**Exhibit 10.4**

 

**TECHNOLOGYLICENSE AND SERVICES AGREEMENT**

 

**by andbetween**

 

**O2DIESELEUROPE, PLC**

 

**and**

 

**KL PROCESSDESIGN GROUP, LLC**

 

**March 6,2008**

 

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[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTEDWITH RESPECT TO THE OMITTED PORTIONS. OMITTED TEXT IS INDICATED BY A “*”.

 

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**TECHNOLOGY LICENSE AND SERVICES AGREEMENT**

** **

This TECHNOLOGY LICENSE AND SERVICES AGREEMENT (the “Agreement”)is entered into as of March 6, 2008 (the “Effective Date”) by andbetween the O2Diesel Europe, Plc, a corporation organized under the laws ofIreland, with its registered office at 5 Lapps Quay, Cork, Republic of Ireland(“O2Diesel”), and KL Process Design Group, LLC, a South Dakota limitedliability company, with its principal place of business at 2693-C CommerceRoad, Rapid City, South Dakota 57702 (“KL”).  O2Diesel and KL are each a “Party” andcollectively, the “Parties”.

 

WHEREAS, KL is theowner of certain proprietary processes relating to the production of ethanolfrom alternative feedstocks;

 

WHEREAS, O2Dieseldesires to receive, and KL is willing to grant to O2Diesel, an exclusivelicense with respect to such proprietary processes in the Territory;

 

WHEREAS, inconnection with the exercise of such licensed rights, O2Diesel desires toidentify locations, partners, and opportunities related to the development andconstruction of facilities for the production of ethanol utilizing suchproprietary processes; and

 

WHEREAS, O2Dieseldesires to procure from KL, and KL is willing to develop and provide, designservices, technical specifications and engineering plans related to theconstruction of such facilities.

 

NOW, THEREFORE, inconsideration of the foregoing, of the mutual covenants and undertakingscontained herein and of other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the Parties, intending to belegally bound, hereby agree as follows:

 

**1.****             DEFINITIONS**

 

In addition to the other terms defined elsewhereherein, the following terms shall have the following meanings when used herein(any term defined in the singular shall have the same meaning when used in theplural and vice versa, unless stated otherwise):

 

1.1           “Affiliate”with respect to any Party, shall mean any individual or entity controlling,controlled by or under common control with, such Party, for only so long assuch control exists.  For these purposes,“control” shall refer to (i) the possession, directly or indirectly, ofthe power to direct the management or policies of an entity, whether throughthe ownership of voting securities, by contract or otherwise, or (ii) theownership, directly or indirectly, of at least fifty percent (50%) of thevoting securities or other ownership interest of an entity.

 

1.2           “BankruptcyCode”**means the United States FederalBankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.).

 

1.3           “BankruptcyEvent” means: (i) a Party (a) ceases or fails to be solvent, orgenerally fails to pay, or admits in writing its inability to pay, its debts asthey become due, subject to applicable grace periods, if any, whether at statedmaturity or otherwise; (b) voluntarily ceases to conduct its business inthe ordinary course; (c) commences any Insolvency Proceeding with respectto itself; or (d)

 

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takes any action to effectuate or authorize any of the foregoing; or (ii) (a) anyinvoluntary Insolvency Proceeding is commenced or filed against a Party, or anywrit, judgment, warrant of attachment, execution or similar process, is issuedor levied against a substantial part of the Company’s assets or properties, andany such proceeding or petition shall not be dismissed, or such writ, judgment,warrant of attachment, execution or similar process shall not be released,vacated or fully bonded within 60 days after commencement, filing or levy; (b) aParty admits the material allegations of a petition against it in anyInsolvency Proceeding, or an order for relief (or similar order under non-U.S.law) is ordered in any Insolvency Proceeding; or (c) a Party acquiesces inthe appointment of a receiver, trustee, custodian, conservator, liquidator,mortgagee in possession (or agent therefor), or other similar person for itselfor a substantial portion of its assets, property or business.

 

1.4           “Changein Control” means, and shall be deemed to have occurred upon (as thecontext requires):

 

(a)           anyconsolidation or merger of KL with or into any other Person, or any othercorporate reorganization, in which the stockholders of KL (in the aggregate)immediately prior to such consolidation, merger or reorganization, own lessthan fifty percent (50%) of the voting power of the surviving entityimmediately after such consolidation, merger or reorganization;

 

(b)           anytransaction or series of related transactions in which in excess of (i) fiftypercent (50%) of KL’s then outstanding voting power is transferred or (ii) fiftypercent (50%) of KL’s then outstanding voting and non-voting securities, takentogether, is transferred;

 

(c)           asale, assignment, lease or other disposition of (i) all or substantiallyall of the assets of KL or (ii) all or substantially all of the assets ofKL relating to the Licensed Process; or

 

(d)           anyPerson or group of related Persons becoming entitled to elect a majority of theBoard of Directors (or any successor governing body) of KL.

 

1.5           “Claims”shall have the meaning set forth in Section 9.1.

 

1.6           “ConfidentialInformation” shall have the meaning set forth in Section 7.1.

 

1.7           “ConstructionBudget” means the budget established by the Project Representative in theProject Requirements for the construction of a Project, including constructioncontingency, the Construction Manager’s fee and other allowances for items andservices required for completion of a Project.

 

1.8           “ConstructionManager” shall have the meaning set forth in Exhibit D.

 

1.9           “Control”(including any variations such as “Controlled” and “Controlling”),in the context of Intellectual Property Rights, shall mean rights to suchintellectual property sufficient to grant the applicable license under thisAgreement without infringing or misappropriating the intellectual propertyrights of any Third Party or breaching or otherwise conflicting with the termsof an agreement with any Third Party.

 

1.10         “CoveredTransaction” means****a sale, license, assignment or other dispositionby KL of Intellectual Property Rights related to the Licensed Processother than a license solely outside of the Territory.

 

1.11         “Designand Engineering Services Contract” shall have the meaning set forth in Section 3.4.

 

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1.12         “DisclosingParty” shall have the meaning set forth in Section 7.1.

 

1.13         “ExtensionTerm” shall have the meaning set forth in Section 8.1.

 

1.14         “GovernmentalApproval” means any material consent, authorization, certificate, permit,right-of-way grant or approval of any Governmental Authority that is necessaryfor the construction of a Production Plant or the manufacture and commercialsale in the Territory of Products produced at such Production Plant inaccordance with applicable Laws.

 

1.15         “GovernmentalAuthority” means any court or tribunal in any jurisdiction or any foreign,federal, state, provincial, regional, tribal, municipal or local government orother governmental body, agency, authority, department, commission, board,bureau, instrumentality, arbitrator or arbitral body or any quasi-governmentalor private body lawfully exercising any regulatory or taxing authority.

 

1.16         “InitialTerm” shall have the meaning set forth in Section 8.1.

 

1.17         “InsolvencyProceeding” means, with respect to any Person, (i) any case, action orproceeding with respect to such Person before any court or other governmentalagency or authority relating to bankruptcy, reorganization, insolvency,liquidation, receivership, dissolution, winding-up or relief of debtors or (ii) anygeneral assignment for the benefit of creditors, composition, marshalling ofassets for creditors, or other, similar arrangement in respect of its creditorsgenerally or any substantial portion of its creditors, in either caseundertaken under U.S. Federal, state or foreign law, including the BankruptcyCode.

 

1.18         “IntellectualProperty Rights” means any and all of the following and all rights in,arising out of or associated therewith: (i) all United States,international and foreign patents and applications therefor and all reissues,divisions, renewals, extensions, provisionals, continuations andcontinuations-in-part thereof; (ii) all inventions (whether patentable ornot), invention disclosures, and improvements; (iii) trade secrets,proprietary information, know how, technology, technical data and customerlists, and all documentation relating to any of the foregoing; (iv) worksof authorship and all copyrights, copyright registrations and applicationstherefor, and all other rights corresponding thereto throughout the world; (v) allindustrial designs and any registrations and applications therefor throughoutthe world; (vi) all trade names, logos, common law trademarks and servicemarks, trademark and service mark registrations and applications thereforthroughout the world; (vii) all databases and data collections and allrights therein throughout the world; (viii) all moral and economic rightsof authors and inventors, however denominated, throughout the world; and (ix) anysimilar or equivalent rights to any of the foregoing anywhere in the world.

 

1.19         “Laws”means any applicable statute, environmental law, common law, rule, regulation,judgment, order, ordinance, writ, injunction or decree issued or promulgated byany Governmental Authority.

 

1.20         “LicensedKnow-How” means (i) any and all inventions, discoveries, developments,claims, formulae, processes, trade secrets, information, works of authorship,technology, ideas, concepts, techniques, methods, know-how (includingconfidential data and Confidential Information), conversion technologies, andscientific, technical, regulatory and other proprietary information, whether ornot patentable, relating to, derived from or useful for the practice of theLicensed Process or the development, manufacture, use, sale, distribution orexploitation of the Licensed Products, and any upgrades, enhancements or otherimprovements to and components of any of the foregoing that (ii)

 

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at any time during the Term are owned or Controlled by KL or itsAffiliates.  The Licensed Know-Howincludes, without limitation, the information and know-how described on Exhibit A.

 

1.21         “LicensedPatents” means any and all Patent Rightsunder any patents owned or Controlled by KL or its Affiliates at any timeduring the Term that relate to or may be useful for the research, development,use, improvement, sale, offer for sale, distribution, importation, exportationor other exploitation of the Licensed Products or Licensed Processes, andincludes all upgrades, enhancements and other improvements to any of the foregoing. Licensed Patents include without limitation the patents andpatent applications listed on Exhibit B.

 

1.22         “LicensedProcess” means any and all processes relating to the manufacture of ethanolfrom feedstocks other than a simple sugar or starch and all upgrades,enhancements and other improvements thereto and components thereof, includingany and all processes covered or claimed by the Licensed Patents or utilizingLicensed Know-How.

 

1.23         “LicensedProducts” means any product derived from the practice of a LicensedProcess, including, without limitation, ethanol or bio-fuel produced fromfeedstocks other than a simple sugar or starch, and all upgrades, enhancementsand other improvements thereto and components thereof.

 

1.24         “Losses”means losses, liabilities, suits, claims, costs, expenses (including reasonableattorneys’ fees), penalties, fines, judgments and/or damages (includingpersonal injury or property damages).

 

1.25         “PatentRights” means any and all rights underany patents, patent applications and patents issuing on such patent applications,together with any continuations, continuations-in-part, divisionals, reissues,renewals, reexamination certificates, substitutions, extensions, supplementaryprotection certificates or certificates of invention with respect to any of theforegoing.

 

1.26         “Person”means a natural person, a corporation, a partnership, a limited liabilitycompany, a trust, a joint venture, any governmental authority or any otherentity or organization.

 

1.27         “NameplateCapacity” means a Production Plant’s production capacity, in liters ofethanol per year, based on an assumed operating year of three hundred fifty(350) days per year 24 hours per day.

 

1.28         “Owner”shall have the meaning set forth in Section 3.2.

 

1.29         “Parent”shall have the meaning set forth in Section 4.1.

 

1.30         “ProcessDesign Documents” means, with respect to any Project, all drawings,schematics, renderings and other documents that fix and describe the size andcharacter of an entire Project as to structural, mechanical, process andproduction systems, materials and such other elements as may be appropriate forfull functioning of a Project at such Project’s desired Nameplate Capacity, inany format reasonably requested by Project Representative.

 

1.31         “ProductionPlant” means a facility where, pursuant to the rights granted in thisAgreement, the Licensed Processes will be practiced in the Territory.

 

1.32         “Project”shall have the meaning set forth in Section 3.2.

 

1.33         “ProjectEngineer” shall have the meaning set forth in Section 3.4.

 

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1.34         “ProjectRepresentative” shall have the meaning set forth in Section 3.3.

 

1.35         “ProjectRequirements” means the Owner or the Project Representative’s initialoverview document for each Project that (i) establishes the designobjectives, constraints, and criteria for such Project; (ii) specifies theNameplate Capacity, space requirements and relationships, flexibility andexpandability, special equipment and systems and site requirements for suchProject; (iii) establishes such Project’s Construction Budget; and (iv) includesany other information or requirements for such Project.

 

1.36         “ReceivingParty” shall have the meaning set forth in Section 7.1.

 

1.37         “RoyaltyFee” shall have the meaning set forth in Section 4.2.

 

1.38         “RoyaltyPeriod” shall have the meaning set forth in Section 4.2.

 

1.39         “Securities”shall have the meaning set forth in Section 4.4.

 

1.40         “Services”shall have the meaning set forth in Section 3.3.

 

1.41         “Solicit”means engage, contact, discuss, negotiate or otherwise communicate with,directly or indirectly, a Third Party.

 

1.42         “Specifications”means the specifications, tests, minimum requirements and other standardspertaining to the Licensed Product all as set forth in Exhibit Cand as may be modified from time to time by mutual written agreement.

 

1.43         “TechnologyFee” shall have the meaning set forth in Section 4.1.

 

1.44         “Term”shall have the meaning set forth in Section 8.1.

 

1.45         “Territory”means India and all countries of Europe, including, without limitation,Albania, Andorra, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria,Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania,Luxembourg, Macedonia, Malta, Moldova, Monaco, Netherlands, Norway, Poland,Portugal, Romania, Russia, San Marino, Serbia and Montenegro, Slovakia (SlovakRepublic), Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, UnitedKingdom and Vatican City.

 

1.46         “ThirdParty” means any Person that is not a Party to this Agreement and that doesnot control and is not controlled by or under common control with a Party.

 

2.**             LICENSE**

 

2.1           **License Grant.**  As ofthe date hereof, and subject to the terms and conditions hereof, KL herebygrants to O2Diesel, and O2Diesel hereby accepts, a sole and exclusive(including with respect to KL) license during the Term, under the LicensedPatents and Licensed Know-How to practice the Licensed Processes in theTerritory and to research, develop, make, have made, use, market, offer forsale, sell and/or have sold, import, export, distribute and otherwise exploitand have exploited any Licensed Products in the Territory.

 

2.2           **Sublicensing Rights.** The foregoing license grant shall include theright of O2Diesel to grant sublicenses (through multiple tiers of sublicensors)to any Third Party in the Territory, subject to KL’s approval, which shall notbe unreasonably withheld or delayed. O2Diesel shall provide 

 

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KL with notice of the grant of any sublicense to a Third Party.

 

2.3           **Retained Rights.**  KLshall retain all rights with respect to the Licensed Patents and LicensedKnow-How outside of the Territory and, subject to the terms of this Agreement,nothing herein shall be construed as limiting those rights outside theTerritory.

 

2.4           **Technology Transfer.** Within sixty (60) days after the Effective Date, KL shall disclose andprovide O2Diesel with copies of any and all Licensed Know-How existing as ofthe Effective Date that is material to or reasonably required to enableO2Diesel and its Affiliates to practice the Licensed Process to produceLicensed Products satisfying the Specifications.  In addition, at such times throughout theTerm as reasonably requested by O2Diesel, KL shall provide to O2Diesel, itsAffiliates and sublicensees using competent and knowledgeable personnel suchtechnical assistance as reasonably required to enable O2Diesel and itsAffiliates to practice the Licensed Process to produce Licensed Productssatisfying the Specifications. Throughout the Term, KL shall promptly notify O2 Diesel of any materialchanges to the existing Licensed Know-How and shall provide O2 Diesel withcopies of any such updates on a quarterly basis or and at such times asreasonably requested by O2Diesel.  KLshall incur the reasonable costs associated with the technical transfer andother cooperation provided by KL pursuant to this Section.

 

2.5           **Further Assurances. **KLagrees to take such further actions, and to execute and deliver such furtherinstruments and documents, as may be reasonably necessary to accomplish thetransactions contemplated hereby and to vest the rights granted herein toO2Diesel within the Territory.  KL shallnot take any actions inconsistent with the rights granted to O2Diesel and itsAffiliates herein.

 

2.6           **Use of Affiliates.** Notwithstanding any other provision of thisAgreement, any or all of O2Diesel’s rights or obligations hereunder, atO2Diesel’s option, may be exercised or performed by or transferred to anyAffiliate of O2Diesel.  O2Diesel shallremain primarily liable to KL for performance and compliance with all of itsobligations hereunder notwithstanding the transfer of any of such obligationsto an Affiliate.

 

3.**            ****DEVELOPMENT OF PRODUCTION PLANTS**

 

3.1           **Development of Production Plants. **O2Diesel shall use commercially reasonable efforts (a) toidentify opportunities to develop and construct Production Plants in theTerritory for the production of Licensed Products and (b) to commenceconstruction of a Production Plant in the Territory on or before the fifthanniversary of the Effective Date.  SuchProduction Plants may be developed by O2Diesel alone or together with ThirdParties, or by one or more Third Party’s designated by O2Diesel.  Such efforts may include, without limitation,(i) identifying locations and real estate on which to build and developone or more Production Plants in the Territory; (ii) identifying ThirdParties who may be interested in partnering with O2Diesel in the constructionand management of Production Plants and/or the subsequent production ofLicensed Products; and (iii) engaging a general contractor or otherconstruction firm to build a Production Plant. O2Diesel shall have the right to select Third Parties, including jointventures in which it is a participant, to perform or participate in theownership, development, construction and operation of Production Plants.  O2Diesel may choose in its sole discretionwhether to engage in such activities alone or with one or more Third Partiesselected by O2Diesel and how to structure the commercial arrangements with suchThird Parties with respect thereto.

 

3.2           **Construction Projects. **O2Dieselshall notify KL each time it elects to proceed with the development andconstruction of a Production Plant in the Territory and whether such ProductionPlant shall be owned by O2Diesel or a Third Party designated by O2Diesel, suchas a joint venture 

 

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established to operate such plant (such entity, the “Owner”).  The development and construction of eachProduction Plant that O2 Diesel elects to proceed with shall be referred toherein as a “Project.”  O2Dieseland its Affiliates shall have no obligation to proceed with any Projects.

 

3.3           **Process Design Services.   **Inconnection with each Project, KL agrees to provide to O2Diesel and itsAffiliates, the Owner, or such other Third Party as designated by O2Diesel(such entity the “Project Representative”) the services set forth on Exhibit D,as such Exhibit may be modified by mutual written agreement of the Partieswith respect to any particular Project (the “Services”) for the fees setforth in Section 4.1.  Such Servicesshall be provided upon the Project Representative’s written request on theschedules agreed to therein.

 

3.4           **Design and Engineering Services. **After acceptance of the Process Design Documents by theProject Representative as set forth in Exhibit D, the ProjectRepresentative and KL shall cooperate in selecting an engineering orarchitecture firm to provide construction and engineering design services foran individual Project (a “Project Engineer”).  The Owner shall enter into an agreed upondesign and construction services contract setting forth in greater detail eachof the Project Representative, Project Engineer and KL’s rights and obligationswith respect to such Project, which contract shall be on customary commercialterms standard in the industry for similar projects (the “Design andEngineering Services Contract”). Each Design and Engineering Services Contract shall include and be basedon the Project Requirements and Process Design Documents for such Project,including the Nameplate Capacity for the Production Plant.

 

3.5           **Production Validation**. The Owner and KL shall mutually agree on a Third Party engineering firmto test and confirm the actual Nameplate Capacity of such Production Plant (a “Validation”).  In the event that such Production Plant’sactual Nameplate Capacity does nor meet or exceed the desired NameplateCapacity set forth in the Project Requirements, the Owner shall not be requiredto pay any Royalty Fees as set forth in Section 4.2 below until such timeas the Production Plant meets or exceeds its Nameplate Capacity.

 

3.6           **Further Involvement**. After completion of construction of a Production Plant, KL hereby agreesto, at the request of the Owner: (i) provide to the Owner and the Owner’srepresentatives and designees training relating to Production Plant management,maintenance, performance and associated operations, at no additional fee toOwner, so that Owner and Owner’s representatives and designees are able tofully operate the Production Plant after such training; or (ii) managesuch Production Plant for Owner pursuant to mutually agreed upon managementservices contract, which contract shall be on customary commercial termsstandard in the industry for similar project management and for the fees to beagreed between KL and the Owner.  Unlessotherwise agreed by the parties in writing, KL shall have no additionaloperational or management authority over any Production Plant, and noinvolvement in the manufacture or commercialization of the Licensed Products.

 

4.**            ****FINANCIAL TERMS**

 

4.1           **Technology Fee**. During the Term, KL hereby agrees to provide the Services to the ProjectRepresentative for a fee equal to *% (* and * percent) of the ConstructionBudget for the applicable Project with respect to which KL provides Services(the “Technology Fee”).  SuchTechnology Fee shall be payable with respect to each Project on the scheduleset forth in Exhibit E.  TheTechnology Fee constitutes KL’s complete compensation for the performance ofthe Services and the Project Owner shall be the sole entity responsible for thepayment of such fees.  The failure of theProduction Plant to satisfy the Nameplate Capacity shall constitute a breach byKL with respect to such Services. KL’s right to cure such breach will besubject to the terms and conditions of the individual contract for Services 

 

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executed by the Parties or as otherwise mutually agreed by the Partiesin writing.  Notwithstanding the above,subject to the Parties complying with all applicable federal, state or othersecurities laws and regulations, including KL providing appropriaterepresentations and warranties (including, without limitation those set forthin Section 6.2(i)) at the time of issuance, KL have the right in itsdiscretion to elect to exchange all or part of the Technology Fee for commonstock in O2Diesel or O2Diesel Corporation, a Delaware corporation (“Parent”),in a private placement transaction so long as the company issuing such stock istraded on a recognized European, Asian or North American exchange and the pricefor the common stock being issued is the closing bid price on the day theelection is made.  If KL makes thiselection, the issuance of such shares shall be subject to approval by theAmerican Stock Exchange (“AMEX”) and issued within five (5) daysafter such approval.

 

4.2           **Royalties. **Inconsideration of the rights and obligations set forth herein, and subject tothe terms and conditions set forth herein, after Validation of a ProductionPlant, the Owner of each Production Plant****shall, unlessotherwise agreed by the Parties, pay to KL for a period of ten (10) years(the “Royalty Period”) a royalty fee (the “Royalty Fee”) equal toUSD$* for each liter of ethanol produced for commercial sale using any part orcomponent of the Licensed Process in a Production Plant.  After expiration of the Royalty Period foreach Production Plant, O2Diesel and Owner shall not be required to pay anyadditional Royalty Fees or other amounts for any Licensed Product produced at suchProduction Plant or otherwise for use or license of the Licensed Processes atsuch Production Plant.

 

4.3           **Certain Requirements. **Royaltiesshall commence on a Production Plant-by-Production Plant basis with the firstcommercial sale of ethanol produced at such Production Plant after receipt ofall required Governmental Approvals and shall be payable thereafter on acalendar quarterly basis throughout the Term. All such quarterly payments shall be due and payable within sixty (60)days after the conclusion of the applicable calendar quarter and shall bepayable only once with respect to each liter of ethanol produced.  Royalty Fees shall only be payable withrespect to those quantities of ethanol for commercial sale that comply with allof the Specifications and other requirements for commercial sale.  In addition, royalties shall be subject toreduction as provided in Section 4.6.

 

4.4           **Common Stock**.  Subjectto the terms of this Agreement and the Parties complying with all applicablefederal, state or other securities laws and regulations, including KL providingappropriate representations and warranties (including, without limitation thoseset forth in Section 6.2(i)), Parent shall issue a one-time payment of onemillion (1,000,000) shares of Parent common stock, par value $0.0001 (the “Securities”),in a private placement transaction to KL within five (5) days of theapproval of the issuance of the Securities by AMEX.  The Securities shall be held in escrow by theParent until the earlier of (i) eighteen (18) months from the EffectiveDate, or (ii) KL’s commencement of Services for the first Project as setforth in Section 3.3.  In the eventthe conditions set forth in the foregoing Sections 4.4(i) or (ii) donot occur, ownership of the Securities shall revert to the Parent.

 

4.5           **Currency; Payment**. All amounts set forth herein and payments due to KL hereunder shall bepaid to KL in U.S. Dollars by wire transfer, or by such other method mutuallyagreed upon by KL and the Owner, in each case at the expense of the payor, forvalue no later than the due date thereof (with 24 hours advance notice of eachwire transfer) to a bank account designated in writing within a reasonableperiod of time prior to such due date.

 

4.6           **Taxes.**  In the eventthat O2Diesel is mandated under the Laws of a country or Governmental Authorityto withhold any tax to the tax or revenue authorities in such country inconnection with any payment to KL under this Agreement, such amount shall bededucted from the payment to be made to KL, provided that, O2Diesel shall takereasonable and lawful actions to avoid and minimize such withholding.  O2Diesel shall promptly furnish KL withcopies of any tax certificate or other documentation 

 

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evidencing such withholding as necessary to satisfy the requirements ofthe relevant governmental authority related to any application by KL forforeign tax credit for such payment. O2Diesel agrees to cooperate with KL in claiming exemptions from suchdeductions or withholdings under any agreement or treaty from time to time ineffect.

 

4.7           **Books and Records.** O2Diesel shall keep full, true and accurate books of account containingall particulars and reasonable supporting documentation that may be necessaryfor the purpose of determining the amounts payable to KL hereunder.  All such books of account and reasonablesupporting documentation, including any royalty reports received by O2Dieselfrom any Owner, shall be located at the principal place of business of O2Dieseland shall be open for inspection for such purpose by KL or any independentcertified public accountant retained by KL, at a time mutually acceptable tothe Parties during normal business hours but no more frequently than twice eachcalendar year for two years following the end of the calendar year to whichthey pertain and access shall not be denied thereafter if reasonablyavailable.  If any such inspection shallreveal that payments required under this Agreement have been underpaid,O2Diesel shall promptly pay to KL the shortfall.

 

5.**            ****Intellectual Property Rights.**

 

5.1           **Ownership of Licensed Patents and Know-How.**  Subject to the licenses and rights grantedunder this Agreement, all right, title and interest in and to the LicensedPatents and Licensed Know-How shall remain owned by KL.

 

5.2           **Ownership of Process Design Documents. **The rights of the Parties, and the Project Representativeswith respect to materials produced in connection with the Services shall be asset forth in Exhibit D or as otherwise agreed to by the Parties.

 

5.3           **New Inventions.**  Each Party shall own any inventions madesolely by or on behalf of such Party in the performance of this Agreement andthe Parties shall jointly own all inventions made jointly by or on behalf ofthe Parties in the performance of this Agreement.  For the purpose of determining ownership ofany inventions which are generated in conducting activities under thisAgreement, inventorship shall be determined in accordance with United Statesintellectual property and patent laws. Nothing in this Agreement shall grant KL any rights in any know-how orother intellectual property owned by or independently developed by O2Diesel,its Affiliates or any Third Party.

 

5.4           **Prosecution and Maintenance.** Notwithstanding the ownership rightsset forth in Section 5.1, in the Territory, KL shall have the first rightto control, at its expense, the filing, prosecution and maintenance of theLicensed Patents (including without limitation, any reexams, reissues,oppositions and interferences relating thereto), and to make all decisions withrespect thereto, using patent counsel reasonably acceptable to O2Diesel.  If KL decides not to file, prosecute ormaintain any Patent Rights with respect to the Licensed Patents inside theTerritory, KL will promptly notify O2Diesel of its decision and O2Diesel shallhave the right to file, prosecute or maintain such Patent Rights.  Outside the Territory, KL shall have the soleright to control, at its expense, the filing, prosecution and maintenance ofthe Licensed Patents (including without limitation, any reexams, reissues,oppositions and interferences relating thereto) and to make all decisions withrespect thereto.  Both Parties shallcooperate with each other in good faith to obtain issued valid claims in theirrespective territories that cover the Licensed Processes and LicensedProducts.  KL shall promptly provideO2Diesel copies of all patent office correspondence (or translations thereof)and other information material to the prosecution of the Licensed Patents andrelated patent applications outside the Territory, including copies of finaldrafts of patent applications and substantive responses to patent officecorrespondence.  For the purpose offurthering the Parties’ common interest in this Agreement, and to provide thatthe sharing of relevant information shall not waive or diminish the 

 

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confidentiality of such information or itscontinued protection under all applicable privileges and protections, theParties shall enter into an appropriate written community of interestrelationship.  Upon the request ofO2Diesel, KL shall sign and deliver any necessary documents and otherwiseassist O2Diesel to effectuate the provisions of this Section.

 

5.5           **Infringement.**  Ifeither Party learns of an infringement, unauthorized use, misappropriation orownership claim or threatened infringement or other such claim (an “Infringement”)by a Third Party with respect to any Licensed Patents or Licensed Know-How,such Party shall promptly notify the other Party in writing and shall promptlyprovide such other Party with available evidence of such Infringement.

 

6.**             REPRESENTATIONSAND WARRANTIES**

 

6.1           **Mutual Representations and Warranties.**  Each Party represents and warrants to theother Party that:

 

(a)           **Authority**.  Such Partyhas the full corporate right, power and authority to execute, deliver andperform this Agreement and to consummate the transactions contemplated hereby;

 

(b)           **Authorization**.  Theexecution, delivery and performance of this Agreement and the consummation ofthe transactions contemplated hereby have been duly authorized by all necessarycorporate action on the part of such Party;

 

(c)           **Enforceability**.  ThisAgreement has been duly executed and delivered by an authorized officer of suchParty, and is a legal, valid and binding obligation of such Party enforceableagainst it in accordance with its terms, except as enforcement may be limitedby general principles of equity (regardless of whether such enforceability isconsidered in a proceeding at law or in equity) and the effect of applicablebankruptcy, insolvency, moratorium and other similar laws of generalapplication relating to or affecting creditors’ rights generally, including,without limitation, the effect of statutory or other laws regarding fraudulentconveyances and preferential transfers;

 

(d)           **No Breach**.  Such Party’sexecution, delivery and performance of this Agreement shall not constitute abreach or default under any contract or agreement to which such Party is aParty or by which it is bound or otherwise violate the rights of any ThirdParty under any such contract or agreement; and

 

(e)           **No Consents**.  Noconsent, approval or authorization of or from any governmental entity or anyother Third Party, whether prescribed by law, regulation, contract oragreement, is required for such Party’s execution, delivery and performance ofthis Agreement or consummation of the transactions contemplated hereby.

 

6.2           **Additional Representations and Warranties of KL.**  KL further represents and warrants toO2Diesel that:

 

(a)           **Ownership of Licensed Patents and Licensed Know-How**.  KL is the sole and exclusive owner of, andhas all right, title and interest, including all Intellectual Property Rights,in and to the Licensed Patents and Licensed Know-How and none of the LicensedKnow-How has been misappropriated from a Third Party.

 

(b)           **Authority and Absence of Conflict**.  KL has the full right and authority to grantthe rights and licenses as provided herein and has not previously granted any right,license or 

 

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interest in or to the Licensed Patents or Licensed Know-How or anyportion thereof, that is in conflict with the rights or licenses granted toO2Diesel under this Agreement.

 

(c)           **Pending, Alleged or Threatened Claims**.  There are no actual, pending, alleged orthreatened actions, suits, claims, interferences, oppositions or governmentalinvestigations involving the Licensed Patents, Licensed Know-How or theproduction of the Licensed Products using the Licensed Process, either by oragainst KL or any of its Affiliates or other licensees.  To the knowledge of KL, there are noactivities by any Third Party that constitute infringement or misappropriationof any Licensed Patents or Licensed Know-How and KL has not brought anyenforcement action or otherwise sought to enforce any of the Licensed Patentsor Licensed Know-How against any Third Party. To KL’s knowledge there are noIntellectual Property Rights owned or controlled by a Third Party that arebeing or would be infringed or misappropriated by the exercise of the rightsgranted herein.

 

(d)           **All Necessary Rights**. The Licensed Patents and Licensed Know-How constitute all of theIntellectual Property Rights and know-how that are or have been owned by,Controlled by or licensed to KL or any of its Affiliates that are necessary forthe practice of the Licensed Process and the research, manufacture, use, sale,offering for sale, distribution, importation, exportation, development andexploitation of the Licensed Products. True, complete and correct copies of all material documents and othermaterials that relate to the prosecution, defense, maintenance, validity andenforceability of the Licensed Patents and Licensed Know-How, and all licensesand other agreements regarding the Licensed Patents and Licensed Know-How havebeen provided to O2Diesel.

 

(e)           **Third Party Licenses**.** **KL has not licensed any of theLicensed Patents or Licensed Know-How from any Third Party.  KL has obtained from its employees and allThird Parties involved in the development of the Licensed Patents and LicensedKnow-How all rights necessary to permit KL to grant O2Diesel the licenses andother rights herein granted.

 

(f)            **Product Specifications**. The Licensed Product, when produced using the Licensed Process, shallmeet the Specifications.

 

(g)           **Disclosure of Risks**. Prior to the Effective Date, KL has disclosed to O2Diesel in writing allknown risks or hazards associated with the practice of the Licensed Process.

 

(h)           **Services**.** **KL possesses sufficient skill,qualifications, experience, expertise and capability to perform its obligationshereunder, shall maintain and/or cause its agents, Affiliates, or Consultantsto maintain adequate personnel, manpower, capital, equipment and facilities toperform its obligations hereunder, and holds any and all licenses,certificates, authorizations and registrations required in the United States topermit****it to perform itsobligations hereunder.  KL representsthat it is knowledgeable and experienced in the design, development,engineering and construction management of Production Plants in the UnitedStates.

 

(i)            **Investment**.  As of theEffective Date and as of the date of all issuances of Securities or commonstock hereunder:

 

(i)        **Accredited Investor**.  KL is an institutional “accredited investor”within the meaning of Rule 501(a)(1), (2), (3) or (7) ofRegulation D under the United States Securities Act of 1933, as amended (“SecuritiesAct”), as presently in effect, and was not formed solely for the purpose ofacquiring, holding or transferring the Securities.

 

(ii)       **Investment**.  KL is obtaining such Securities solely forits own 

 

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account and beneficial interest for investment and not for sale or witha view to, or for resale in connection with, the distribution thereof, has nopresent intention of selling (in connection with a distribution or otherwise),granting any participation in, or otherwise distributing the Securities, anddoes not presently have any reason to anticipate a change in such intention.

 

(iii)      **Information**.  KL has received all information it hasrequested from O2Diesel and Parent that it considers necessary or appropriatefor deciding whether to obtain the Securities. KL has had an opportunity to ask questions and receive answers fromO2Diesel and Parent regarding the terms of the Securities and to obtain anyadditional information necessary to verify the accuracy of the informationgiven to it.  KL acknowledges that it hasaccess to and O2Diesel and Parent have otherwise made available for KL’sreview: (a) Parent’s Annual Report on Form 10-KSB for the year ended December 31,2006, (b) Parent’s Quarterly Reports, on Form 10-QSB for the fiscalquarters ended March 31, 2007, June 30, 2007, and September 30,2007, (c) Parent’s Proxy Statements, Definitive Information Statements,Current Reports on Form 8-K, as filed with the SEC between December 31,2006 and the date of this Agreement (collectively the “SEC Documents”).

 

(iv)      **Experience**.  KL has such knowledge and experience infinancial and business matters that it is capable of evaluating the merits andrisk of an investment in the Securities and is able to bear the economic riskof such investment.

 

(v)       **Risk of Investment**.  KLrecognizes that the purchase of the Securities involves a high degree of riskin that: (i) an investment in O2Diesel or Parent is highly speculative andonly investors who can afford the loss of their entire investment shouldconsider investing in the Securities; (ii) transferability of theSecurities is limited; and (iii) O2Diesel and Parent may requiresubstantial additional funds to operate its business and there can be noassurance that adequate funds will be available to O2Diesel and Parent, in additionto all of the other risks set forth in the SEC Documents.  KL acknowledges the disclosure relating tothe risks affecting O2Diesel and Parent set forth in the SEC Documents.

 

(vi)      **No Representations**. KL hereby represents that, except asexpressly set forth in this Agreement, no representations or warranties havebeen made to KL by O2Diesel or Parent or any agent, employee or affiliate ofO2Diesel or Parent, and in entering into this transaction KL is not relying onany information other than that contained in this Agreement, the SEC Documentsand the results of independent investigation by KL.

 

(vii)     **Tax Consequences**. KL acknowledges that the issuance ofSecurities may involve tax consequences and that the contents of this Agreementdo not contain tax advice or information. KL acknowledges that it must retain its own professional advisors toevaluate the tax and other consequences of an investment in the Securities andO2Diesel and Parent shall have no liability therefor.

 

(viii)    **RestrictedSecurities**.  KL understandsthat the Securities are characterized as “restricted securities” under theSecurities Act, inasmuch as they are being acquired from O2Diesel or Parent ina transaction not involving a public offering and that under the Securities Actand applicable regulations thereunder such securities may be resold withoutregistration under the Securities Act only in certain limitedcircumstances.  In this connection, KLrepresents that it is familiar with Rule 144 under the Securities Act, aspresently in effect.  KL understands thatneither O2Diesel nor Parent is obligated to register the Securities.  KL also understands that the certificatesevidencing the Securities will bear the legend set forth below:

 

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THE SECURITIES REPRESENTEDBY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FORINVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCHSECURITIES.  THESE SECURITIES HAVE NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), ORANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISETRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENTUNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) INCOMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR(III) UPON THE DELIVERY TO O2DIESEL CORPORATION OF AN OPINION OF COUNSELOR OTHER EVIDENCE SATISFACTORY TO THE O2DIESEL CORPORATION THAT SUCHREGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.

 

6.3           **Disclaimer.**  Except asotherwise provided herein, neither Party makes any representation or warranty,express or implied, and KL hereby expressly disclaims any representation orwarranty as to the validity or enforceability of the Licensed Patents.

##  

7.**            ****CONFIDENTIALITY**

 

7.1           **Confidentiality Obligation.** Each of O2Diesel and KL (the “Receiving Party”) shall keepstrictly confidential any information disclosed by the other Party (the “DisclosingParty”) or otherwise made available to the Receiving Party concerning theLicensed Process or either Party’s performance of this Agreement or otherwiseconcerning the business, operations, trade secrets or other proprietaryinformation of the Disclosing Party (collectively “Confidential Information”),using at least the same degree of care that it uses to protect its ownconfidential or proprietary information. Any information that is orally disclosed shall not be consideredConfidential Information unless it is reduced to writing and marked“Confidential” within thirty (30) days of its disclosure.  “Confidential Information” shall not includeinformation:

 

(a)           whichis or becomes generally available to the public other than as a result ofdisclosure thereof by the Receiving Party;

 

(b)           whichis lawfully received by the Receiving Party on a nonconfidential basis from aThird Party that is not itself under any obligation of confidentially ornondisclosure to the Disclosing Party or any other Person with respect to suchinformation;

 

(c)           whichby written evidence can be shown by the Receiving Party to have beenindependently developed by the Receiving Party; or

 

(d)           whichthe Receiving Party establishes by competent proof was in its possession at thetime of disclosure by the other Party and was not acquired, directly orindirectly from the other Party.

 

7.2           **Nondisclosure of Confidential Information.** The Receiving Party shall use ConfidentialInformation solely for the purposes of this Agreement and the transactionscontemplated hereby and shall not disclose or disseminate any ConfidentialInformation to any Person at any time, except 

 

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for disclosure to those of its directors, officers, employees,accountants, attorneys, advisers and agents whose duties reasonably requirethem to have access to such Confidential Information, provided that suchdirectors, officers, employees, accountants, attorneys, advisers and agents arebound to maintain the confidentiality of such Confidential Information to thesame extent as if they were Parties hereto.

 

7.3           **Protection of Proprietary Information. **In addition to the foregoing, KL recognizes that the value ofthe rights granted hereunder depends in large part on the continuedpreservation of the confidential and proprietary nature of the LicensedKnow-How throughout the Term. Accordingly, KL agrees throughout the Term hereof to maintain theLicensed-Know in strictest confidence in the same manner and with the sameprotections that it uses to protect its most valuable trade secret information,and in no event less than a reasonable standard of care.

 

7.4           **Exception.**  Theforegoing confidentiality and nondisclosure obligations shall not apply toinformation which is required to be publicly disclosed by law or by regulation:provided, however, that, in such event, the Receiving Party provides theDisclosing Party with prompt advance notice of such disclosure so that theDisclosing Party has the opportunity if it so desires to seek a protectiveorder or other appropriate remedy.

 

7.5           **Survival.**  Theconfidentiality and nondisclosure obligations of this Article 7 shallsurvive the expiration or termination of this Agreement and remain in effectfor a period of seven years following the expiration or termination of thisAgreement.

 

8.**             TERMAND TERMINATION**

** **

8.1           **Term.**  This Agreementshall commence as of the Effective Date and shall continue in full force andeffect, unless terminated sooner in accordance with Section 8.2 below,until the ten (10) year anniversary of the Effective Date (the “InitialTerm”).  Thereafter, this Agreementwill automatically renew for an additional five-year period (the “ExtensionTerm” and together with the Initial Term, the “Term”).  In the event that O2Diesel has achieved theperformance milestones set forth in Exhibit F on or before theexpiration of the Initial Term, the license granted in Section 2.1 shallremain exclusive for the Extension Term. In the event that O2Diesel has not achieved the performance milestonesset forth in Exhibit F on or before the expiration of the InitialTerm, the license granted in Section 2.1 shall convert to a nonexclusivelicense for the Extension Term.

 

8.2           **Termination Rights of Either Party.**  Either Party shall have the right toterminate this Agreement in the event (i) of the material breach by theother Party of its material obligations hereunder and the failure to remedysuch breach or nonperformance within sixty (60) days following the receipt ofwritten notice of such breach or nonperformance from the nonbreaching Party or,if such breach or nonperformance (other than a failure to pay money) is notreasonably susceptible to remedy within such sixty (60) day period, the failureto initiate reasonable steps to effect a remedy, to the extent feasible, withinsuch period; or (ii) the other Party is subject to a BankruptcyEvent.  Such termination shall beimmediately effective upon the receipt by the breaching or nonperforming Partyof written notice of termination from the nonbreaching Party, unless within ten(10) business days thereafter, the non-terminating party notifies theother party that it disputes the validity of such termination, in which casesuch termination shall only be effective upon the determination of suchtermination by a court of competent jurisdiction in a final nonappealablejudgment.

 

8.3           **Termination due to Failure to Develop Production Plants**.  In addition to the rights of termination setforth in Section 8.2, if O2Diesel fails to commence construction of aninitial Production Plant within five (5) years of the Effective Date, thelicense granted to O2Diesel pursuant to 

 

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Section 2.1 shall terminate, provided, however, that such five (5) yearperiod shall be automatically extended to the extent any delays are due toregulatory or Governmental Approval delays, to KL and its Affiliates, or toother events of force majeure, by an amount equal to the period of delay due tosuch factors.  The foregoing shallconstitute KL’s sole and exclusive remedy hereunder in the event of O2Diesel’sfailure to construct any Production Plants on or before such date.

 

8.4           **Effects of Expiration or Termination.** Upon expiration or termination of this 

 

Agreement for any reason, (i) any amounts owedunder this Agreement, up to the point of termination will be immediately dueand payable; (ii) all rights and licenses granted under this Agreementwill immediately cease to exist (except as provided below, and for any licensegranted hereunder that by there terms are intend to survive expiration,termination, including, without limitation, the license granted under Section 10.2);and (iii) each Party will, to the extent feasible, destroy or return tothe other Party all Confidential Information of the other Party and all copies,compilations or summaries thereof in its possession or control.  Notwithstanding anything herein to thecontrary, upon expiration or termination of this Agreement for any reason, (i) thelicense granted pursuant to Section 2.1 shall convert to a perpetual,irrevocable nonexclusive fully paid up license, and (ii) all sublicensesgranted hereunder shall convert to perpetual, irrevocable nonexclusive fullypaid up licenses; in each case solely with regard to Projects that are underwayor Production Plants that have been completed and only during times that eachOwner makes all royalty payments then-due as required by Section 4.2hereof until the end of the then-applicable Royalty Period at which time noadditional Royalty Fees shall be then-due and the license shall continue as setforth above.

 

8.5           **Termination of Design Services. **Inaddition to the rights of termination with respect to this Agreement, theProject Representative and KL shall have the right to terminate the DesignServices with respect to a particular Project in accordance with the Design andEngineering Services Contract due to a material breach by the other partythereto.  Any such termination shall onlyapply with respect to the particular Services covered by such Design andEngineering Services Contract and shall not affect the rights or obligations ofthe Parties hereunder.

 

8.6           **Survival.**  All rightsgranted to and obligations undertaken by the Parties hereunder shall terminateimmediately upon the expiration or termination of this Agreement except for theprovisions of Articles 1, 7, 9 and 11 and Sections 5.1, 5.2, 5.3, 8.4, 8.6 and10.2.  In addition, expiration ortermination of this Agreement shall not affect the remedies of the Partiesotherwise available at law or in equity in relation to any rights accrued underthis Agreement prior to expiration or termination.

 

9.**             INDEMNIFICATION;LIMITATION OF LIABILITY**

** **

9.1           **KL Indemnification**. KL shall indemnify, defend and hold harmless O2Diesel and its Affiliates(including, without limitation, Parent), and its and their sublicensees, andits and their respective directors, officers, agents, members, stockholders,owners, employees, agents and Affiliates from and against any and all Lossesresulting from any claims, suits, actions, demands, or other proceedingsbrought by or on behalf of a Third Party (collectively, “Claims”)related to, arising out of or connected with:

 

(a)           Grossnegligence, recklessness or wrongful intentional acts or omissions of KL, andits Affiliates, directors, officers, employees, agents or contractors;

 

(b)           Anybreach or inaccuracy of any representation, warranty or covenant made by KLhereunder; including any claims alleging that grant or exercise of the rightsgranted herein infringes, misappropriates or otherwise violates any IntellectualProperty Rights or other rights of any Third Party;

 

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(c)           Thefailure of KL, its Affiliates, directors, officers, employees, agents,contractors or Consultants to comply with any applicable Laws;

 

(d)           Anybreach of any term, condition or provision of this Agreement;

 

(e)           The performance of theServices; and

 

(f)            Thedesign, engineering, or any other inherent aspects of the Licensed Process(regardless of theory).

 

9.2           **O2Diesel Indemnification**. O2Diesel shall indemnify, defend and hold harmless KL and itsAffiliates, and its and their respective directors, officers, agents, members,stockholders, owners, employees, agents and Affiliates from and against any andall Losses resulting from any Claims related to, arising out of or connectedwith:

 

(a)           Grossnegligence, recklessness or wrongful intentional acts or omissions of O2Diesel,and its Affiliates, directors, officers, employees, agents or contractors;

 

(b)           Anybreach or inaccuracy of any representation, warranty or covenant made byO2Diesel hereunder;

 

(c)           Thefailure of O2Diesel, its Affiliates, directors, officers, employees, agents,contractors or Consultants to comply with any applicable Laws; and

 

(d)           Anybreach of any term, condition or provision of this Agreement.

 

9.3           **Indemnification Procedures.** Any entity entitled to indemnification under this Article 9 shallgive written notice to the indemnifying party of any Claims that may be subjectto indemnification, promptly after learning of such Claim, and the indemnifyingparty shall assume the defense of such Claim with counsel reasonablysatisfactory to the indemnified party. The indemnified party shall reasonably cooperate with the indemnifyingparty in such defense, at no cost to such the indemnified party.  The indemnified party may, at its option andexpense, be represented by counsel of its choice in any action or proceedingwith respect to such Claim.  The indemnifyingparty shall not be liable for any litigation costs or expenses incurred by theindemnified party without the indemnifying party’s written consent, suchconsent not to be unreasonably withheld. The indemnifying party shall not settle any such Claim if suchsettlement (a) does not fully and unconditionally release the indemnifiedparty from all liability relating thereto or (b) adversely impacts theexercise of the rights granted to the indemnified party under this Agreement,unless the indemnified party otherwise agree in writing.

 

9.4           **Limitation of Liability. **EXCEPTFOR INTENTIONAL MISCONDUCT OR GROSS NEGLIGENCE, THE INDEMNIFICATION OBLIGATIONSUNDER SECTION 9, OR BREACH OF SECTION 7, IN NO EVENT SHALL EITHERPARTY (OR A PARTY’S AFFILIATES, DIRECTORS, OFFICERS, AGENTS, MEMBERS,STOCKHOLDERS, OWNERS, EMPLOYEES AND AGENTS) BE LIABLE FOR LOST PROFITS, COSTSOF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY OTHER SPECIAL,CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR INDIRECT DAMAGES ARISING OUT OF THISAGREEMENT, WHETHER UNDER THEORY OF CONTRACT, TORT OR OTHERWISE, AND WHETHER ORNOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  EXCEPT FOR INTENTIONAL MISCONDUCT OR GROSSNEGLIGENCE, THE INDEMNIFICATION OBLIGATIONS UNDER 

 

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SECTION 9, OR BREACH OF SECTION 7, IN NO EVENT SHALL EITHERPARTY’S (OR A PARTY’S AFFILIATES, DIRECTORS, OFFICERS, AGENTS, MEMBERS,STOCKHOLDERS, OWNERS, EMPLOYEES AND AGENTS) LIABILITY TO THE OTHER PARTYARISING OUT OF THIS AGREEMENT EXCEED USD$1,000,000.

 

10.**           CertainTransactions.**

** **

10.1         **Right of First Negotiation.**

 

(a)           **Notice toO2Diesel**.

 

(i)            Inthe event that KL desires to Solicit a Third Party with respect to a Change ofControl or a Covered Transaction, KL shall promptly notify O2Diesel thereof inwriting and offer O2Diesel the first opportunity to enter into negotiations foran agreement with KL for the rights to such Change in Control or CoveredTransaction (the “Right of First Negotiation”).

 

(ii)           Inthe event that a Third Party first Solicits KL with respect to a Change inControl or a Covered Transaction, KL may enter into a confidentiality andnon-disclosure agreement and negotiations with such Third Party; provided,however, KL shall not enter into a Change of Control or Covered Transaction ora term sheet or written proposal with respect to the commercial terms of aChange of Control or Covered Transaction without first offering to O2Diesel theRight of First Negotiation, which offer shall be made by KL in writing toO2Diesel (such written offer and the notice from KL to O2Diesel pursuant to Section 10.1(a)(i) aboveshall be referred to, individually and collectively, as the “KL Notice”).

 

(iii)          The KL Notice shall include sufficientinformation and data available to KL on the date of the KL Notice so as toenable O2Diesel to make an informed decision regarding the Change of Control orCovered Transaction.  KL shall provideO2Diesel with additional information and data as it becomes available to KLduring the ROFN Notification Period (defined below).

 

(b)           **Notice by O2Diesel; Negotiation**.

 

(i)            O2Diesel shall have aperiod of up to twenty (20) days from receipt of the KL Notice (the “ROFNNotification Period”) to notify KL in writing of its interest in pursuingor declining to pursue a Change in Control or Covered Transaction.

 

(ii)           IfO2Diesel notifies KL within the ROFN Notification Period of its election topursue a Change in Control or Covered Transaction, the Parties shall thereafternegotiate in good faith a definitive agreement with respect to such Change inControl or Covered Transaction.  KL’sobligation to negotiate with O2Diesel shall terminate one hundred twenty (120)days (or such longer period as the Parties may mutually agree) from KL’sreceipt of O2Diesel’ notice provided pursuant to Section 10.1(b)(i) unlessdiscussions are earlier terminated by O2Diesel in writing (such period, the “ROFNNegotiation Period”).

 

(iii)          Exceptas permitted under Section 10.1(b)(ii), KL shall not enter intonegotiations with any Third Party with respect to a Change in Control orCovered Transaction or enter into any Change in Control or Covered Transactionor term sheet or written proposal with respect to the commercial terms of aCovered Transaction until (i) the ROFN Negotiation Period has expired, (ii) O2Dieselfails to notify KL during the ROFN Notification Period of its interest inpursuing a Change in Control or Covered Transaction, or (iii) O2Dieselnotifies KL that O2Diesel is not interested in pursuing a CoveredTransaction.  Then, subject to Section 10.1(c) below,KL shall be free to enter into such Change 

 

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in Control or Covered Transaction with any Third Party.

 

(c)           **Failure to Agree**.  If, after good faith negotiations the Partiesare unable to agree upon the terms of a definitive agreement for a Changein Control or CoveredTransaction, then KL shall be free to enter into such Change in Controlor Covered Transactionwith any Third Party; provided, however, that for the first six (6) months following the end of the ROFN Negotiation Period, KLshall not consummate, or enter into a binding agreement to consummate, a Changein Control or CoveredTransaction with any Third Party on financial terms and conditions that areless favorable to KL when taken in their totality than the terms and conditionslast offered in writing by O2Diesel to KL during the ROFN Negotiation Period.

 

10.2         **License Conversion.** In the event that KL undergoes a CoveredTransaction or Change in Control without complying with the provisions of Section 10.1above, the license rights granted in Section 2.1 shall automaticallybecome perpetual and irrevocable without further action by either Party andsuch rights shall be fully-paid up as of the end of the Initial Term.

 

11.**           MISCELLANEOUS**

** **

11.1         **Relationship of the Parties.** Nothing in this Agreement is intended or shall be deemed to constitute apartnership, agency, employment or joint venture relationship between theParties hereto.

 

11.2         **Applicable Law.**  ThisAgreement shall be governed by the laws of the State of Delaware applicable tocontracts made and to be performed entirely within such jurisdiction andwithout giving effect to the choice or conflict of laws rules orprinciples of the State of Delaware or of any other jurisdiction.

 

11.3         **Consent to Jurisdiction.** Any action or proceeding arising out of orrelating to this Agreement, and all claims in respect of such action orproceeding shall be heard and determined in New York, New York.  Each Party further agrees that service of anyprocess, summons, notice or document by registered mail to the address of suchParty set forth in Section 11.5 below shall be effective service ofprocess for any action or proceeding brought against such Party in any suchcourt.  Each Party hereby irrevocably andunconditionally waives any objection to the laying of venue of any action orproceeding arising out of or relating to this Agreement in any such court andfurther irrevocably and unconditionally waives and agrees not to plead or claimin any such court that any such action or proceeding brought in any such courthas been brought in any inconvenient forum. Each Party further agrees that a final, nonappealable judgment in anysuch action or proceeding shall be conclusive and may be enforced in any otherjurisdictions by suit on the judgment or in any other manner provided by law.

 

11.4         **Counterparts.** ThisAgreement may be executed in any number of counterparts and may be executed byfacsimile.  All counterparts shallcollectively constitute one and the same Agreement.

 

11.5         **Notices.**  In any casewhere any notice or other communication is required or permitted to be givenhereunder, such notice or communication shall be in writing and sent byovernight express or registered or certified mail (with return receiptrequested) and shall be sent to the following address (or such other address asany Party may designate from time to time in writing):

 

 

 

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|   | If  to O2Diesel: |                          |
|--------|------------------|-------------------------------|
|   |             | Alan R. Rae                   |
|   |             | 100 Commerce Drive            |
|   |             | Suite 301                |
|   |             | Newark, Delaware 19713        |
|   |             | Telephone: 302-266-6000       |
|   |             | Telefax: 302-266-7076         |
|   |             |                          |
|   | Copy to:         |                          |
|   |             |                          |
|   |             | Kevin Lavin, Esq.        |
|   |             | Arnold & Porter, LLP |
|   |             | 1600 Tysons Blvd.             |
|   |             | Suite 900                |
|   |             | McLean,  VA 22102             |
|   |             | Telephone:  703-720-7011      |
|   |             | Telefax:  703-720-7399        |
|   |             |                          |
|   | If to KL:        |                          |
|   |             |                          |
|   |             | Randy Kramer                  |
|   |             | 2693-C Commerce Road          |
|   |             | Rapid City, SD 57702          |
|   |             | Telephone: 605-718-0372       |
|   |             | Telefax: 605- 718-1372        |

 

11.6         **Force Majeure**.  If anycircumstance beyond the reasonable control of either Party occurs which delaysor renders impossible the performance of that Party’s obligations under thisAgreement on the dates herein provided, such obligation shall be postponed forsuch time as such performance necessarily has had to be suspended or delayed onaccount thereof, provided such Party shall notify the other Party in writing assoon as practicable, but in no event more than 15 days after the occurrence ofsuch force majeure.  In such event, theParties shall meet promptly to determine an equitable solution to the effectsof any such event, provided that such Party who fails because of force majeureto perform its obligations hereunder shall upon the cessation of the forcemajeure take all reasonable steps within its power to resume with the leastpossible delay compliance with its obligations. Events of force majeure shall include, without limitation, war,revolution, invasion, insurrection, riots, mob violence, sabotage or othercivil disorders, acts of God or terrorism, limitations imposed by exchangecontrol regulations or foreign investment regulations or similar regulations,laws, regulations or rules of any government or governmental agency, andany inordinate and unanticipated delays in the regulatory review orgovernmental approval process that are within the control of such government orgovernmental agency.

 

11.7         **Binding Effect; Assignment.** This Agreement shall not be assigned or otherwise transferred, in wholeor in part, by either Party without the prior written consent of the otherParty, and any attempted assignment without such consent shall be null andvoid; provided however, that a party may assign this agreement (i) to anAffiliate or (ii) to a successor in interest (or its equivalent) inconnection with a sale of all or substantially all of its relevant assets orbusiness, whether by sale, merger, or otherwise, in each case where suchsuccessor or permitted assign agrees to be bound by the terms of thisAgreement.  This Agreement shall inure tothe benefit of and be binding upon each of the Parties hereto and theirrespective successors and permitted assigns.

 

11.8         **Entire Agreement.**  Theterms and conditions herein contained constitute the entire agreement betweenthe Parties relating to the subject matter of this Agreement and shallsupersede 

 

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all previous communications between the Parties with respect to thesubject matter of this Agreement. Neither Party has entered into this Agreement in reliance upon anyrepresentation, warranty, covenant or undertaking of the other Party that isnot set out or referred to in this Agreement.

 

11.9         **Recitals and Schedules.** The recitals set forth at the start of thisAgreement along with the Exhibits attached to this Agreement and the terms andconditions incorporated in such recitals and Exhibits shall be deemed integralparts of this Agreement and all references in this Agreement to this Agreementshall encompass such recitals and Exhibits and the terms and conditionsincorporated in such recitals and Exhibits.

 

11.10       **Amendment. **This Agreement may be varied,amended or extended only by the written agreement of the Parties through theirduly authorized officers or representatives, specifically referring to thisAgreement.

 

11.11       **Severability.** If a court of law or other tribunal ofcompetent jurisdiction finds any provision of this Agreement invalid, illegal,or unenforceable, the remaining portions of this Agreement shall remain in fullface and effect and construed so as to best effectuate the original intent andpurpose of this Agreement as expressed herein.

 

11.12       **Headings. **The descriptive headings of theseveral Articles and Sections of this Agreement are inserted for convenienceonly and do not constitute a part of this Agreement.

 

11.13       **No Waiver of Rights.**  No failure or delay on the part of eitherParty in the exercise of any power or right hereunder shall operate as a waiverthereof.  No single or partial exerciseof any right or power hereunder shall operate as a waiver of such right or ofany other right or power.  The waiver byeither Party of a breach of any provision of this Agreement shall not operateor be construed as a waiver of any other or subsequent breach hereunder.

 

11.14       **Remedies Cumulative;Specific Performance.** Allrights and remedies granted to either Party under this Agreement are cumulativeand in addition to, and not in lieu of, any other rights or remedies otherwiseavailable to such Party at law or in equity. The Parties agree that any breach by either Party of, or failure ofeither Party to perform, any obligation under this Agreement shall constituteimmediate and irreparable damage to the other Party which cannot be fully andadequately compensated in money damages and that, in the event of such breachor failure, the other Party shall be entitled to injunctive relief and specificperformance in addition to any other remedies to which it may be entitled atlaw or in equity.

 

11.15       **Confidentiality ofAgreement.**  Each Party shallmaintain the confidentiality of this Agreement and all provisions of thisAgreement and, without the prior consent of the other Party, neither Partyshall make any press release or other public announcement of or otherwisedisclose this Agreement or any of its provisions to any Third Party (a) otherthan to its directors, officers and employees and attorneys, accountants,investment bankers and other professional advisers whose duties reasonablyrequire familiarity with this Agreement, provided that such Persons are boundto maintain the confidentiality of this Agreement and (b) except for suchdisclosures as may be required by applicable law or by regulation, in whichcase the disclosing Party shall provide the other Party with prompt advancenotice of such disclosure so that the other Party has the opportunity if it sodesires to seek a protective order or other appropriate remedy.

 

11.16       **Usage.** Wherever any provision of this Agreement usesthe term “including” (or “includes”), such term shall be deemed to mean “includingwithout limitation” and “including but not 

 

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limited to” (or “includes without limitation” and “includes but is notlimited to”) regardless of whether the words “without limitation” or “but notlimited to” actually follow the term “including” (or “includes”).

 

11.17       **Survival of License inBankruptcy**.  The Partiesexpressly agree that the Licensed Patents and Licensed Know-How are deemed “intellectualproperty” as same is defined in §101(35A) of the Bankruptcy Code.  The Parties further expressly agree that thisAgreement shall be governed by §365(n) of the Bankruptcy Code in the eventthat KL files for or seeks protection under the Bankruptcy Code or has a casefiled against it under the Bankruptcy Code.

 

[SignaturePage Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have causedthis Agreement to be executed by their duly authorized officers as of the datefirst above written.

 

 
| **O2DIESEL EUROPE, PLC**       | **KL PROCESS DESIGN GROUP, LLC** |
|--------------------------------|----------------------------------|
| ** **                     | ** **                       |
| ** **                     | ** **                       |
| By:                            | /s/ Alan Rae                     |   | By: | /s/ Dave Litzen |
|                           |                             |
| Name: Alan Rae                 | Name: Dave Litzen                |
|                           |                             |
| Title: Chief Executive Officer | Title: Owner/VP, Engineering     |
|                                |                                  |  |  |  |

 

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**EXHIBIT A**

 

Licensed Know-How

 

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**EXHIBIT B**

 

Licensed Patents

 

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**EXHIBIT C**

 

Product Specifications

 

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**EXHIBIT D**

 

Process Design Services

 

At the option of the Owner,KL shall provide to the Project Representative the following services inaccordance with the terms of the Agreement:

 

(i)            As soon as practicable, but in no event later than******three (3) months afterdelivery of the Project Requirements by the Project Representative, prepareProcess Design Documents (as defined in the Agreement), for approval of ProjectRepresentative.  Such Process DesignDocuments shall include all information, drawings, content or data required fora Project Engineer to develop and provide construction documents or otherschematics required for a Construction Manager (as defined below) to build afully functioning Production Plant operating at or above NameplateCapacity.  KL shall assist the ProjectRepresentative in reviewing the construction documents and providing input tothe Project Engineer and Construction Manager. KL shall develop the Process Design Documents so that the finalconstruction cost to construct the Project in accordance with the constructiondocuments does not exceed the Construction Budget.

 

(ii)           Provide any assistance required by the ProjectRepresentative or the Construction Manager in securing reviews and approvals ofGovernmental Authorities having jurisdiction over the Project.

 

(iii)          Represent and participate in periodic Project reviewmeetings to be held, at the Project Representative’s discretion, at the Projectsite or in the offices of the Project Representative.

 

(iv)          In the event that Project Representative decides to openProduction Plant construction to competitive bidding, (i) participate in apre-bid conference and provide related bidding preparation services; (ii) assistProject Representative in evaluating bids; and (iii) mutually agree withthe Project Representative on the bidding party that will be an acceptableconstruction manager or general contractor (“Construction Manager”) whowill be responsible for Project construction. In the event that the Project Representative elects not to openProduction Plant construction to competitive bidding, KL and the ProjectRepresentative shall mutually agree to a Construction Manager.

 

(v)           Comply with the Construction Manager’s constructionschedule which shall coordinate, integrate and combine schedules for allaspects of the Project, including the design, bidding, negotiation andconstruction phases, incorporating a detailed schedule of pre-constructionactivities, construction activities sequences and durations, allocations andscheduling of labor activities, purchase order placement and deliveries ofmaterials and equipment, preparation and processing of shop drawings andsubmittals, and KL’s and Project Representative’s review time, and including aschedule for KL’s services.

 

(vi)          Visit the Project site at intervals appropriate to thestage of construction to become familiar with the progress and quality of theconstruction work (the “Work”) and to determine in general if the Workis proceeding in accordance with the construction documents.  On the basis of these on-site observations,KL will keep the Project Representative informed of the progress of the Work,and will use its best efforts to guard the Project Representative againstdefects and deficiencies in the Work of the Construction Manager.

 

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(vii)         Accompany the Project Representative on a post-occupancy andwarranty review prior to the expiration of the warranty period for any separatecontract, but sufficiently after occupancy to allow the Project Representativeadequate opportunity to observe for defective conditions.  This review shall take place at a mutuallyagreed-upon time and date.

 

(viii)        Provide a review and evaluation of theProject’s production systems and processes and provide assistance in connectionwith the refining and adjusting of any equipment or system.

 

(ix)          Accompany the Project Representative to visit the Projectand observe any apparent defects in the completed work, assist the ProjectRepresentative in consultations and discussions with Construction Managerconcerning correction of such defects, and make recommendations as toreplacement or correction of defective work

 

(x)           All other reasonably requestedservices related to the services set forth in this Exhibit.

 

The originalProcess Design Documents, including drawings, specifications and otherdocuments prepared by KL for a Project are instruments of KL’s service.  Unless otherwise provided, KL shall be deemedthe author of these documents and shall retain all common law, statutory andother reserved rights, including copyright; provided, however, KL agrees to anddoes hereby grant the Project Representative a perpetual, irrevocable,royalty-free license to all such documents in which it may claim a copyrightand to all architectural work as to which it may assert any rights or establishany claim under the design patent or copyright laws.  The Project Representative’s perpetual,irrevocable royalty-free license shall (i) entitle it to unlimited rights inall architectural works arising out of KL’s performance of Services, and (ii)include, but not be limited to, drawings, specifications, architectural designsof buildings and structures, notes and other architectural and engineeringdocuments produced by or on behalf of KL in the performance of the Services, orin contemplation thereof, archive drawings and archive specifications producedafter completion (including the right to use same for comprehensive campus-widemapping endeavors), and any and all other “architectural works” as that term isdefined in the Architectural Works Copyright Protection Act at 17 U.S.C. 102(a)(8).  At any time upon demand by theProject Representative, KL shall furnish to the Project Representative acomplete set of all work product prepared by or obtained by KL to date of suchdemand arising out of or related to the Services or a Project.  In the event of KL’s failure to comply withthe Project Representative’s demand hereunder, the parties agree that anyremedy at law would be inadequate and entitle the Project Representative toequitable relief including without limitation the remedy of specificperformance.

 

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**EXHIBIT E**

 

Technology Fee PaymentMilestones

 

The Owner shall pay KL the Technology Fee inaccordance with the following schedule for each individual Project:

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon Owner’swritten approval of the Construction Budget for such Project.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due uponcommencement of construction of a Production Plant.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due uponcompletion and acceptance of the Production Plant by the Owner.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon theProduction Plant operating at Nameplate Capacity for a period of sixty (60)days after initial commercial production of the Licensed Product in suchProduction Plant.

 

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**EXHIBIT F**

 

Extension TermPerformance Milestones

 

Engagement of KL toprovide Services to Owners for the construction of six (6) ProductionPlants within the Initial Term.

 

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