**CONTRACT
FOR PRODUCTION OF GENERATOR SYSTEMS**
   Date:
January 13, 2005
   Parties:
  AERO
MARINE ENGINE, INC., ( hereinafter
Aero Marine)
 One World
Trade Center
 121 SW
Salmon Street, Suite 1100
 Portland,
OR 97204
 
 ADAPTIVE
PROPULSION SYSTEMS, (hereinafter APS)
 381 Old
Riverhead Road, Suite 12
 Washington
Beach, NY 11978
  **RECITALS:**
   1.  Aero
Marine owns axial vector engine technology, which has been licensed to APS under
a Joint Venture Agreement signed in August 2004. APS is currently in development
of a multi-fuel (JP5, JP8 and Diesel) 100 HP axial vector engine leveraging
licensed technology from Aero Marine and developing enabling technologies to
bring the axial vector engine to the next level. These enabling technologies
include electronic valves/control, electronic multi-fuel injection/control,
single fluid cooling, hydraulic actuation and lubrication, zero backlash gearbox
and “Starterless” operation. These design advances shall permit optimized
operation and create flexibility with regard to power generation, pneumatic and
hydraulic generation with additional developmental efforts based upon the
scaleable technology advances.
   2.  Aero
Marine has made its intentions clear as to aggressively pursuing development of
a product family of portable, semi portable and fixed power generation
equipment. These products shall fulfill market voids for economical multi-fuel
generators in the 7.5 kW, 15 kW, 25 kW, 50 kW, 100 kW, 200 kW and 1 MW power
output range. Aero Marine intends to conduct a full product launch during the
Power Gen International trade show in Las Vegas, NV on 06 - 08 DEC 05. It is
envisioned to have all developed products completed and ready for unveiling at
said trade show.
   3.  A
significant opportunity exists to create a multi-role power generation system
that also includes the ability to generate compressed air and / or hydraulic
power from a single unit. This is to be accomplished by using the electronic
control system and these unique pneumatic and hydraulic generation
 
 
 1
 
 
 modules
on “half” of the engine. These modules shall also be created as part of this
effort.
 
 4.  Aero
Marine has requested of APS a proposal for the above-mentioned product line with
a timeline that meets their product introduction requirements. In addition Aero
Marine has requested of APS manufacturing capability of the product line to
support multi-level international distribution. APS shall develop said product
line as outlined in this proposal and provide manufacturing to fulfill
anticipated orders on a cost effective basis to be outlined below.
   5.  Results
of this effort shall to be the creation of a unique cost effective product line
for Aero Marine permitting Market penetration and domination.
   6.  Aero
Marine, a Nevada Corporation, is primarily engaged in developing and
commercializing the axial vector engine and a multi-role power generator system
technology.
   7.  APS is
seeking to market the axial vector engine and the multi-role power generator
system technologies for military use by the US and NATO member
countries.
   8.  Aero
Marine is seeking to market their multi-role power generator system technologies
for potential commercial uses.
  9.  APS and
Aero Marine are desirous of entering into a relationship by way of this
Agreement wherein APS will assist Aero Marine in the improvement, marketing and
sales of multi-role power generator system for military and commercial
uses.
  10.  All of
the above recitals are hereby made an integral part of this Agreement and shall
have substantive effect in interpreting the provisions of this
Agreement.
  **Technical
Description**
  The six
(6) piston twelve (12) cylinder axial vector engine can be viewed as two engines
coupled together. This unique design shall be utilized in the development of the
generator product line. The electronic control system shall be leveraged from
APS current development while the bulk of the present developmental effort shall
center upon valve, injector and overall displacement
   2
   scaling.
In addition power generator units, load balancing and transfer switches shall be
developed
  7.5 kW
Generator
  An axial
vector engine shall be developed whereas a single “side” of the engine shall
develop approximately 11 HP required to turn a 7.5 kW generator rotary
generator. All mechanicals from the existing shall be scaled where appropriate.
In addition a 7.5kW generator (rotor & stator) shall be developed to provide
the 110 VAC 60 Hz power output.
  The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. Waterproof GFCI parallel blade “U” ground
receptacles shall be present to provide interface to external 110 VAC
equipment.
  In
addition two (2) second “sides” of the engine shall be developed to facilitate
an air compressor and hydraulic pump capability as a bolt on feature to the
power generation capability. This design shall utilize the additional six
pistons for either compressed air or hydraulic power generation and contain an
integral storage tank for compressed air as well as a hydraulic fluid
reservoir.
  15 kW
Generator
  The 15 kW
generator shall be simply utilizing two (2) sides of the 11 HP engine identified
above. Each side shall turn the developed 7.5kW rotary generator, as outputs
from each shall be inputted to a developed load management circuit. The load
management circuit shall balance (rectify) both outputs with regard to voltage
and frequency and feed a main output bus. This approach permits both generators
to behave as one as seen from the connected devices.
  The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. Waterproof GFCI parallel blade “U” ground
receptacles shall be present to provide interface to external 110 VAC
equipment.
  25 kW
Generator
  An axial
vector engine shall be developed whereas a single “side” of the engine shall
develop approximately 36 HP required to turn a 25 kW generator rotary generator.
All mechanicals from the existing shall be scaled where appropriate. In addition
a 25kW generator (rotor & stator) shall be developed to provide the 110 VAC
60 Hz power output.
   3
   The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. A waterproof GFCI parallel blade “U”
ground receptacle shall be present to provide interface to external 110 VAC
equipment as well as hard wired AC terminal strip for wiring into existing AC
busses. An AC transfer switch shall also be developed whereby sensing main bus
power loss the generator shall be brought online feeding the existing AC
bus.
  In
addition two (2) second “sides” of the engine shall be developed to facilitate
an air compressor and hydraulic pump capability as a bolt on feature to the
power generation capability. This design shall utilize the additional six
pistons for either compressed air or hydraulic power generation and contain an
integral storage tank for compressed air as well as a hydraulic fluid
reservoir.
  50 kW
Generator
  The 50 kW
generator shall be simply utilizing two (2) sides of the 36 HP engine identified
above. Each side shall turn the developed 25 kW rotary generator, as outputs
from each shall be inputted to a developed load management circuit. The load
management circuit shall balance (rectify) both outputs with regard to voltage
and frequency and feed a main output bus. This approach permits both generators
to behave as one as seen from the connected devices.
  The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. A waterproof GFCI parallel blade “U”
ground receptacle shall be present to provide interface to external 110 VAC
equipment as well as hard wired AC terminal strip for wiring into existing AC
busses. An AC transfer switch shall also be developed whereby sensing main bus
power loss the generator shall be brought online feeding the existing AC
bus.
  100 kW
Generator
  An axial
vector engine shall be developed whereas a single “side” of the engine shall
develop approximately 144 HP required to turn a 100 kW generator rotary
generator. All mechanicals from the existing shall be scaled where appropriate.
In addition a 100 kW generator (rotor & stator) shall be developed to
provide the 110 VAC 60 Hz power output.
  The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. A waterproof GFCI parallel blade “U”
ground receptacle shall be present to provide interface to external 110 VAC
equipment as well as hard wired AC terminal strip for wiring into existing AC
busses. An AC transfer switch shall also be developed whereby sensing main bus
power loss the generator shall be brought online feeding the existing AC
bus.
   4
   In
addition two (2) second “sides” of the engine shall be developed to facilitate
an air compressor and hydraulic pump capability as a bolt on feature to the
power generation capability. This design shall utilize the additional six
pistons for either compressed air or hydraulic power generation and contain an
integral storage tank for compressed air as well as a hydraulic fluid
reservoir.
  200 kW
Generator
  The 200
kW generator shall be simply utilizing two (2) sides of the 144 HP engine
identified above. Each side shall turn the developed 100 kW rotary generator, as
outputs from each shall be inputted to a developed load management circuit. The
load management circuit shall balance (rectify) both outputs with regard to
voltage and frequency and feed a main output bus. This approach permits both
generators to behave as one as seen from the connected devices.
  The
electronic control system shall be used to provide rotational rate control of
the engine while under varying loads. A waterproof GFCI parallel blade “U”
ground receptacle shall be present to provide interface to external 110 VAC
equipment as well as hard wired AC terminal strip for wiring into existing AC
busses. An AC transfer switch shall also be developed whereby sensing main bus
power loss the generator shall be brought online feeding the existing AC
bus.
  1 MW
Generator
  The 1 MW
generator shall consist of five (5) 200 kW generators as outlined above. A load
management circuit shall be present to balance (rectify) all 5 outputs with
regard to voltage and frequency and feed a main output bus. This approach
permits all generators to behave as one as seen from the connected devices. In
addition the load management circuit shall sense the required load and start up
or shut down in 200 kW increments thereby enabling cost effectiveness in the
situation of less than 1 MW output requirements.
  The 1 MW
generator shall house the 5 200 kW generators on a single trailer capable of
transit over regular highways with no additional special use permits. The
housing shall encase all the 200 kW generators and be resistant to anticipated
environmental operating conditions while providing protection from
vandalism.
  As the 1
MW unit has potential deployment capability in third world nations a remote
Globalstar GSP-1620 data modem shall be present to monitor output power
consumption, unit tracking, permit remote diagnostics and permit remote shut
down of the system allowing full incapacitation in the event of outstanding
invoices.
   5
  A
waterproof GFCI parallel blade “U” ground receptacle shall be present to provide
interface to external 110 VAC equipment as well as hard wired AC terminal strip
for wiring into existing AC busses. An AC transfer switch shall also be
developed whereby sensing main bus power loss the generator shall be brought
online feeding the existing AC bus.
  **Risk**
  Given the
maturity of the axial vector engine design and the technologies to be employed
for this effort this is categorized as a low risk effort.
  **Schedule**
  APS shall
develop the above mentioned product line and provide deliverables as outlined
300 Days after receipt of order (ARO). This timeline coincides with the target
roll out of the product line at Power Gen International on 06 - 08 DEC 05 if
contract for said development is executed by 15 JAN 05.
  **Manufacturing**
  As
discussed during the recent planning meeting in Orlando APS has agreed to
provide manufacturing capability for Aero Marine’s power generation product
line.
  Manufacturing
pricing shall be determined immediately following development and shall be
calculated by APS burdened labor rates, material costs, overhead and 8% profit.
This is a customary formula, which APS is familiar by providing goods and / or
services to the US government.
  **Rough
Order of Magnitude (ROM) Cost**
  7.5 kW
Generator $533,000.00
 7.5 kW
Air Compressor
Head $90,000.00
 7.5 kW
Hydraulic
Head $110,000.00
 15 kW
Generator (Requires Execution of 7.5 kW
Generator) $106,000.00
 25 kW
Generator $556,000.00
 25 kW Air
Compressor
Head $94,000.00
 25 kW
Hydraulic
Head $118,000.00
 
 
 6
 
 
 50 KW
Generator  (Requires
Execution of 25 kW
Generator) $121,000.00
 100 kW
Generator $571,000.00
 100 kW
Air Compressor
Head $103,000.00
 100 kW
Hydraulic
Head $131,000.00
 200 kW
Generator  (Requires
Execution of 100 kW
Generator) $137,000.00
 1 MW
Generator  (Requires
Execution of 200 kW
Generator) $501,000.00
 **Total
Generator Product Line
Development** **$3,171,000.00**
  **Deliverables**
  7.5 kW
Generator
  Qty. 1
7.5 kW Generator
  Qty. 1
7.5 kW Air Compressor Head
  Qty. 1
7.5 kW Hydraulic Head
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
  15 kW
Generator
  Qty. 1 15
kW Generator
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
   7
  25 kW
Generator
  Qty. 1 25
kW Generator
  Qty. 1 25
kW Air Compressor Head
  Qty. 1 25
kW Hydraulic Head
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
  50 kW
Generator
  Qty. 1 50
kW Generator
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
  100 kW
Generator
  Qty. 1
100 kW Generator
  Qty. 1
100 kW Air Compressor Head
  Qty. 1
100 kW Hydraulic Head
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
   8
   200 kW
Generator
  Qty. 1
200 kW Generator
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
  1 MW
Generator
  Qty. 1 1
MW Generator
  Qty. 1
Technical Data Packet (TDP) - To Include all system component mechanical
drawings, assembly drawings, electrical drawings, PCB layouts, electronic
control firmware executable and operator / maintenance manual. TDP shall be
delivered in contractor / industry standard electronic format. Drawing levels
shall be industry standard Level II, permitting third party manufacturers
familiar with engine / generator production sufficient information to be able to
manufacture.
  **Terms**
  1.  APS shall
upon successful contract award provide a detailed plan of action and milestone
(POA&M) document. Monthly progress payments shall be made in accordance with
the successful completion of stated milestones. It is understood that APS shall
submit its monthly billing with terms of NET 30. A 10% deposit shall be required
along with signed contract or purchase order to constitute acceptance by
APS.
  2.  APS
represents that it possesses the skill and ability to further develop the
multi-role power generator systems, build prototypes, test and upgrade the
multi-role power generator systems and market the technology for military use,
contemporaneously with Aero Marine marketing the technology for commercial uses,
and where it is deemed to the mutual benefit of APS and Aero Marine to enter
into this Agreement upon the terms and conditions set forth.
 
 NOW
THEREFORE, in
consideration for the mutual covenants and promises herein contained, the
undersigned hereby agree to the following:
   9
   1.  Relationship
Between APS and Aero Marine
  a.  APS will
finance the further development of the multi-role power generator systems,
including upgrades and building a prototype, testing and marketing the
technology to the military of the United States and all NATO countries.
  b.  APS will
expend its best efforts in production and modification of the technology to
allow for maximum promotion, marketing and sales.
  c.  Aero
Marine will keep the exclusive rights to the intellectual property, including
any patentable rights. Aero Marine will retain ownership of all of the
technology, including upgrades, developments and modifications by
APS.
  d.  Aero
Marine will be able to take sell the technology commercially for non-military
purposes.
  e.  Aero
Marine shall receive twenty percent (20%) of the gross revenue from the sales of
the Engine to the military. APS will receive five percent (5%) of the gross
revenue from commercial non-military sales of the technology by Aero
Marine.
  f.  The terms
of this Agreement shall last for a period of five (5) years unless terminated by
joint agreement of the parties or pursuant to the terms of this Agreement and
will be renewable for additional five-year periods upon agreement of the
parties. This Agreement and any renewals shall be exclusive.
  g.  Aero
Marine and APS will use their best efforts to perform his duties and
responsibilities pursuant to this Agreement.
  2.  Non-Competition .
  a.  During
the term of this Agreement, neither APS nor Aero Marine, or any person employed
or engaged by APS or Aero Marine to fulfill its duties under this Agreement,
shall, directly or indirectly, compete with this Agreement in the promotion,
marketing, sales and production of APS’ invention. The term “indirectly,” as
used above, includes acting as a paid or unpaid director, officer, agent,
employee of, or consultant to any enterprise, or acting as a proprietor or an
enterprise, or holding any direct or indirect participation in any enterprise as
an owner, partner, limited partner, joint venture, shareholder or creditor. The
term “Restricted Business” means the use of the invention or its offshoots in
any
 
 10
 
 commercial
manner. This provision shall not be construed to affect either parties
performance under this agreement
  b.  Neither
Aero Marine nor persons employed or engaged by Aero Marine to fulfill its duties
under this Agreement shall, directly or indirectly, disclose or use at any time,
whether during the term of this Agreement or after its expiration or
termination, any confidential information, knowledge or data relating to APS’
business or the products, technology and process of which Aero Marine or its
employees, agents or contractors become aware in the course of their activities
under this Agreement. Such information, knowledge or data includes, but is not
limited to, client and customer lists, sale files or records, price information,
Product specifications, trademark files or records, and warranty claims or
reports, mailing lists and good will or other intangible property used or useful
in connection with the business of the company signing this Agreement.
  c.  Neither
APS nor persons employed or engaged by APS to fulfill its duties under this
Agreement shall, directly or indirectly, disclose or use at any time, whether
during the term of this Agreement or after its expiration or termination, any
confidential information, knowledge or data relating to Aero Marine’ business or
the products, technology and process of which APS or its employees, agents or
contractors become aware in the course of their activities under this Agreement.
Such information, knowledge or data includes, but is not limited to, client and
customer lists, sale files or records, price information, Product
specifications, trademark files or records, and warranty claims or reports,
mailing lists and good will or other intangible property used or useful in
connection with the business of the company signing this Agreement.
  d.  If, in
any judicial proceeding, a court of competent jurisdiction shall refuse to
enforce any of the separate covenants deemed included in this Agreement, or
shall find that the term or geographic scope of one or more of the separate
covenants is unreasonably broad, the parties shall use their best good faith
efforts to attempt to agree on a valid provision which shall be a reasonable
substitute for the invalid provision. The reasonableness of the substitute
provision shall be considered in light of the purpose of the covenants and the
reasonable interests of the parties signing this Agreement. The substitute
provision, then the invalid or unreasonably broad provision shall be deemed
deleted or modified to the minimum extent necessary to permit
enforcement.
  3.  Confidentiality:
Non-disclosure .
   11
  a.  The
parties understand that each party may have access to customer lists, credit
information, customer contracts, trade secrets, research data, drawings, product
specifications, warranty information, production processes, supply sources,
supply contracts, plans, models, sales data, cost, price and other financial
information, and other materials of the other party and its customers and
suppliers as they may exist from time to time. The parties agree that such
information and materials are valuable and unique assets of each party’s
business, and that disclosure of such items would be detrimental to the other
party. Each party, therefore, agrees:
  b.  The
parties will not at any time, or in any fashion, form or manner, either directly
or indirectly, divulge, disclose or communicate to any person, firm or
corporation in any manner whatsoever, any information of any kind, nature or
description concerning any matters affecting or relating to the business of the
other party, including without limiting the generality of foregoing the names of
any of its customers, the prices it obtains or has obtained or at which it sells
or has sold its products or at which it buys or has bought materials, components
or other supplies, the methods or processes of production or manufacture of its
products or any other information of, about or concerning the business of the
other party, its relations with its employees, and its manner of operation, its
plans, or other data of any kind, nature or description, the parties hereby
stipulating that as between them the same are important, material, confidential
and are trade secrets and gravely affect the effective and successful conduct of
the business of the other party and its goodwill, and that any breach of the
terms of this section is a material breach hereof.
  c.  During
and after the term of this Agreement, not to take, without the written consent
of the other party, any notes, reports, calculations, plans, models, sales data,
papers, drawings, documents, contracts, customer and supplier lists, diaries,
phone information, trade secrets, research data, production processes, product
specifications, blueprints, correspondence, memoranda, or other written records
or materials belonging to the other party or in its possession. Both parties
also covenant and warrant not to take any computer diskettes, magnetic tapes or
other storage media in any tangible form containing such information. Upon
termination of this Agreement, each party shall immediately deliver all the
materials described in this paragraph to the other party.
  d.  This
non-disclosure and confidentiality covenant shall not affect Aero Marine or APS
or their assigns from making normal-course disclosures pursuant to SEC
regulations or from issuing press releases or from providing such information as
may be necessary to carry out the terms
 
 
 12
 
 
 and
conditions of this Agreement and the obligations and duties contemplated
thereunder.
  e.  Injunction . Each
party agrees that it would be difficult to measure damage to the other party
from any breach by either party of this section, and that monetary damages are
an inadequate remedy for such breach. Accordingly, each party agrees that if the
other party shall breach the terms of this section, the non-breaching party
shall be entitled, in addition to all other remedies it may have at law or in
equity, to an injunction or other appropriate orders to restrain such breach
without showing or proving any actual damage sustained by the breaching
party.
  4.  Termination .
  a.  Either
party may terminate this Agreement only after the occurrence of any of the
following events, upon written notice to the other party allowing twenty (20)
days to cure the breach:
  i.  Either
party’s failure to perform any of its obligations secured by this
Agreement.
  ii.  Either
party’s voluntary abandonment of the business contemplated under this
Agreement;
  iii.  APS’
failure to provide the equipment or personnel to do the production and
modification; provided, however, that such written notice by Aero Marine is
delivered within ninety (90) days after the conclusion of such specified
period;
  iv.  Either
party’s engaging in any practice with respect to the products, technology and
process which is determined to be an illegal or unfair trade practice in
violation of any applicable federal, state, provincial or local law, or, which
in the opinion of counsel to a party, is an illegal or unfair trade practice in
violation of any applicable federal, state, provincial or local law for a period
of twenty (20) days after APS has notice of said violation;
  v.  Either
party’s falsification of any records or reports provided to the other
party;
  vi.  Either
party’s failure to act in good faith and in a commercially reasonable manner in
connection with its obligations under this Agreement;
   13
  vii.  Either
party’s loss through failure to renew or because of suspension, cancellation or
revocation for a period of fifteen (15) days or more, of any Federal, state or
local license required by law and necessary in carrying out the provisions of
this Agreement.
  viii.  Any
change in APS’ active management, which change, in the opinion of Aero Marine,
will have a material effect on Aero Marine’s ability to market and promote the
products. Such a change includes, but is not limited to, a breach of the
provisions of this Agreement or APS’ shutdown for a period of thirty (30)
days.
  ix.  Any
change in Aero Marine’s active management, which change, in the opinion of APS,
will have a material effect on APS’ ability to market and promote the products.
Such a change includes, but is not limited to, a breach of the provisions of
this Agreement or Aero Marine’s shutdown for a period of thirty (30)
days.
  b.  In the
event of termination, the parties may still assert any other remedies against
the other that they would have had in the event of a breach of this
Agreement.
  c.  After the
expiration of this Agreement, or termination of this Agreement in accordance
with this Section 4, neither party shall have any other rights or obligations in
respect of each other except that any such expiration or termination shall be
without prejudice to the rights and obligations of the parties in respect to the
prospects already leased or developed.
  5.  Disputes;
Provisions for Arbitration . The
parties hereto agree that any dispute shall be arbitrated under the rules of the
American Arbitration Association.
  6.  Specific
Performance . The
parties understand and agree that the subject matter and mutual commitments set
forth in this Agreement are unique and, for that reason among others, the
respective parties will be irreparably damaged in the event that this Agreement
is not specifically enforced. Accordingly, in the event of any breach or default
in this Agreement or any of its terms or provisions hereof by any party hereto,
the other party hereto shall have the right to demand and have specific
performance of this Agreement. APS will
 
 
 14
 
 
 take all
commercially reasonable steps to market to the Military of the US and NATO
countries and build the multi-role power generator systems to a high quality,
with costs of production and sale reasonable in light of competitors pricing.
APS will
  take all
steps to avoid any drop in quality and will notify Aero Marine of any inability
to produce the expected quality multi-role power generator systems.
  7.  New
Technology . All new
technology developed belongs to Aero Marine, however APS can use said new
technology fully for military application in the US and all NATO countries.
  8.  Specific
Development . The
technology, which shall include a technical data packet, shall also include the
development and manufacture of pneumatic and hydraulic generation modules that
can be operated by each “half” engine. APS shall develop scaling for valves,
injectors and overall displacement as well as developing load balancing and
transfer switches for the generator systems.
  9.  APS
Preferred Manufacturer . APS
shall remain the preferred manufacturer providing its manufacturing costs do not
exceed the cost of equal quality workmanship and product by more than 20%. APS
manufacturing capacity shall support the multi-level international distribution
of the generators. Orders must be manufactured in a reasonable time, which needs
to be defined according to industry standards. If delays of more than 4 - 6
weeks are incurred, APS will need to increase its manufacturing capacity.
  10.  Inspection
and Review . Aero
Marine shall have the right, upon appropriate notification, to visit the
manufacturing facilities and review issues of importance such as quality control
and new product development with the APS management. Aero Marine shall have the
right to access the APS financial books with regard to manufacturing costs,
since this Agreement is a “cost-plus” agreement.
  11.  Proprietary
Information . All
information and technology is proprietary and belongs to Aero Marine. APS will
not have the right to publicly reveal trade secrets or privileged information.
All Intellectual Property sensitive material and technology shall be treated as
confidential and privileged information. It is expected that APS shall act as
guardian of the technology. Information shall be shared on a confidential basis
to APS clients. Any breach of confidentiality or leak of privileged information
to competitors or potential competitors shall be considered a breach of
contract.
  12.  Change
of Management . Should
APS sell its manufacturing business to a third party, Aero Marine shall no
longer be bound by this Agreement, unless Aero Marine renews this Agreement with
the new owner. APS cannot sell its manufacturing business or engineering
facilities to any competitor or potential competitor of Aero Marine. Aero Marine
shall have the right of refusal of any sale, but shall not withhold approval
unreasonably, unless the sale would cause clear damage to Aero Marine.
   15
  13.  Binding
Effect . Except
as otherwise expressly provided in this Agreement, this Agreement shall be
binding upon and shall inure to the benefit of the parties to this Agreement and
their heirs, personal representatives, successors and assigns. Each party to
this Agreement covenants that he will execute such reasonable documents and
perform such reasonable acts as may be required from time to time to carry out
the terms and conditions of this Agreement.
  14.  Governing
Law . This
Agreement shall be governed by and interpreted by the laws of the State of
Nevada.
  15.  Force
Majeure . APS
shall use its best efforts to fill orders promptly and to meet requested dates
of shipment. APS shall not be liable for delays in delivery or failure to
manufacture due to causes beyond its reasonable control, such as acts of God,
acts of Aero Marine, acts of civil or military authorities, fires, strikes,
floods, wars, riots and other causes of any similar nature.
  16.  Notices . All
notices provided for by this Agreement shall be made in writing by delivering
personally or by mailing of such notice to the parties hereon, registered or
certified mail, postage prepaid, at the following addresses or at such other
addresses designated in writing by one party to the other:
  APS: 381 Old
Riverhead Road, Suite 12
 Washington
Beach, NY 11978
 
 Aero
Marine: One World
Trade Center
 121 SW
Salmon Street, Suite 1100
 Portland,
OR 97204
 
 and
 
 Richard
E. Fowlks
 Attorney
at Law
 1607 NE
41 st Avenue
 Portland,
OR 97232
  17.  Attorney’s
Fees . In the
event an action shall be brought by any party hereto to enforce the terms
referred to in this Agreement, or any controversy arising therefrom, the
prevailing party in each suit shall be entitled to the payment of reasonable
attorney’s fees which shall be fixed by the court or the
arbitrator.
  18.  Remedies . The
parties hereto agree and acknowledge that the obligations of the parties
described in this Agreement herein are of a unique and special nature and the
aggrieved party will not have an adequate remedy at law in the event of
 
 
 16
 
 
 failure
of a party to abide by such terms and conditions nor will money damages
adequately compensate for such injury. It is, therefore, agreed between the
parties that for any violation by the other party of the terms and conditions of
this Agreement, a restraining order or an injunction may be issued or a decree
of specific performance be ordered by court of equity, in addition to any other
right or remedies which the parties may have at law or in equity.
  19.  Subject
Headings . The
subject headings of the paragraphs and subparagraphs of this Agreement are
included solely for the purpose of convenience only, and shall not affect the
construction or interpretation of any of the provisions of this
Agreement.
  20.  Amendments . No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties hereto.
  21.  Personal
Nature of Agreement; Limitations on Assignment . The
benefits of this Agreement may be assigned to an entity or entities which are
owned and/or controlled by one or more of the parties hereto. However, this
Agreement is made on a personal level among the parties and each party agrees
that, on an individual basis, there will be no substitution or authorization of
a third party to become a party to this Agreement or to perform services on
behalf of the other party *except* with the
prior written agreement and authorization of all parties to this Agreement. The
parties are very comfortable with their relationship with each other but neither
party wants to become involved with a third party without first receiving
written notice and giving their prior written consent thereto.
  22.  Entire
Agreement and Waiver . This
Agreement contains the entire Agreement between the parties hereto, and
supersedes all prior and contemporaneous agreements, arrangements, negotiations
and understandings between the parties hereto relating to the subject matter
hereof. There are no other understandings, statements, promises or inducements,
oral or otherwise, contrary to the terms of this Agreement. There are no
representations, covenants or conditions, express or implied, whether by statute
or otherwise, other than as set forth herein by any party hereto. No supplement,
modification or termination of any term or condition shall be binding unless
executed in writing by the parties to be bound thereby. No waiver of any term,
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or shall constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the party making the waiver.
  23.  Representation
of Authority to Execute Agreement . Each
party to this Agreement represents that he has full power and authority to
execute this
 
 
 
 17
 
 Agreement
and that the execution of this Agreement is not contrary to any existing
security agreement or obligation of the undersigned.
  24.  Counterparts . This
Agreement may be executed under one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument.
  25.  Additional
Documents . Both
parties agree to execute any additional documents or agreements contemplated by
this Agreement or required hereunder.
 
 IN
WITNESS WHEREOF, the parties hereto have entered into and caused this Agreement
to be executed by persons duly authorized.
 
 Adaptive
Propulsion Systems     Aero
Marine Engine, Inc.
 
 
 
 By:/s/
Billy
Silhan By:/s/
Raymond
Brouzes
 Billy Silhan,
President Raymond
Brouzes, President
  Dated:
January 13,
2005 Dated:
January 13, 2005
  
 18