved.
Furthermore, if Hanover or a third party enters into a license agreement in
2004 for one or more additional Units at the facility near Madisonville,
Texas and part or all of the license fees payable to AET pursuant to said
license agreement are paid prior to December 31, 2004, then the Maximum
Rated Feed Capacity of said Unit or Units shall be included in the combined
Maximum Rated Feed Capacity of Units as of December 31, 2004 and each
December 31 thereafter in determining whether or not the Target Capacity
has been achieved, notwithstanding the fact that the Unit or Units do not
initiate Start-up in 2004.
2.4 In the event a non-exclusive Grant is in effect pursuant to Paragraph 2.3,
the fees to be paid and the timing of such payments by Gateway to AET and
all other terms and conditions with respect to Mehra Gas Treating Units
shall be no less favorable to Gateway than to any other grantee, licensee
or user of the Patent Rights and Know-How.
2.5 As between AET and Gateway, Gateway is solely responsible for developing
and negotiating agreements with third parties to treat natural gas
employing the Mehra Gas Treating Units. During Proposal Activities, Gateway
may request reasonable Proposal Technical Support from AET to facilitate
negotiations between Gateway and the third party, such third parties
including Gateway Affiliates. AET will provide reasonable Proposal
Technical Support requested by Gateway in a timely manner. AET and Gateway
shall agree on the scope of the Proposal Technical Support that AET will
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provide, the fixed price that Gateway will pay AET for the Proposal
Technical Support and the time when payment is to be made. It is also
agreed that the fixed price for the Proposal Technical Support will
reimburse AET for the incremental costs incurred for performing the work,
including professional time and travel, and other direct expenses. AET
assumes no responsibility or liability for Gateway's use or application of
Proposal Technical Support Information.
2.6 When Gateway elects to construct a Mehra Gas Treating Unit, AET will
provide Gateway with a certified Process Design Basis Package for the Unit
under consideration within thirty (30) days after Gateway gives AET the
information specified in Annex IV under the heading "Mehra Gas Treating
Unit Duty Specifications". Gateway will pay AET $45,000.00 (Forty-Five
Thousand Dollars) for the Process Design Basis Package for the first Mehra
Gas Treating Unit it constructs and $30,000.00 (Thirty Thousand Dollars)
for the Process Design Basis Package for each subsequent Mehra Gas Treating
Unit it constructs. Fifty percent of the applicable payment will be made
when the Process Design Basis Package is initiated for a Unit and the
remaining fifty percent of the payment will be paid upon completion of the
Process Design Basis Package.
It is not contemplated that AET will perform functions of an engineering
and construction contractor or take on any responsibility for directing the
work of the engineering and construction contractor that Gateway selects to
design and build a Mehra Gas Treating Unit. It is contemplated that the
certified "Process Design Basis Package" shall be adequate and complete to
permit a qualified engineering and construction contractor to develop the
process and instrument drawings (P&ID), mechanical flow diagrams, and do
the detailed engineering and construction of the Mehra Gas Treating Unit.
The engineering and construction contractor selected by Gateway will
prepare in consultation with AET the P&ID's, which are typically the first
step in the detailed engineering of a process plant. Gateway and AET shall
use their reasonable efforts to have the certified Process Design Basis
Package incorporated in the P&ID's. For a new Mehra Gas Treating Unit which
is a close derivative of a previous Mehra Gas Treating Unit, the Process
Design Basis Package for the new Unit that AET prepares may be transferred
in the form of revisions and modifications to a set of P&ID's for an
existing Unit. AET shall use P&ID's and the other portions of the Detailed
Design produced by the engineering and construction contractor solely for
those purposes.
Notwithstanding the requirements in Paragraphs 2.5 and 2.6 of this Article
2, AET will provide Proposal Technical Support and the Process Design Basis
Package to Gateway for two Mehra Gas Treating Units selected by Gateway at
no initial charge to Gateway; provided, however, that if either of said
Units is constructed, Gateway will pay AET the respective Proposal
Technical Support and Process Design Basis Package fees for that Unit at
Start-up of the Unit. Gateway will advise AET prior to commencement of the
Proposal Technical Support for a Unit whether or not the Proposal Technical
Support and the Process Design Basis Package for that Unit will be subject
to this provision.
2.7 AET agrees to provide reasonable technical assistance, consultation, and
oversight to Gateway and/or to Gateway's engineering and construction
contractor for the sole purpose of properly incorporating the Process
Design Basis Package into the Detailed Design of the Mehra Gas Treating
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Unit. AET will not charge Gateway for this technical assistance; however,
Gateway will reimburse AET the cost of reasonable travel and living
expenses when the work is done away from AET's office.
2.8 During the preparation of the Detailed Design of the Mehra Gas Treating
Unit, AET will timely review the Detailed Design specifications as they are
released by the engineering and construction contractor retained by Gateway
and promptly point out to Gateway in writing all material deviations from
proper implementation of the Process Design Basis Package in the Detailed
Design; and Gateway will advise the contractor to bring the Detailed Design
into conformance with the certified Process Design Basis Package.
It is contemplated that the Mehra Process Sections will be standardized as
much as possible for all applications. However, the performance of the
Mehra Process Sections will vary with feed composition and conditions and
product specifications. It is also contemplated that the compression and
refrigeration sections will be designed and built by equipment vendors to
duty specifications provided by AET as part of the certified Process Design
Basis Package.
2.9 Before Gateway approves the final Detailed Design specifications of a Mehra
Gas Treating Unit for construction, AET shall state in writing that the
certified Process Design Basis Package has been properly incorporated into
the Detailed Design for the Unit.
2.10 AET must preapprove any contractor or consultant retained by Gateway to
work with AET's technical information. AET will not unreasonably withhold
approval.
2.11 AET, at Gateway's request, will provide one employee skilled in the Mehra
Process technology at the plant site during the installation and Start-up
period for consultation up to a maximum of sixty (60) days at no charge to
Gateway, except Gateway will pay the cost of reasonable travel and living
expenses for AET's employee.
2.12 If it is mutually agreed by AET and Gateway that a consultant who is not an
employee of AET is required to perform any of the services of AET required
or permitted under this Agreement, the cost for the consultant shall be
paid by AET, except that the cost of reasonable transportation and living
expenses of the consultant shall be paid by Gateway.
2.13 While an exclusive Grant is in existence pursuant to this Agreement,
Gateway agrees that if nitrogen must be removed from natural gas in the
United States to make the natural gas marketable Gateway will have an
ownership interest only in a Mehra Gas Treating Unit for said purpose.
ARTICLE 3: CONFIDENTIALITY
3.1 Gateway agrees to receive and maintain the Know-How, and all documentation
of it in secret and confidence. This means Gateway will take reasonable
care to ensure that the Know-How is (i) not made available to individuals
other than those required to implement this Agreement, and (ii) the
Know-How will not be used for purposes other than those contemplated in
this Agreement. However, Gateway will have no such obligations with respect
to Know-How and documentation which:
(a) was known to Gateway at the time of disclosure as evidenced by records
which were then in the possession of Gateway and its employees; or
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(b) is or has become publicly available through no fault of Gateway; or
(c) is subsequently disclosed to Gateway, its employees, or other duly
assigned representatives, by a party not under a secrecy obligation to
AET.
3.2 Gateway agrees that information relating to the Mehra Gas Treating Unit
technology provided by AET will be disclosed or made available only to
those representatives of Gateway and its consultants and contractors who
agree to receive the information under conditions set forth above and who
may require such information to assist Gateway to prepare venture proposals
and to design, build, construct, license, operate, install, sell, assign,
lease, rent, repair, maintain, revise and revamp Mehra Gas Treating Units
and to perform all other functions permitted under this Agreement.
3.3 AET agrees to receive and maintain all written information received from
Gateway and its consultants and contractors concerning the Mehra Gas
Treating Unit in secret and confidence. This means AET will take reasonable
care to ensure that such written information is (i) not made available to
individuals other than those required to implement this Agreement, and (ii)
will not be used for purposes other than those contemplated in this
Agreement. However, AET will have no such obligations with respect to such
written information which:
(a) was known to AET at the time of disclosure as evidenced by records
which were then in the possession of AET and its employees; or
(b) is or has become publicly available through no fault of AET; or
(c) is subsequently disclosed to AET, its employees, or other duly
designated representatives, by a party not under a secrecy obligation
to Gateway.
AET agrees that information relating to such written information provided
by Gateway, its consultants and contractors will be disclosed or made
available only to those representatives of AET who agree to receive the
information under the conditions set forth above and who may require such
information to assist AET to prepare venture proposals for Gateway and to
design, build, license, construct, operate, install, repair, maintain,
revise and revamp Mehra Gas Treating Units for Gateway and to perform all
other functions permitted under this Agreement.
3.4 Gateway agrees to use the Know-How only to develop business ventures using
Mehra technology to design, construct, build, operate, install, sell,
assign, lease, license, rent, maintain, repair, revise, and revamp Mehra
Gas Treating Units, and to otherwise implement the purposes contemplated in
this Agreement.
3.5 Obligations of confidentiality and secrecy under this Article 3 shall
terminate fifteen (15) years after this Agreement terminates.
ARTICLE 4: PERFORMANCE GUARANTEES
4.1 AET warrants each Mehra Gas Treating Unit will start-up and meet the
performance parameters specified for each Unit in the certified Process
Design Basis Package for the Unit ("Performance Guarantees"), subject to
the following conditions:
(a) AET has certified that the Detailed Design is in conformance with the
certified Process Design Basis Package;
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(b) The Mehra Gas Treating Unit meets generally accepted standards, codes
and practices for design and construction of process plants in the
locale where the Unit is installed in the U.S.; and
(c) The inlet natural gas composition and inlet conditions are those
specified in the certified Process Design Basis Package for the Unit.
4.2 AET makes no warranty, express or implied, for the Mehra Gas Treating Unit
with respect to its mechanical, civil and electrical design, its materials
of construction (other than as may be specified in the certified Process
Design Basis Package), purchased materials and equipment, its construction,
its compliance with OSHA, ▇▇▇▇, materials handling, and other State or
Federal safety and operating regulations and standards, its compliance with
environmental pollution control regulations (except that if subparagraph
4.1 (a), (b) and (c) are met, the projected effluents of the Unit will meet
such regulations if properly stored and vented), and its operability and
mechanical maintainability. AET accepts no responsibility or duty to
participate, and will not participate in the operation, management and
control of the Mehra Gas Treating Unit. AET accepts no liability to Gateway
or to indemnify Gateway for claims by third parties whom AET may interact
with in the course of the construction, operation and maintenance of the
Mehra Gas Treating Unit (unless the claim arises as a result of a direct
intervention or instruction by AET carried out in the operation of the
Unit), implementing its safety procedures, in compliance with OSHA and
other State and Federal safety and operating regulations and standards, and
State or Federal pollution control regulations for safety, environmental
pollution controls of the Unit and equipment.
4.3 Within thirty days after the Start-up is complete and the Unit's operating
conditions are at a steady state and free of mechanical and equipment
problems which would interfere with obtaining reliable process operating
data, at a time mutually agreed to by Gateway and AET, Gateway shall
conduct a Performance Guarantee test to obtain the performance parameters
("Performance Guarantee parameters") set out in the certified Process
Design Basis Package using the feed natural gas specified in the final
certified Process Design Basis Package. AET shall provide an observer
present at the plant site during the Performance Guarantee tests at no
charge to Gateway, except the cost of reasonable transportation and living
expenses which shall be paid by Gateway.
Accepted statistical methods will be used to determine if the Performance
Guarantee parameters are achieved based on data during a period of
reasonably lined out steady state continuous operation lasting at least 48
hours.
If the Mehra Gas Treating Unit cannot meet one or more Performance
Guarantee parameters, data will be obtained which, in the aggregate,
establish the actual performance for those parameters at best attainable
operation, and the procedures of Paragraphs 4.4 and 4.5 shall be followed.
4.4 If, at the time of Performance Guarantee testing, the inlet natural gas
composition and/or feed rate is materially different from the conditions
assumed in the certified Process Design Basis Package, then AET in
consultation with Gateway will recompute Performance Guarantees using the
materially different conditions experienced and the computation methods
used to compute the original Performance Guarantees specified in the
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certified Process Design Basis Package, and these recomputed values will
replace the values specified in the certified Process Design Basis Package
for the Unit.
4.5 If one or more Performance Guarantee parameters is not statistically
attained for the Unit and the deviation is due in whole or in part to a
deficiency in the certified Process Design Basis Package and not a
deficiency in mechanical design, equipment performance or operation, then
AET shall have the opportunity to propose reasonable modifications to
operating procedures and/or process design which can be implemented at
reasonable costs and reasonable time to bring the deficient performance
parameter up to guaranteed level. The cost and interest thereon of these
modifications will be deducted from the fees to be paid by Gateway to AET
under this Agreement and such deductions shall be credited as fees paid to
AET. If reasonable modifications to cure Performance Guarantee parameter
deficiencies are not practical or feasible and the Unit will operate
permanently at below Performance Guarantee parameters, then Gateway shall
inform AET of the lost profits and interest thereon ("Lost Profits")
Gateway or its sublicense will incur which shall be equal to the reduction
in lease or purchase payments and raised operating costs charged to Gateway
or its sublicense that are realized for the Unit, and such Lost Profits
will be deducted from the fees to be paid by Gateway to AET under this
Agreement.
ARTICLE 5: FEES
5.1 In consideration of the rights granted by AET to Gateway in this Agreement,
upon completion of the Performance Guarantee test (for each Unit), and
subject to all deductions and offsets by Gateway, including all set out in
this Agreement for all Units, including costs incurred for changes made to
a Unit as a result of changes made to the certified Process Design Basis
Package, all of which shall be considered fees paid under this Agreement,
Gateway shall pay AET the following fees for each Unit:
(a) For the Patent Rights a rate of two cents ($.02) per thousand (1,000)
Standard Cubic Feet fed to the Mehra Gas Treating Unit for so long as
there is at least one unexpired, extant U.S. Patent believed valid and
owned by AET which has at least one claim reading on the Mehra Gas
Treating Unit. The payments are due monthly for each calendar month on
the last day of the subsequent calendar month. For calendar months
beginning after the 90th day after Start-up is completed in which the
natural gas fed to any Mehra Process section is greater than zero but
less than 30,000 (thirty thousand) Standard Cubic Feet per calendar
month, the monthly payment shall be computed as if the natural gas fed
to that Mehra Process section in that calendar month were 30,000
(thirty thousand) Standard Cubic Feet of natural gas.
(b) For Know-How a rate of three ($.03) per thousand (1,000) Standard
Cubic Feet of natural gas fed to Mehra Gas Treating Units for as long
as the Unit operates. The payments are due monthly for each calendar
month on the last day of the subsequent calendar month. For calendar
months beginning after the 90th day after Start-up is completed in
which the natural gas fed to any Mehra Process section is greater than
zero but less than 30,000 (thirty thousand) Standard Cubic Feet per
calendar month, the monthly payment shall be computed as if the
natural gas fed to that Mehra Process section in that calendar month
were 30,000 (thirty thousand) Standard Cubic Feet of natural gas.
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(c) For Grade A Helium (99.995 mol% purity or higher) recovered and sold
from Mehra Gas Treating Units, for Patent Rights and Know-How, a
monthly payment of $1.00 (One Dollar) per thousand Standard Cubic Feet
of Grade A Helium recovered and sold for so long as there is at least
one unexpired, extant U.S. Patent believed valid and owned by AET
which has at least one claim reading on the Mehra Gas Treating Unit.
For non-Grade A Helium recovered and sold from the Mehra Gas Treating
Units, the payment will be $0.50 (Fifty Cents) per thousand Standard
Cubic Feet of non-Grade A Helium recovered and sold. The payments are
due monthly for each calendar month on the last day of the subsequent
calendar month.
(d) The payments Gateway makes to AET for Proposal Technical Support and
the Process Design Basis Package for a Mehra Gas Treating Unit under
Paragraphs 2.5 and 2.6 and all other deductions and offsets set out in
this Agreement for all Units shall be offset against the monthly
payments due under Paragraph 5.1.
(e) The fees specified in Paragraphs 5.1 (a), 5.1 (b) and 5.1 (c) shall
prevail for Mehra Gas Treating Units for which AET provides the
Process Design Basis Package in calendar years 1997 and 1998. For
Mehra Gas Treating Units for which AET provides the Process Design
Basis Package in calendar year 1999 and each calendar year thereafter,
the fees in Section 5.1 (a), 5.1 (b) and 5.1 (c) will be adjusted by
multiplying these base fees by a fraction of indices published by the
U. S. Department of Commerce ("Producer Price Index"), the numerator
of which is the Producer Price Index for the second previous year and
the denominator of which is the Producer Price Index for calendar year
1996. For example, the fees for a Unit for which the Process Design
Basis Package is provided in year 2000 will be determined by using as
a numerator the Producer Price Index for year 1998. The Producer Price
Index is before seasonal adjustment and the final Producer Price Index
for the month of December will be used as the index for a calendar
year.
ARTICLE 6: PATENT RIGHTS AND KNOW-HOW
6.1 AET will maintain and pay maintenance fees for the U.S. Patents listed in
Annex II. All of the U.S. Patents are currently extant.
6.2 AET represents and warrants that it is the owner of the Patent Rights and
Know-How, including as incorporated in the Mehra Gas Treating Units, and
does not require rights from the U.S. patents or know-how of any other
Person that are not obtainable through the purchase of equipment or
services for use with the Unit. AET knows of no Person presently infringing
any of the Patent Rights or who has misappropriated any Know-How, nor does
AET have any reason or notice that the Mehra Process misappropriates the
know-how or infringes extant patent(s) of any other Person. AET knows of no
reason why any of the Patent Rights are invalid or any of the Know-How
would belong to another Person or any of the Know-How is not confidential.
AET is not aware of anything or action which precludes it from entering
into this Agreement. If another party asserts that its patent rights have
been infringed or trade secrets misappropriated by the design, construction
or operation of a Mehra Gas Treating Unit and the third party obtains an
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injunction from a court of competent jurisdiction ordering the Unit to
cease operation in its current form, then all payments due AET from Gateway
are suspended during the term of the injunction. AET also hereby agrees to
indemnify and hold Gateway harmless from any money damages or awards
finally assessed by a court of competent jurisdiction, for patent rights
infringed or trade secrets misappropriated by the Mehra Gas Treating Units,
subject to the following provisions:
(a) Gateway must promptly notify AET in writing of any notice Gateway
receives claiming or asserting that a Mehra Gas Treating Unit
infringes a patent or misappropriates a trade secret, and lend all
reasonable assistance, at AET's expense, in the defense or settlement
of such suit.
(b) If modifications to a Mehra Gas Treating Unit are required to avoid
infringement or use of misappropriated technology, AET shall use its
best efforts to determine such modifications and propose them to
Gateway, and if such modifications are approved by AET and Gateway,
then AET will pay for half the modifications and Gateway will pay for
half the modifications. Gateway will be entitled to recover any
payments it makes from future payments due AET under this Agreement.
6.3 AET shall bear the expense and shall have sole and complete control of the
defense and settlement of all aspects of any suit with respect to which AET
may have an obligation to indemnify Gateway under Paragraph 6.2. Gateway
may, if it desires, employ counsel of its own choice and at its own
expense, to monitor the progress of such suit with complete cooperation
from AET's counsel and, if Gateway desires, to assist (in a manner not
inconsistent with the direction of AET's counsel, which shall be lead
counsel) in the defense, but shall not have the power or authority, express
or implied, to settle, adjust or compromise any aspect of the suit in such
a fashion as to impose any obligation upon AET for indemnification or
otherwise.
6.4 If Gateway shall have given AET notice, as provided in Paragraph 6.2, of a
claim by a third party which would be subject to indemnification under
▇▇▇▇▇▇▇▇▇ ▇.▇, ▇▇▇▇▇▇▇ shall, at AET's written request detailing the
required remedy or mitigation in the operation of the Unit without
structural modification and which is safe, modify its practices in such a
manner as in AET's judgment, as set out in the written request may avoid or
materially limit the claim for infringement or misappropriation. If Gateway
is required to shut down the Unit to comply with this provision or a
judgment rendered by a court because the Unit infringes the patent rights
of a third party or misappropriates technology of a third party, then at
Gateway's request AET will purchase the Unit from Gateway for the cost of
the Unit excluding its installation expense. If such modifications under
Paragraph 6.2 (b) or 6.4 increase the expense or lower the output of
Gateway's operations, Gateway may offset the value of Lost Profits to
Gateway from fees payable to AET. If Gateway shall fail to reasonably
comply with AET's said written request, AET shall thereupon be discharged
from any further obligations or liabilities to Gateway accruing thereafter
under Paragraph 6.2.
ARTICLE 7: IMPROVEMENTS AND ACCESS
7.1 AET will timely inform Gateway in writing of modifications to Mehra Gas
Treating Units which, in the judgment of AET, can significantly improve
performance of Mehra Gas Treating Units ("Improvements") and the Grant
shall thereafter include all such Improvements therein.
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7.2 Improvements to Mehra Gas Treating Units developed by Gateway during the
term of this Agreement shall be the property of AET. Improvements shall
include inventions which are statutory subject matter that can be patented
under U.S. patent laws, 35 U.S.C., and also knowledge that can be
classified as trade secrets. AET has the primary responsibility and will
bear the cost for identifying, assimilating, transferring, patenting and
protecting the Improvements. AET will notify Gateway of those Improvements
to Mehra Gas Treating Units and file the patent applications. Gateway will
cooperate with AET in this endeavor. From time to time, but not more often
than six (6) month intervals, Gateway shall allow AET reasonable access to
Gateway's operating Mehra Gas Treating Units, at times to be mutually
agreed upon, during which AET may observe operation of the Units. AET may
require Gateway to perform reasonable plant tests, and record operating
data, but without interfering with or upsetting operation of the Mehra Gas
Treating Unit. Gateway will contract with its employees to assign
patentable improvement inventions to the Mehra Process technology to AET
and use reasonable efforts to cause such inventors to assign such patents
to AET. The cost of patenting Improvement inventions, including reasonable
reimbursement for the value of the time Gateway's employees expend on
preparing patents, will be borne by AET.
7.3 From time to time, at times to be mutually agreed upon, Gateway shall allow
AET, accompanied by representatives of prospective licensees of Mehra
Process technology, access to Gateway's Mehra Gas Treating Units, so that
AET can show the Unit to prospective licensees to promote licensing of
Mehra Process technology. These visits shall not interfere with operation
of the Mehra Gas Treating Units.
ARTICLE 8: TERMINATION
8.1 AET may terminate this Agreement thirty (30) days after the effective date
of a written notice to Gateway in the event Gateway:
(a) fails to make, within the thirty (30) day period set by the notice,
any payment which is due and payable pursuant to this Agreement and
has been in arrears for more than one (1) month; or
(b) commits a material breach of Article 3: Confidentiality of this
Agreement which is not cured (if capable of being cured) within the
thirty (30) day period set by the notice; or
(c) becomes insolvent or a petition in bankruptcy is filed against Gateway
and is consented to, acquiesced in, or remains undismissed for ninety
(90) days; or makes a general assignment for the benefit of creditors,
or a receiver is appointed for Gateway, and Gateway does not return to
solvency before the expiration of said thirty day period set by the
notice;
provided that if there is a dispute of such arrears or breach, termination
shall not be effective until a determination of such arrears or breach has
been made in accordance with Paragraph 9.8 and Gateway is given thirty (30)
days thereafter to cure such arrears or breach.
8.2 Gateway may terminate this Agreement at any time following thirty (30) days
written notice to AET.
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8.3 Upon termination of this Agreement, and except as otherwise expressly
provided herein, AET will be under no obligation to provide new Grants to
Gateway under the terms of this Agreement. However, in the event of
termination, Gateway has the right to continue design and construction of
all Units that have been started, and to continue negotiations and
consummate ventures with third parties which were in progress prior to the
serving of termination notice and the Grants for all such Units that result
from such activities shall be made and continue. Within sixty (60) days
after the effective date of termination, Gateway will provide AET with a
list of all such ventures to be covered by the Grant.
8.4 Termination of this Agreement shall not affect Gateway's right to continue
the operation of all Units that have been built and its obligations to pay
the fees set forth in Article 5, or the Confidentiality obligations set
forth in Article 3, or the Performance Guarantees of Article 4 or the
Patent Rights and Know-How indemnities and protection of Article 6, or for
purposes of Paragraph 8.3, the Proposal Technical Support and the certified
Process Design Basis Package and the Detailed Design, installation and
start-up support of Article 2, and all sublicenses granted by Gateway to
third parties as of the date of termination and all sublicenses granted
pursuant to Paragraph 8.3.
8.5 Waiver by either party of a single default or breach or of a succession of
defaults or breaches shall not deprive such party of any right to terminate
this Agreement pursuant to the terms hereof upon the occasion of any
subsequent default or breach.
ARTICLE 9: GENERAL PROVISIONS
9.1 This Agreement contains all the understandings and representations between
the parties relating to this Agreement. This Agreement supersedes any
Agreements previously entered into between the parties. Neither party is
relying on representations or oral understandings previously entered into
between them. This Agreement may be amended only by a written supplement
duly executed on behalf of the respective parties.
9.2 Notices shall be in writing and sent by registered mail return receipt
requested to the last known address of the receiving party. The date the
notice is received is the effective date of the notice.
9.3 This Agreement shall be interpreted in accordance with the laws of the
State of Texas.
9.4 This Agreement may be assigned by Gateway to any one or more of its
subsidiaries or Affiliates or to the successor and assigns of substantially
its entire business or assets. AET may assign its rights under this
Agreement to one of its subsidiaries or the successors and assigns of
substantially the entire business or assets of AET. All assignments are
subject to the terms, covenants, conditions, and limitations set forth in
this Agreement. Neither party may make any other assignment of its rights
under this Agreement without prior written consent of the other party.
9.5 Except as otherwise provided in this Agreement, AET shall not be liable to
Gateway in any dispute or litigation for incidental, consequential,
indirect or special damages, including lost business profits and capital
investments even if the damages were foreseeable and/or Gateway gave AET
notice that such damages might be incurred.
9.6 If any part of this Agreement is adjudicated to be void, invalid or
unenforceable, the validity of the remainder of the provisions of the
Agreement shall not be affected.
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9.7 Any delays in or failure by either party in performance of any obligations
hereunder shall be excused if and to the extent the cause of the deviation
was beyond such party's reasonable control, including, but not limited to,
such occurrences as acts of God, strikes and other labor disturbances, war,
and other causes which cannot be reasonably controlled by the party which
failed to perform. The obligation to pay money in a timely manner is
absolute and shall not be subject to this Force Majeure provision.
9.8 The parties agree to initially attempt to resolve any dispute or
controversy arising out of this Agreement through non-binding mediation in
Houston, Texas by a mediator chosen by the parties. The cost of such
mediation shall be borne equally by each party. Upon the earlier of (i) the
mediation failing to resolve the dispute or controversy to the satisfaction
of both parties within fourteen (14) days from its commencement or (ii)
twenty-eight (28) days from written notice by either party that a dispute
exists between the parties, even if no mediation has occurred, such dispute
or controversy shall be arbitrated in Houston, Texas under the Commercial
Arbitration Rules of the American Arbitration Association. Any resulting
award shall be final, binding and nonappealable. Judgment may be entered
thereon in any Civil District Court in ▇▇▇▇▇▇ County, Texas or any other
court of competent jurisdiction to enforce it. The cost of arbitration
shall be borne as awarded by the arbitrator.
ARTICLE 10: AET PROJECT PARTICIPATION
10.1 If Gateway participates in one or more Plant Projects, as said term is
defined in Paragraph 10.2, in the United States, then AET shall have the
option to participate in each such Plant Project. AET may elect to have an
ownership interest in the Plant Project between a minimum of 10% and a
maximum of 25% if Gateway initially owns 100% of the ownership interest in
the Plant Project, or a proportionately reduced minimum and maximum range
of ownership interest in such Plant Project if Gateway initially owns less
than 100% of such ownership interest. For example, if Gateway has an
initial 60% ownership interest in a Plant Project, then AET may elect to
take a minimum of 6% up to a maximum of 15% ownership interest in the Plant
Project.
10.2 The term Plant Project for the purpose of this Article 10 means the
construction, installation and operation of a Mehra Gas Treating Unit.
10.3 If Gateway proposes to participate in a Plant Project, Gateway will provide
AET with an Authority for Expenditure ("AFE") setting forth the estimated
capital costs for the Plant Project and a financial pro-forma of the
proposed Plant Project. AET will have thirty (30) days from the receipt of
such information to return the executed AFE to Gateway indicating its
election to participate in such Plant Project and the extent of its
ownership percentage consistent with Paragraph 10.1. Failure of AET to
return the executed AFE to Gateway in a timely manner will be deemed an
election by AET not to participate in the Plant Project. If AET elects to
participate in a Plant Project, then AET shall pay its ownership interest
percentage of: (a) all capital costs set forth in the AFE pertaining to the
Plant Project and (b) all operating and maintenance costs associated with
the Plant Project.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
ADVANCED EXTRACTION TECHNOLOGIES, INC. GATEWAY PROCESSING COMPANY
By: By:
----------------------------------- ----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and CEO President and CEO
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ANNEX I
MEHRA GAS TREATING UNIT
A Mehra Gas Treating Unit is a process unit that uses non-cryogenic,
absorption-based Mehra Processsm technology to: 1) reject nitrogen from natural
gas; 2) flexibly recover ethane, propane, butane and heavier hydrocarbons from
natural gas; and 3) recover concentrated helium from natural gas. Figure 1 is a
simplified flow plan of the Hugoton Demonstration Unit which is a typical
embodiment of a Mehra Gas Treating Unit for nitrogen rejection.
Referring to Figure 1, the natural gas feed entering the unit is dried by
contacting it with ethylene glycol which absorbs water vapor. The natural
gas/glycol mixture is cooled in coolers. During cooling hydrocarbon liquids
condense out of the natural gas. The natural gas stream is passed through a
separator where a wet glycol stream and a condensed hydrocarbon stream are
separated from the natural gas stream. The wet glycol stream is conveyed through
a glycol reboiler where water is boiled out of the glycol and the dry glycol is
recycled back into the incoming natural gas feed stream. The recovered
hydrocarbon liquids can be sold for fuel or chemical feed or fed into the
natural gas product stream, as market conditions dictate.
The uncondensed gases from the separator are fed into the absorber where
they are contacted with lean solvent. The solvent absorbs methane and higher
hydrocarbons from the feed and leaves the absorber as the rich solvent absorber
bottoms stream. Nitrogen, and helium if present, leaves the tower in the
absorber overhead gas stream.
The rich solvent absorber bottoms stream is flashed to reduced pressure in
the first flash drum. The flash gas from the first flash drum is compressed and
fed into the bottom of the absorber as the absorber stripping gas. The bottoms
stream from the first flash drum is conveyed to reduced pressure through one or
more additional flash drums in series. The flash-regenerated solvent stream from
the last flash drum is pumped through a cooler and then fed into the absorber as
the lean solvent stream. No heat is added to the flashing solvent.
The overhead gas streams from the additional flash drums are compressed and
combined to form the natural gas product stream.
The Unit includes a refrigeration system to provide refrigerant for coolers
in the Unit.
The feed is cooled by heat exchange against cold product streams leaving
the unit to reduce refrigeration power consumption.
Any helium in the natural gas feed leaves the process in the absorber
overhead gas stream along with nitrogen. Helium can be concentrated and
recovered by feeding the absorber gas stream into a Helium Recovery Unit before
releasing the stream to the atmosphere.
There are several options that can be added to the Mehra Gas Treating Unit.
An expander can be installed in the absorber overhead line to recover shaft work
from letting the pressure of the absorber overhead stream down to exit pressure.
Turbines can be installed upstream of the flash drums to recover shaft work from
the flashing solvent streams.
It is contemplated that Mehra Gas Treating Units will be constructed in
sections with each section built on a skid module which can be transported over
land by rail or truck. It is contemplated that the Mehra Process Sections will
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be standardized with only minor modifications, not including changes in the
P&ID's, required to adapt the Unit to a specific application. The gas and
refrigeration compressors will be mounted on their respective skids. The
remaining equipment comprised of flash drums, separators and exchangers will
also be skid mounted. It is likely that the absorber column will be installed
off-skid. If a helium recovery section is specified it will be mounted
separately on additional skids. These sections will be built in factories and
transported to the Unit site where the sections will be placed on foundations,
connected and supplied with utilities. The Mehra Process module will be built in
a vendor factory to meet the certified Process Design Basis Package. The
refrigeration and compressor modules will be fabricated by suitable equipment
vendors to meet duty specifications which meet the requirements of the certified
Process Design Basis Package.
A Mehra Gas Treating Unit may consist of one or more standardized Mehra
Process Sections operating in parallel. However, it is contemplated that only
one refrigeration and one compressor module sized to service all the Mehra
Process Sections in the Unit will be provided. Additional feed gas compression
and acid gas removal facilities may be provided as necessary for a specific
application of the Mehra Gas Treating Unit. Liquid product stabilization system
may additionally be provided.
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[GRAPHIC OMITTED]
FIGURE I
HUGOTON DEMONSTRATION UNIT
ANNEX II
U.S. PATENTS INCLUDED IN PATENT RIGHTS
Patent Number Issue Date
------------- ----------
4,511,381 Apr. 16, 1985
4,526,594 Jul. 2, 1985
4,578,094 Mar. 25, 1986
4,617,038 Oct. 14, 1986
4,623,371 Nov. 18, 1986
4,680,042 Jul. 14, 1987
4,692,179 Sep. 8, 1987
4,695,672 Sep. 22, 1987
4,696,688 Sep. 29, 1987
4,832,718 May 23, 1989
4,883,514 Nov. 28, 1989
4,883,515 Nov. 28, 1989
5,224,350 Jul. 6, 1993
5,551,972 Sep. 3, 1996
S/N 10/315,745 Filed Dec. 10, 2002*
* Approved, awaiting patent number assignment.
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ANNEX III
MEHRA GAS TREATING UNIT
KNOW-HOW
Following is a listing of confidential subject areas considered to be
Know-How, for which all written documents shall be marked "Confidential".
1. Solvents and solvent selection criteria.
2. Flow sheet configurations and heat and material balances.
3. Criteria adapting and optimizing process designs for specific
applications.
4. Criteria for selecting process options.
5. Mass transfer efficiency data for various types of trays and packings
used in Mehra Process towers and flash drums.
6. Heat transfer coefficients of heat exchangers.
7. Instrumentation systems used to control and monitor Units.
8. Systems used to control solvent inventory and minimize solvent losses.
9. Design and equipment specifications.
10. Operating manuals.
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ANNEX IV
MEHRA GAS TREATING UNIT
DUTY SPECIFICATIONS
1. Natural gas feed rate, Standard Cubic Feet per day.
2. Feed inlet composition, pressure and temperature.
3. Composition (heating value), moisture content, hydrocarbon dewpoint,
pressure and temperature of upgraded sales gas at battery limits.
4. Specifications of other product streams at battery limits.
5. Fraction of methane and byproducts in feed to be recovered.
PROCESS DESIGN BASIS PACKAGE
1. Process design flow plans showing major equipment and key control
systems.
2. Material and energy balance with stream temperatures and pressures.
3. Process description and design considerations based on operating
experience.
4. Internal specifications for mass transfer units and mass transfer
efficiencies for all separations.
5. Absorption solvent specifications.
6. Performance Guarantee parameters for flow capacity, component recovery
and energy consumption.
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