**Exhibit10.1**

 

**SinglePhase TechnologyLicense AgreementbetweenCommerce Energy Group, Inc.andPower Efficiency Corporation**

 

This License Agreement(this “Agreement”) is made and entered into this 11th day of October,2004, by and between Power Efficiency Corporation (“PEC”), a Delawarecorporation, with its principal executive offices located at 3900 ParadiseRoad, Suite 283, Las Vegas, Nevada 89109, and Commerce Energy Group, Inc. (“CEG”),a Delaware corporation, with its principal executive offices located at 600Anton Boulevard, Suite 2000, Costa Mesa, California 92626.  Unless otherwise defined, capitalized termsshall have the meaning set forth in Paragraph 1 herein.

 

**RECITALS**

 

**WHEREAS,**PEC manufactures and markets energy savingthree phase motor controllers for AC induction motors and is the owner ofUnited States Patent Number 5,821,726 (“the ’726 Patent”) for the circuits usedin its three phase controllers.

 

**WHEREAS**, PEC has certain know-how and has developedprototype circuits incorporating the technology of the ’726 Patent in a singlephase motor controller to save energy. PEC has access to the developer of thePEC single phase technology.

 

**W****HEREAS**, PEC representsthat the PEC Single Phase Technology prototypes integrate the technologyprotected by the ’726 Patent. 

 

**W****HEREAS**, the licensegranted by this Agreement is issued to CEG to use the ’726 Patent and the PEC SinglePhase Technology for the development, manufacture, labeling, marketing,distribution, lease, use and sale of a single phase motor controller, togetherwith any improvements, enhancements, and/or modifications, including alldisposables or reusables created therefore which, but for the licenses grantedunder this Agreement, would infringe a claim of the ’726 Patent.

 

**WHEREAS**, PEC does not currently have the financialresources to finish development, invest in manufacturing molds and processesand market a single phase energy saving device aimed at the mass consumermarket comprised of freezers, refrigerators, washers and other appliances thatcould benefit from this device.

 

**WHEREAS**, CEG has the financial resources to completethe development and market a single phase motor controller for retaildistribution.

 

**NOW, THEREFORE**, in consideration of theRecitals set forth above and the mutual covenants contained herein, PEC and CEG(“the Parties”) agree as follows:

 

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1.                                       **Definitions**

 

The following terms whenthey appear in this Agreement with an initial capital letter and without regardto whether they appear in the singular, plural or possessive form, shall havethe meaning defined below:

 

1.1                                 **“Affiliate”** of a Party means any person or entitythat controls, is controlled by, or is under common control with such Party,but only as long as such control exists. As used herein, **“control”**means ownership of fifty percent (50%) or more of the outstanding voting stockor other equity interests in a person or entity or the power to otherwisedirect the affairs of a person or entity.

 

1.2                                 **“****Effective Date****”** shall mean 90 days after the date of this Agreement.

 

1.3                                 **“Field of Use”**means single phase motor controllers forAC induction motors.

 

1.4                                 **“Improvement”** means any improvement, modification,derivative work, or variation of any invention, method, system, apparatus, ortechnology described or claimed in any Licensed Patent or the PEC Single PhaseTechnology, as such relate to single phase technology.

 

1.5                                 **“Licensed Patents”** means (i) the ’726 Patent, and (ii) continuations,divisionals, reissues, reexaminations, and foreign counterparts of the ’726 Patent.

 

1.6                                 **“****PEC Single PhaseTechnology****”** shallmean all information and secret know-how previously, now or hereafter provided,developed, owned or controlled by PEC or any of its Affiliates related to asingle phase motor controller utilizing the technology of the Licensed Patents,including without limitation all designs, specifications and informationrelated to the development of the single phase motor controller, including thesingle phase motor controller technology prototype circuits developed by PECincorporating the technology of the Licensed Patents.

 

1.7                                 **“Unit”** shall mean a single phase motorcontroller developed incorporating the technology and know-how of the LicensedPatents and/or the PEC Single Phase Technology.

 

2.                                       **License**

 

2.1                                 **Grant of License**.  PEChereby grants to CEG an exclusive, royalty-bearing, worldwide license (“License”)to use the Licensed Patents, the circuits described in the Licensed Patents,the PEC Single Phase Technology, and related intellectual property solely todevelop, manufacture, label, market, distribute, lease, use and sell a singlephase controller for the Licensed Use. 

 

2.2                                 **Prototypes**.  Asconsideration for this License, PEC will transfer its existing R&Dprototypes of its existing current development progress on creating a singlephase

 

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circuitincorporating the PEC Single Phase Technology and the engineering drawings usedto build the existing prototypes.  PECwaives any and all claims to ownership or development credit of the existingprototypes and irrevocably transfers all right, title and interest in suchprototype to CEG.  The Partiesacknowledge that the existing prototypes are not a finished product and couldnot be sold to consumers in their present form. PEC represents and warrants that the engineers and developers of theexisting prototypes will assist CEG, at CEG’s request and direction, in completingthe existing prototypes into a finished product for the Unit to thesatisfaction of CEG.  In the event thatthe engineers and/or the developers of the existing prototypes refuse to orfail to assist CEG in completing the existing prototypes into a finishedproduct for the Unit, CEG will consider this a material breach of thisAgreement and CEG may immediately terminate this Agreement and pursue all legaland equitable remedies available to CEG as a result of such breach.  Nothing herein shall prohibit CEG fromindependently engaging any personnel is deems necessary, in its sole andabsolute discretion, for the development and engineering of the Unit. 

 

2.3                                 **Access to EngineeringPersonnel. **PEC shall permit CEG access toengineering personnel and any and all persons most knowledgeable regarding theinvention embodied in U.S. Patent No. 5,821,726, the PEC Single PhaseTechnology and the R&D prototypes transferred to CEG pursuant to thisAgreement.  CEG will compensate PEC for reasonablecosts and expenses for access to these individuals.  CEG will provide PEC with reasonable noticeof the need for access to such engineering personnel, where such reasonablenotice will be no shorter than one (1) week unless otherwise consented to byPEC. As part of this Agreement, PEC warrants and represents that theabove-described engineering personnel agree to cooperate with CEG in the finaldevelopment of the Unit.

 

2.4                                 **Term of the Agreement.** This Agreement shall remain in effect for a term of 10 years from theEffective Date (the “Initial License Term”) or until none of the Licensed Patentslicensed under this Agreement remain valid and enforceable, whichever shouldoccur earliest, subject to the other terms hereof.

 

2.5                                 **Royalties**. As consideration for this License, CEG will pay to PEC Royalties whichshall be calculated as an amount equal to 5% of the net profit per Unit soldafter all costs, operating expenses, development cost recovery, taxes and anyadditional fees or charges related to the sale of each Unit has been paid.

 

2.6                                 **Payments**. Payment shall be due within 45 days of the end of each calendar quarter duringwhich CEG owes PEC Royalties for the Unit. In the event that no Royalties exist for a calendar quarter, CEG shallnot provide any payments or quarterly statements for such calendar quarters.

 

3.                                       **License Termination Fee**

 

PEC and CEG agree thatPEC shall be entitled to terminate the License prior to its expiration underthe following condition:  In the eventthat CEG has not sold at least 1,000 (one thousand)Units to any third party customersin any channel of sales after five (5) years from the Effective Date of thisAgreement, PEC shall have the option to terminate the License on the first dayfollowing the expiration of five (5) years from the Effective Date of thisAgreement by notifying CEG in writing that PEC desires to terminate theLicense.  If PEC successfully

 

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develops the Unit oranother single phase motor controller after terminating the License, PEC agreesto permit CEG to acquire such Unit(s) for resale by CEG at its sole election ata reasonable price but in no event at a price greater than the lowest price theUnit(s) is offered for sale to any third party and further agrees to provideCEG with a non-exclusive right to use and sell such Unit(s) acquired from PEC.

 

4.                                       **Agreement EarlyCancellation**

 

This Agreement shall beeffective 90 days after the Effective Date. If PEC pays to CEG (or its affiliate Commonwealth Energy Corporation)the sum of $300,000 as payment of the principal amount of that certainpromissory note dated April 20, 2004, together with accrued and unpaidinterest, before the Effective Date (the “Payment Amount”), then this Agreementshall be considered null and void and shall have no effect.  Also, upon payment of the Payment Amountbefore the Effective Date, the new note**[dated         ,      ]** issued **[by         ]** to CEGunder that certain Pali financing will be deemed to be paid in full andcancelled.**   Both Parties agree to execute any and alldocuments and instruments necessary to accomplish the above-stated provisionsof this Paragraph.**

 

5.                                       **Ownership of Improvements.** As between CEG and PEC, CEG will own all Improvements conceived, made,reduced to practice, invented, or developed by any employee or contractor of CEG.  In the event that CEG develops anyintellectual property rights in any processes or products relating to theImprovements, then CEG shall retain exclusive ownership of such intellectualproperty rights in such Improvements, including the right of CEG to file forworldwide patent protection for the inventions embodied in such Improvements inits own name and at its own cost and expense. PEC shall assist CEG, as requested, in executing such documents andinstruments as may be reasonably determined necessary by CEG to secure andmaintain patent and other intellectual property protection for suchImprovements.

 

6.                                       **Patent Marking****. **CEG will mark prominently each Unit whichCEG offers for sale with the patent number of each Licensed Patent.

 

7.                                       **Notice of Infringement**. CEG and PEC shall promptly notify each other of any infringement, unfaircompetition or patent application by a third party in, or applicable to, theLicensed Patents as it relates to the Unit which come to their attention.  Should legal action against any third partybe deemed necessary by CEG to prevent infringement of the Licensed Patents asit relates to the Unit, PEC hereby grants CEG the authority to initiate legalproceedings against such third party infringer with respect to such third party’sinfringement of the Licensed Patents as it relates to the Unit.  Actions, costs, control and recovered damagesand settlements associated with such legal proceedings initiated against anythird party with respect to such third party infringement claims shall behandled, determined, borne and received by CEG, unless CEG and PEC mutuallyagree in writing to have PEC control such litigation or CEG elects not topursue such litigation and PEC elects to do so, in which case the costs,control and damages recovered or awarded or received in settlement shall beborne and received, respectively, by PEC.

 

8.                                       **No Joint Venture**. This Agreement shall not be construed to create any joint venture,partnership or other relationship of any kind other than that described herein.

 

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9.                                       **Confidentiality of the Agreement.**  Neither Party will disclose any terms orconditions of this Agreement to any third party without the prior writtenconsent of the other Party, except: (i) as required by law, including but notlimited to SEC disclosure requirements; (ii) as ordered by a court subject to aprotective order; (iii) to its attorneys, accountants, and other professionaladvisors under a duty of confidentiality; or (iv) to a third party under a dutyof confidentiality in connection with obtaining financing, a proposed merger,or a proposed sale of all or part of such Party’s business.

 

10.                                 **Termination byLicensee.  Either Party** may immediately terminate this Agreementby giving a written notice of termination to the other Party if the other Partybreaches any material provision of the Agreement and fails to cure such breachto the satisfaction of the terminating Party within thirty (30) days afterwritten notice thereof.

 

11.                                 **Effect of Termination.** Upon termination of this Agreement before the end of the Initial LicenseTerm or upon expiration of the Initial License Term, all licenses granted byPEC to CEG under this Agreement will be immediately revoked.  Upon termination of this Agreement by expirationof the Licensed Patents, CEG shall immediately upon expiration of such LicensedPatents be granted an irrevocable, non-exclusive license to practice theinventions embodied in and related to the Licensed Patents and the PEC SinglePhase Technology for the payment of $1.00 from CEG to PEC

 

12.                                 **Notices. **Except as otherwise specified in this Agreement, allnotices, requests, consents, approvals, agreements, authorizations,acknowledgements, waivers and other communications required or permitted underthis Agreement shall be in writing and shall be made by registered or certifiedfirst-class mail, return receipt requested, telecopier or fax, courier serviceor personal delivery to the address specified below:

 

In the case of  CEG:

 

Commerce Energy Group,Inc.

600 Anton Blvd., Suite2000

Costa Mesa, California  92626

 

In the case of PEC:

 

Power EfficiencyCorporation

3900 Paradise Road, Suite283

Las Vegas, Nevada  89109

 

All such notices,requests, consents, approvals, agreements, authorizations, acknowledgements,waivers and other communications required or permitted under this Agreementshall be deemed to have been duly given when received, as evidenced by (i) areturn receipt if sent by certified mail; (ii) delivered by hand, if personallydelivered; (iii) when delivered by courier, if delivered by commercial courierservice; and (iv) when delivered by telecopier or fax, when receipt ismechanically acknowledged if such acknowledgement indicates delivery torecipient on its business day during normal business hours, otherwise on thenext business day.

 

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13.                                 **Force Majeure.** In the event that either Party’s performance of its obligations underthis Agreement is interrupted or delayed by any occurrence not caused by eitherParty, its assigns or agents, whether such occurrence is an act of God orpublic enemy, or whether such occurrence is caused by storm, earthquake, orother natural forces, or by war, riot, public disturbance, or the acts oromissions of anyone not a party to this Agreement, then either Party shall beexcused from such performance and any further performance required under thisAgreement for whatever period is reasonably necessary to remedy the effects ofthat occurrence.

 

14.                                 **Entire Agreement.** This Agreement, including any Attachment, Exhibit or Schedule hereto,embodies the entire Agreement and understanding between the Parties, andsupersedes all prior agreements and understandings between the Parties, whetherwritten or oral, with respect to the subject matter hereof.  Except as provided for in this Section, thisAgreement may not be amended except by a written amendment signed by bothParties.

 

15.                                 **Headings.** Headings are for the convenience of the Parties and shall be ignored forpurposes of interpreting this Agreement.

 

16.                                 **Assignment.** CEG may assign its rights and obligations under this Agreement to itsAffiliates or any third party.  If CEGelects to assign its rights and obligations under this Agreement to a third party,PEC shall be given the right of first refusal to obtain such assignment of thisAgreement under identical terms and conditions as agreed upon between CEG and thethird party.  This right of first refusalby PEC shall not apply to assignments to Affiliates of CEG.  PEC does not have their right to assign itsrights and obligations under this Agreement, or grant or otherwise transferrights to the license to the Unit granted herein to a third Party, and anyattempt by PEC to assign its rights and obligations, or grant any transfer orlicense to the Unit to any other person or entity is void and without effect.

 

17.                                 **Representations and Warranties ofthe Parties.**  As a material inducement to enter into thisAgreement, each Party represents and warrants that, as of the date of thisAgreement each Party has (i) full right, power and authority to enter into thisAgreement, and has obtained all necessary consents and resolutions requiredunder the documents governing its affairs in order to consummate thistransaction, and the persons executing this Agreement have been duly authorizedto do so (ii) full right title an interest to the property, principals andpatents which serve as the subject matter of this Agreement.  This Agreement is a binding obligation oneach Party, enforceable in accordance with their terms.

 

18.                                 **Severability.** If any one or more of the provisions contained in this Agreement shallbe invalid, illegal or unenforceable in any respect, the validity, legality andenforceability of the remaining provisions contained herein shall not in anyway be affected or impaired thereby.

 

19.                                 **Counterparts.** This Agreement may be executed in any number of counterparts, each ofwhich will be deemed an original, but all of which taken together shallconstitute one single agreement between the Parties.

 

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20.                                 **Representation by Counsel.** This Agreement is executed voluntarily by the Parties hereto without anyduress or undue influence being exerted thereon.  The Parties hereto represent and warrant thatthey have read and fully understand the provisions of this Agreement and haveparticipated equally, and relied on the advice and representation of legalcounsel of their own choosing in the drafting hereof.  Accordingly, in any construction to be madeof this Agreement, it shall not be construed as having been drafted solely byany single Party to the subject litigation, or settlement thereof.

 

21.                                 **Attorney’s Fees.** In the event of any action to enforce the terms of this Agreement, eachParty shall bear its own costs and expenses, including attorney’s fees.

 

22.                                 **Governing Law.** The formation, interpretation and performance of this Agreement shall begoverned by and construed in accordance with the laws of the State ofCalifornia, without giving effect to the principles thereof relating to theconflicts of laws.  Venue for anydisputes arising under this Agreement shall be in any court of competentjurisdiction located in Orange County, California.

 

23.                                 **Extension. **At the expiration of the Initial License Term,provided this Agreement is not terminated prior thereto under Paragraph 3herein, CEG shall have the election to continue the License under thisAgreement for the Unit for an additional three (3) years (“Extension Period”)until the expiration of the Licensed Patents. CEG may exercise its right to extend the term of this Agreement at theexpiration of the Initial License Term provided CEG is in compliance with theterms and conditions of this contract at the time of such election toextend.  In the event that CEG exercisesits rights to the Extension Period, CEG shall be permitted to purchase thetechnology owned by PEC under the Licensed Patents in the field of single phasetechnology and the PEC Single Phase Technology pursuant to Paragraph 11 herein.

 

24.                                 **Bankruptcy.**  Ifduring the term of this Agreement, PEC files for any category of bankruptcy,then, immediately upon that filing, the ownership of the PEC Single PhaseTechnology in the field of single phase technology and the Licensed Patents andeverything that has been provided to CEG shall immediately become the propertyof CEG.

 

IN WITNESS WHEREOF, theParties, by their respective duly authorized representatives, have executedthis Agreement as of the date first written above.  This Agreement shall not become effective asto either Party unless and until executed by both Parties.

 

 
| Commerce Energy Group,  Inc.,  a Delaware corporation | Power Efficiency  Corporation,  a Delaware corporation |
|-------------------------------------------------------|--------------------------------------------------------|
|                                                  |                                                   |
| /s/ Ian B Carter                                      |                                                   | /s/ Steven Strasser |   |
| By:                                                   | Ian B. Carter                                          |   | By: | Steven Strasser |   |
|                                                  | Chief Executive Officer                                |   |   | Chief Executive Officer |   |

 

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