Document:

Distribution Support Services Agreement

 
EXHIBIT 10.39
 DISTRIBUTION SUPPORT
SERVICES AGREEMENT
 THIS AGREEMENT is made as of December 31, 2002 (“Effective Date”), by and between Micro
Therapeutics, Inc., a Delaware corporation with its principal place of business at 2 Goodyear, Irvine, California (“MTI”) and ev3 Inc., a Delaware corporation with its principal place of business at 4600 Nathan Lane North, Plymouth,
Minnesota 55442-2920(“ev3”).
 WHEREAS, MTI develops, manufactures and markets minimally invasive devices for the treatment
of neuro and peripheral vascular diseases;
 WHEREAS, ev3 provides sales, marketing and distribution services to third
parties;
 WHEREAS, MTI wishes to appoint ev3 as its exclusive distribution support services provider in the Territory and to provide
certain services on MTI’s behalf on the terms set out in this Agreement.
 NOW, THEREFORE, the parties hereto agree as
follows:
 1.
Definitions.
 a.
“Marketing Plan” shall refer to each marketing plan for the Products developed pursuant to Section 2(b) hereof.
 b.
“Products” shall mean all of MTI’s
current and future peripheral vascular products; the current products distributed hereunder are listed on Exhibit A as amended from time to time by the parties.
 c.
“Promotional Materials” shall have the meaning set forth in Section 3(d).
 d.
“Services” shall mean the inventory
management, customer service, accounting, invoicing, collection and administrative services that ev3 shall provide for MTI under this Agreement.
 e.
“Territory” shall mean the United States and Canada and as otherwise may be amended from time to time by mutual agreement of the
parties.
 2.
Appointment.
 a.
General. Subject to this Agreement, MTI hereby appoints ev3, and ev3 hereby accepts its appointment as MTI’s
exclusive Distribution Services provider in the Territory in accordance with the terms and conditions of this Agreement.
 b.
Review Committee. MTI and ev3 will form a Review Committee composed of representatives of each party, including, the
President of ev3, and the President of MTI or their designee who shall be a high-level marketing executive of each party. The Review Committee will meet from time to time as determined by the participants, but no less then two times during each year

 
Exhibit A -
1

 
during the term of this Agreement to resolve in good faith outstanding strategy and tactical issues that arise during the Term, and to review all aspects of
providing the Services. Prior to the commencement of each year, the Review Committee will prepare and agree upon a marketing plan for such year (the “Marketing Plan”). A representative of MTI will serve as Chairperson of the Review
Committee. 
 3.
ev3’s
Obligations.
 a.
General. ev3 will use commercially reasonable efforts to perform the Services in a good and workmanlike manner. ev3
may subcontract the performance of any of its obligations under this Agreement to any of its wholly owned subsidiaries.
 b.
Direct Sales.
 (i)
Facilities and Staff. ev3 will maintain the facilities and staff that it deems appropriate to effectively provide the
Services for the Products throughout the Territory. ev3 will determine, in its sole discretion, the locations within the Territory in which it will (i) provide warehouse and distribution capacity and (ii) establish and maintain ev3 corporate
entities.
 (ii)
Marketing and Promotional
Activities. MTI will keep ev3 informed about upcoming trade shows and similar events within the Territory and ev3, in its sole discretion, will participate in such events at MTI’s request.
 (iii)
Promotional Materials. ev3
will use the brochures and other sales and promotional literature describing the Products that MTI periodically approves or provides to ev3 (the “Promotional Materials”).
 (iv)
Performance Standards. ev3
agrees to meet the performance standards established by the Review Committee for the Services within the Territory.
 (v)
Receivables. ev3 will use commercially reasonable efforts to collect the amounts that customers owe to MTI (the
“Receivables”) based upon accounts receivable and collection goals mutually agreed upon by the parties. ev3 will have no right in the Receivables except as contemplated in Section 6 below. ev3 will inform MTI of any Receivables that remain
uncollected and become past due and use commercially reasonable efforts to pursue the collection of such past due Receivables in accordance with MTI’s instructions.
 (vi)
Remittances. ev3 will remit the collected Receivables to MTI on the 15th day of the month
following the month of receipt of such payments from customers, less any applicable sales or use taxes or other such charges that ev3 may pay or be required to pay on MTI’s behalf, and less the fee payable to ev3 pursuant to Section 6 of this
Agreement.. ev3 will make all such remittances by wire transfer to the bank account that MTI may periodically designate. MTI will bear all bank transfer charges. If ev3 collects any Receivable for which taxes have been withheld by a customer, ev3
will use its commercially reasonable efforts to cause such customer to furnish to MTI the documents evidencing the payment of such taxes that are acceptable to the local taxing authority. 
 (vii)
Records and Reports. ev3
will keep accurate records of its activities under this Agreement, including a record of (i) each order received and accepted; (ii) each invoice issued to and payment received from a customer; (iii) a current account of all Receivables due
and
 
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 outstanding; and (iv) each payment made to MTI. Within 15 days of the end of each one-month period of this Agreement, ev3 will provide MTI with a report
showing the orders obtained for the Products, invoices issued to and payments received from customers, and payments remitted to MTI.
 (viii)
 Marketing Support.  In the event ev3 agrees to provide marketing support as may be requested by MTI to
effectively market the Products within the Territory, including without limitation, marketing studies, marketing communications and attendance at trade shows, the parties will agree on the payment to made to ev3 for such marketing support on a case
by case basis.
 (ix)
 Product
Recalls.  In the event of a recall ordered or requested by any government agency, a court or by either party of any Product within the Territory, ev3 and MTI will discuss actions that will be taken with respect to
customers and government authorities in implementing such recall, including in locating and retrieving recalled Products from customers. The parties will agree on such actions prior to implementation of any Product recall. In the event the parties
cannot agree on such actions, MTI will be solely responsible for the implementation of such Product recall. Any such recall of Products within the Territory, whether required or voluntary, will be at MTI’s cost and expense. MTI will defend and
indemnify ev3 against any loss, damage, liability or expense (including attorneys’ fees), other than loss of income from recalled Products, that ev3 may suffer or incur as a result of or relating to any recall of the Products or any events
leading to the recall of the Products.
 (x)
 Product Complaints.  ev3 will promptly provide notice to MTI of the occurrence of any of the following within the Territory: (a) receipt of any Product quality claims or complaints or other written legal claims or
complaints, (b) receipt of any medical claims, complaints or problems, or (c) receipt of any written communication from any applicable regulatory agency pertaining to the Products.
 4.
MTI’s Obligations.
 a.
 Distribution Management
Phase-In.  MTI will use its best efforts to transition to ev3 the day-to-day management of the Services within the Territory. MTI will be solely responsible for any and all costs related to any termination of its
distributors and any transition to ev3.
 b.
 Promotional Materials.  MTI will provide ev3 with the quantity and quality of Promotional Materials in English as the parties deem reasonably sufficient for ev3 to provide as required to customers regarding the
Products within the Territory in accordance with the Marketing Plan.
 c.
 Training.  MTI will provide, with the participation of ev3, each ev3 employee with the training necessary, on an
ongoing basis, for ev3 to perform the Services within the Territory. MTI will bear all travel and out-of-pocket expenses that such ev3 employees may incur in attending the training sessions.
 d.
 Product Changes.
 Except in the case of a Product recall or other emergency, MTI will provide ev3 three months’ notice of changes in Products or packaging, or advertising, sales or Promotional Materials relating to the Products or any significant
development planned and improvements that may affect the marketing of the Products.
 
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e.
 Support.  MTI will provide ev3, in the form and when reasonably required by ev3, access to MTI’s technical and marketing and sales personnel for advice, consultation and assistance in marketing, and providing
support for the Products within the Territory. MTI may provide such support by telephone or other forms of communication or by on-site visits by ev3 employees or MTI employees, as the parties deem appropriate. MTI will provide executive sales
support as agreed to by the parties from time to time.
 f.
 Sales.  MTI shall provide all sales personnel for the promotion and sale of the Products in the Territory. ev3
may generate and will refer to MTI all leads for potential customers of the Products within the Territory. To refer a lead, ev3 will complete a Lead Referral form, to be established by the Review Committee, and remit it to MTI. MTI will follow-up on
such leads according to the Marketing Plan
 g.
 Sales Strategy.   Through the Review Committee, ev3 will participate in sales strategy sessions with MTI management.
 h.
 Regulatory Oversight; Compliance with Laws.  MTI will be solely responsible for all
FDA/CE mark regulatory matters and all other regulatory matters (other than those required to import and sell the Products within the Territory) including, securing any and all regulatory approvals, performing all clinical trials, and applying to
register the MTI trademarks, patents or other intellectual property within the Territory.
 i.
 Product Complaints.  MTI will promptly provide notice to ev3 of the occurrence of any of the following: (a)
receipt of any Product quality claims or complaints or other written legal claims or complaints, (b) receipt of any medical claims, complaints or problems, or (c) receipt of any written communication from any applicable regulatory agency pertaining
to the Products.
 5.
Orders and
Delivery.
 a.
 Orders.  ev3 will receive all orders for the Products from customers in the Territory. If MTI receives any orders from customers in the Territory, MTI will direct such orders to ev3.
 b.
 Order Processing and Acceptance.  MTI hereby delegates to ev3 full and binding authority to accept or reject any order for the Products on behalf of MTI. MTI shall establish guidelines for order acceptance sufficient that orders falling within commercially reasonable
parameters set by MTI are accepted in the United States without delay. ev3 affiliates shall direct orders to ev3 for acceptance. ev3 will provide MTI with summaries of each order received which will include at a minimum (i) the identity and location
of the customer and/or distributor, (ii) the type and quantity of the Products ordered and (iii) the requested shipment date, and will also include such information requested by MTI.
 c.
 Shipment.  ev3 will
establish a shipment schedule for each order accepted. ev3 will arrange for shipment of the Products in accordance with this schedule, subject to delays beyond ev3’s control. ev3 will select the method of shipment for each order and obtain all
licenses required to export the Products from the United States, if applicable. MTI will provide sufficient inventory to meet anticipated orders to each warehouse location, as ev3 shall direct.
 
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6.
Consideration.
 Fee.  MTI will pay to ev3 for the Services to be performed by ev3 a
fee, calculated as ten percent (10%) of the MTI gross end-customer sales in the Territory of Products (the “Fee”). The Fee is payable monthly from amounts collected from the sale of the Products. This Fee is not reconciled at year
end.
 7.
Confidentiality.
 a.
 Information.  Each party acknowledges that it may disclose certain confidential information (the
“Information”) to the other party. If either party discloses such Information to the other, the receiving party will (i) use at least the same degree of care to maintain the secrecy of such Information as the receiving party uses to
maintain the secrecy of its own confidential information and (ii) use the Information only to accomplish the purposes of this Agreement. The disclosing party will mark as “confidential” all tangible items supplied to the receiving party
that contain Information of the disclosing party. Within 20 days of any oral disclosures of Information, the disclosing party will provide the receiving party with a writing memorializing the Information disclosed and the date of disclosure. The
placement of copyright notices on such items will not constitute publication or otherwise impair their confidential nature.
 b.
 Disclosure.  Neither party will disclose the Information of the disclosing party to any person except those of
the receiving party’s employees or agents that require access to accomplish the purposes of this Agreement and have been made aware of the confidentiality obligations herein. If the receiving party learns of an actual or potential unauthorized
use or disclosure of the disclosing party’s Information, the receiving party will promptly notify the disclosing party and, at the disclosing party’s request, provide the disclosing party with reasonable assistance to recover its
Information and to prevent subsequent unauthorized uses or disclosures of such Information. Each party acknowledges that (i) the unauthorized use or disclosure of any Information of the disclosing party will cause irreparable damage for which it
will not have an adequate remedy at law and (ii) the disclosing party will be entitled to injunctive and other equitable relief in such cases.
 c.
 Limitations.  Neither party will have any confidentiality obligation with respect to the confidential
information of the disclosing party that (i) the receiving party independently knew or develops without using the Information of the disclosing party, (ii) the receiving party lawfully obtains from another person under no obligation of
confidentiality or (iii) is or becomes publicly available other than as a result of an act or omission of the receiving party or any of its employees or agents.
 8.
Ownership.
 All patents, copyrights, trademarks, trade secrets, regulatory approvals and other proprietary rights in or related to the Products are and will remain the exclusive property of MTI or its licensors, whether or not
specifically recognized or perfected under applicable law. During the term of this Agreement, ev3 may use MTI’s trademarks to promote the Products, provided that prior to publishing or disseminating any advertising or promotional material
bearing MTI’s trademarks, ev3 will deliver a sample of such materials to MTI for prior approval. 
 9.
Representations and Warranties.
 a.
 Existence and Authority.
 Each party represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of 
 
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incorporation and has the corporate power and authority to execute, deliver and perform this Agreement. The execution of this Agreement and the performance
thereof have been duly authorized by all necessary corporate action on its part and do not conflict with the terms or conditions of any agreement to which such party is subject.
 b.
 Products.  MTI
represents and warrants that the Products will (i) conform to the written product specifications and (ii) comply with the requirements of any applicable law or regulation.
 c.
 Intellectual Property. 
MTI represents and warrants that it has all necessary ownership rights to market, sell and distribute the Products in the Territory, and that the manufacture, sale and use of the Products and any distribution of the Promotional Materials will not
infringe any patents, copyrights, trademarks or other intellectual or proprietary rights of any third parties
 d.
 Disclaimer.  EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, ALL WARRANTIES, CONDITIONS AND REPRESENTATIONS WITH
RESPECT TO THE PRODUCTS OR THE PROMOTIONAL MATERIALS, WHETHER EXPRESS OR IMPLIED, ARISING BY LAW, CUSTOM, PRIOR ORAL OR WRITTEN STATEMENT BY THE PARTIES OR OTHERWISE (INCLUDING, BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT) ARE HEREBY OVERRIDDEN, EXCLUDED AND DISCLAIMED.
 10.
Limitation of Liability.
 EXCEPT AS SET OUT IN SECTION 12 BELOW, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR INCIDENTAL DAMAGES OR LOST PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE,
BASED ON CLAIMS OF THE OTHER PARTY OR ITS CUSTOMERS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR LOSS OF GOODWILL, USE OF MONEY OR USE OF THE PRODUCTS, INTERRUPTION OF STOPPAGE OF WORK OR IMPAIRMENT OF OTHER ASSETS), ARISING OUT OF BREACH OR FAILURE
OF EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE.
 11.
Audit.
 During the term of this Agreement and for one year after its expiration or termination, MTI or its accountants may, upon 30 days’ prior notice to ev3, audit the accounting records of ev3 during the normal working hours to verify
ev3’s compliance with the obligations under this Agreement; provided, however, that MTI will not be entitled to conduct such audit more than once per year. 
 12.
Indemnity.
 Except for liabilities caused by acts of ev3 which are outside the scope of its authority under this Agreement or which are performed with gross negligence, MTI will indemnify, defend and hold harmless ev3 from and
against any and all liabilities, losses, suits, claims, damages and expenses (including attorneys’ fees and costs) based on claims arising out of or relating to (i) the manufacture, use, distribution, promotion or sale of the Products or (ii)
the infringement by ev3 of any patent, copyright, trademark or other intellectual property rights of any third parties with respect to the
 
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Products or Promotional Materials. ev3 will (i) notify MTI promptly of any such actual or potential claim; (ii) allow MTI to control the defense of the
claim; (iii) cooperate in the defense of such claim and (iv) not settle such claim without MTI’s consent.
 13.
Term and Termination.
 a.
 Term.  This Agreement will become effective on the Effective Date and continue in effect
for five years thereafter, unless earlier terminated pursuant to paragraph 13(b). This Agreement will automatically renew for subsequent 2 year periods unless either party provides the other party written notice 180 days prior to the expiration of
the initial term or any renewal term of its intention not to renew.
 b.
 Termination for Cause.  Either party may terminate this Agreement, without judicial or administrative notice or
resolution, immediately upon notice to the other party, if:
 (i)
the other party or any of its employees breaches any material obligation under this Agreement and such party fails to cure the breach within
thirty days after receipt of written notice thereof;
 (ii)
either party ceases to conduct business in the normal course, is declared insolvent, undergoes any procedure for the suspension of payment, makes
a general assignment for the benefit of creditors or a petition for bankruptcy, reorganization, dissolution or liquidation is filed by or against it; or 
 (iii)
the direct or indirect ownership or control of the other party changes as follows: MTI may only exercise its right of
termination under this Section in the event that Warburg Pincus (together with its affiliates) ceases to own or control at least 20% of ev3. ev3 may only exercise it’s right of termination under this Section if a third party gains control of
MTI from, or subsequent to, Micro Investment, LLC (together with its affiliates). Control of MTI will be deemed to have changed to a third party if that party acquires control over more shares of MTI than Micro Investment, LLC controls at that point
in time. For purposes of this Section, an initial public offering of a party will not be considered to create a right of termination under this Agreement.
 c.
 Termination for MTI Change of Control.  In the event of a change of control of MTI, MTI
may terminate this Agreement, upon 90 days’ written notice to ev3 within 30 days of such change of control of MTI.
 d.
 Consequences of Termination.  Upon expiration or termination of this Agreement for any reason the parties will
comply with the following termination obligations:
 (i)
MTI will pay all due and outstanding amounts, as well as any amount that has not become due, the due date of which will be automatically
accelerated to the date of expiration or termination of this Agreement.
 (ii)
ev3 will, at MTI’s option, destroy or deliver to MTI or its designees all Promotional Materials within ev3’s possession or
control.
 (iii)
In the event that MTI
terminates this Agreement, MTI will pay ev3 any and all expenses that ev3 may incur as a direct result of such termination.
 
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e.
 Survival.  The provisions of Sections 3(b)(vi), 3(b)(vii), 6-8, 10, 11, 12, 13(e), 14-22 will survive the expiration or termination of this Agreement.
 14.
Insurance.
 MTI will maintain product liability insurance in an amount sufficient to cover complete cost of product liability, regulatory and intellectual
property liability with an insurance company rated at least A+3 by Best’s rating guide. ev3 will be named as an additional insured on such insurance policies. ev3 will maintain insurance in an amount sufficient to cover any ev3 warehousing
facilities and to cover wrongful acts by ev3 in the provision of Services related to the Products.
 15.
U.S. Export Restrictions.
 ev3 acknowledges that the Products and related information, documents and materials may be subject to export controls under U.S. Export Administration Regulations. ev3 will (i) comply with all legal requirements
established under these controls, (ii) cooperate with MTI in any official or unofficial audit or inspection that relates to these controls and (iii) not export, re-export, divert or transfer any such item or direct products thereof to any country to
which such transfer is prohibited by such export controls, unless ev3 has obtained the prior written authorization of MTI and the U.S. Department of Commerce.
 16.
Force Majeure.
 Neither party will be liable for any failure or delay in performing an obligation under this Agreement that is due to causes beyond its reasonable control, such as natural catastrophes, governmental acts or omissions,
laws or regulations, labor strikes or difficulties or transportation stoppages. These causes will not excuse either party from paying amounts due to the other through any available lawful means acceptable to the other party.
 17.
Notices.
 Any notice required or permitted under this Agreement shall be in writing and either mailed by nationally recognized overnight courier,
registered or certified mail, return receipt requested, or by express delivery service to the other party. All notices shall be sent to the attention of the Chief Executive Officer of such other party at the address set forth in the first paragraph
of this Agreement or at such other addresses or to such other persons as such party may previously have designated by written notice. Notice will be deemed to have been given upon receipt.
 18.
Assignment.
 Except as otherwise provided, neither party may assign, delegate, subcontract or otherwise transfer this Agreement or any of its rights or
obligations without the other party’s prior approval, which approval will not be unreasonably withheld. Either party may assign this Agreement or any of its rights or obligations, upon notice to the other party, to (i) a related company or an
unrelated party pursuant to a sale, merger or other consolidation, or (ii) a subsidiary provided that the assigning party execute a guarantee covering the subsidiary’s obligations after such assignment.
 19.
Waiver, Amendment,
Modification.
 Except as otherwise provided, any waiver, amendment or other modification of this
 
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 Agreement will not be effective unless in writing and signed by the party against whom enforcement is sought.
 20.
Severability.
 If any provision of this Agreement is held to be unenforceable, in whole or in part, such holding will not affect the validity of the other
provisions.
 21.
Governing
Law.
 This Agreement will be governed by and interpreted in accordance with the laws of the State of California, excluding
its conflict of laws principles. Any claim arising out of or relating to this Agreement or the existence, validity, breach or termination thereof, whether during or after its term, will be brought in, and the parties hereby consent to the
jurisdiction of, the state or federal courts sitting in Orange County, California. 
 22.
Entire Agreement.
 This Agreement and its Exhibits constitute the complete and entire statement of all terms, conditions and representations of the agreement between MTI and ev3 with respect to its subject matter and supersedes all prior writings or
understandings.
 IN WITNESS WHEREOF, MTI and ev3 cause this Agreement to be executed by their duly authorized representatives identified below.
  

	 Micro Therapeutics, Inc.
 (“MTI”)
 	  
 	 ev3 Inc.
 (“ev3”)
 
	 By: 
 	 
 /s/ THOMAS C. WILDER,
III
 	  
 	 By: 
 	 
 /s/ PAUL BUCKMAN
 
	  
 	 
 	  
 	  
 	 
 
	 Name: 
 	 Thomas C. Wilder, III
 	  
 	 Name: 
 	 Paul Buckman
 
	 Title: 
 	 Chief Executive Officer
 	  
 	 Title: 
 	 Chief Executive Officer
 

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                                                                    EXHIBIT 10.1

                         EXECUTIVE EMPLOYMENT AGREEMENT

            This Executive Employment Agreement, dated for reference as of
February 17, 2003, is by and between SulphCo, Inc., a Nevada corporation (the
"Company"), and Kirk S. Schumacher (the "Executive").

            WHEREAS, the Company believes it to be to its advantage to employ
the Executive to render services to the Company; and

            WHEREAS, the Executive desires to accept employment with the Company
in a senior executive capacity;

            NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:

            1. Employment. The Company hereby agrees to employ the Executive as
its President, and the Executive hereby accepts such employment, on the terms
and conditions hereinafter set forth.

            2. Term. The period of employment of the Executive by the Company
under this Agreement (the "Employment Period") shall commence as of February 17,
2003, and shall continue through February 17, 2008 and shall thereafter be
extended from year to year unless and until either party shall have given not
less than one years prior written notice of the ending of the Employment Period.
The Employment Period may be sooner terminated by either party in accordance
with Section 11 of this Agreement.

            3. Executive Position and Duties. During the Employment Period, the
Executive shall report solely and directly to the Company's Chief Executive
Officer and/or the Board of Directors. The Executive shall have those powers and
duties normally associated with a position immediately junior to the chief
executive officer of entities comparable to the Company and shall have such
other powers and duties as may be prescribed by the Company. The Executive shall
devote substantially all of his working time, attention and energy during normal
business hours (other than absences due to illness or vacation) to the
performance of his duties for the Company, except that he may serve on the
boards of directors of other businesses, trade associations and charitable
organizations, engage in charitable activities and community affairs and manage
his personal investments and affairs, including providing corporate
domestication service arrangements provided through, and management of, two
family businesses, as long as these activities present no conflict of interest
and do not materially interfere with the performance of his duties under this
Agreement. The principal place of employment of the Executive shall be within
Washoe County, Nevada, provided the Company may relocate the Executive if such
relocation is for less than one year and is due to a change in control of the
Company.

                                       1
<PAGE>

            4. Member of the Board. The Board of Directors shall nominate and
appoint the Executive as a director of the Company. Thereafter, during the
Employment Period, the Board of Directors shall designate and nominate the
Executive as a director of the Company and, if elected by the stockholders of
the Company, the Executive shall perform the duties of a member of the Board of
Directors on conditions equivalent to other management directors. The Company
shall indemnify the Executive for his service as a director and as an officer to
the maximum extent permissible under law and shall provide liability insurance
coverage in amounts and on terms reasonably acceptable to the Executive.

            5. Compensation.

            5.1 Signing Bonus. On the Benefit Start Date (defined below), the
Executive shall be paid the sum of $100,000.

            5.2 Base Salary. Commencing immediately and thereafter during the
Employment Period, the Company shall pay the Executive a base salary at the rate
of not less than $300,000 per year ("Base Salary"). The Executive's Base Salary
shall be paid in approximately equal installments bi-weekly in accordance with
the Company's customary payroll practices. The Board of Directors of the
Company, or the appropriate committee thereof, shall review the Executive's Base
Salary for increase (but not decrease) no less frequently than annually and
consistent with the compensation practices and guidelines of the Company. If the
Executive's Base Salary is increased by the Company, the Base Salary as
increased shall then constitute the Base Salary for all purposes of this
Agreement.

            5.3 Incentive Compensation. As additional compensation to provide
incentives for the Executive to extend efforts which will assist in creating and
increasing the profits of the Company, the Executive shall be eligible to
receive incentive compensation ("Incentive Compensation") based on achieving
individual and organizational performance objectives in accordance with the
terms and conditions of the Company's management compensation plan. The
Company's management compensation plan shall be implemented no later than the
beginning of calendar year 2004.

            6. Stock Options.

            6.1 Initial Grant. The Company grants to the Employee fully vested
options (the "Options") to purchase 1,000,000 shares (the "Shares") of the
Company's common stock at a price of $.55 per share, which the Company and the
Executive acknowledge is the last reported trading price of the Company's common
stock on February 14, 2003 and is the fair market value of the Shares on the
date of this Agreement. The option for the Shares shall expire on February 14,
2006. Upon the Executive's request, the Company will agree to register the
Shares on a Form S-8 registration statement and shall keep the registration
statement in effect.

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<PAGE>

            6.2 Subsequent Grants. Subsequent grants of regular stock options
may be made subject to the Company's standard practice and policy in making such
grants. Subsequent stock option grants will be made in amounts comparable to
other senior executive officers and will be subject to not less favorable
vesting and exercise provisions than those granted to other senior executive
officers, provided that initial grants of greater amounts of stock options may
be made to new executive hires.

            7. Vacation and Time Off. The Executive shall be entitled to four
weeks of paid vacation per year. In addition to vacation, the Executive shall be
entitled to the number of sick days and personal days per year that other senior
executive officers of the Company are entitled under the Company's policies then
in effect. The parties acknowledge that, due to his current employment status,
the Executive will require a period of time in order effectively commence
full-time service to the Company. The parties agree that the Employee's salary
and benefits will not commence until the Employee notifies the Company that he
is in the position to provide full-time services and that all conditions
subsequent have been satisfied or waived (the "Benefit Start Date").

            8. Business Expenses and Services. The Company shall promptly
reimburse the Executive for all reasonable business expenses upon the
presentation of reasonably itemized statements of such expenses in accordance
with the Company's policies and procedures then in effect. All air travel shall
be by means of private aircraft or commercial carrier with first class seating
and all travel accommodations shall be at least Mobil four star quality. During
the Employment Period, the Company shall furnish the Executive with office space
in Washoe County, Nevada, a personal secretarial staff member and such other
facilities and services no less favorable than those provided to other senior
executive officers of the Company, including use of a laptop computer and
cellular telephone.

            9. Welfare, Pension and Benefit Plans. Commencing on the Benefit
Start Date and thereafter during the Employment Period, the Executive (and his
spouse and dependents) shall be entitled to participate in and be covered under
all the welfare benefit plans or programs then maintained by the Company for the
benefit of its senior executives including, without limitation, all medical,
hospitalization and dental insurance plans and programs. If dependents are not
covered under the medical, hospitalization and/or dental insurance plans, the
Company shall reimburse the Executive for the additional cost of such coverage
provided through the insurance plans sponsored by the employer of spouse of the
Executive. The Company shall at all times provide to the Executive (and his
spouse and dependents to the extent provided under the applicable plans or
programs) the same type and levels of participation and benefits as are then
being provided to other senior executives (and their spouses and dependents as
applicable). During the Employment Period, the Executive shall be eligible to
participate in all pension, retirement, cafeteria, savings and other employee
benefit plans and programs then maintained by the Company for the benefit of its
senior executives.

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<PAGE>

            10. Insurance.

            10.1 Life Insurance. Commencing calendar year 2004, the Company
shall reimburse the Executive for the cost of his term life insurance policy
with a death benefit of $1,000,000 payable to the beneficiaries chosen by the
Executive.

            10.2 Long-Term Disability Insurance. The Company shall use
reasonable commercial efforts to obtain to provide the Executive with long-term
disability insurance, own occupation, to the extent necessary to replace
three-quarters of the Executive's Base Salary. Such long-term disability
insurance shall be provided under a policy selected by the Executive offered on
a generally available basis by a top-rated national insurance carrier, which
policy shall be reasonably acceptable to the Board of Directors. The Company
shall pay the cost of all premiums associated with such disability insurance. If
any such insurance imposes a waiting period prior to the commencement of benefit
payments, the Company will continue to pay the Executive's Base Salary for up to
six (6) months during such waiting period.

            11. Termination. The Executive's employment under this Agreement may
be terminated during the Employment Period under any one of the following
circumstances.

            11.1 Death. The Executive's employment under this Agreement shall
terminate upon his death.

            11.2 Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been substantially
unable to perform his duties under this Agreement for an entire period of six
(6) consecutive months, the Company shall have the right to terminate the
Executive's employment under this Agreement for "Disability", and such
termination in and of itself shall not be, nor shall it be deemed to be, a
breach of this Agreement.

            11.3 For Good Cause. The Company shall have the right to terminate
the Executive's employment for Good Cause, and such termination in and of itself
shall not be, nor shall it be deemed to be, a breach of this Agreement. For
purposes of this Agreement, the Company shall have "Good Cause" to terminate the
Executive's employment upon the Executive's:

                        (i) final conviction of or plea of guilty or no contest
to a felony involving moral turpitude; or

                        (ii) willful misconduct that is materially and
demonstrably injurious economically to the Company.

            For purposes of this Section 11.3, no misconduct by the Executive
shall be considered "willful" unless committed in bad faith and without a
reasonable belief that the misconduct was in the best interests of the Company
or any entity in control of, controlled by or under common control with the
Company ("Affiliates"). Good Cause shall not exist under paragraph (ii) unless

                                       4
<PAGE>

and until the Company has delivered to the Executive a copy of a resolution duly
adopted by three-quarters of the full Board of Directors (excluding the
Executive) at a meeting of the Board of Directors called and held for such
purpose (after reasonable (but in no event less than twenty (20) days) notice to
the Executive and an opportunity for the Executive to be heard before the Board
of Directors), finding that in the good faith opinion of the Board of Directors,
the Executive was guilty of the conduct set forth in paragraph (ii) and
specifying the particulars thereof in detail. This Section 11.3 shall not
prevent the Executive from challenging in any arbitration or court of competent
jurisdiction the Board of Director's determination that Good Cause exists or
that the Executive has failed to cure any act (or failure to act) that
purportedly formed the basis for the Board of Director's determination. In the
event of a termination of employment for Good Cause, the Executive shall not be
entitled to any severance payments or other benefits except a provided in
Section 12.2 below.

            11.4 Without Good Cause. The Company shall have the right to
terminate the Executive's employment under this Agreement without Good Cause by
providing the Executive with a Notice of Termination at least thirty (30) days
prior to such termination, and such termination shall not in and of itself be,
nor shall it be deemed to be, a breach of this Agreement. Upon any termination
without Good Cause, the Executive shall be entitled to the severance payments
and other termination benefits set forth in Section 12.1.

            11.5 For Good Reason. The Executive may terminate his employment for
"Good Reason" within ninety (90) days after the Executive has actual knowledge
of the occurrence, without the written consent of the Executive, of one of the
following events:

                        (i) any change in the duties or responsibilities of the
            Executive that is inconsistent in any material and adverse respect
            with the Executive's position(s), duties, responsibilities or status
            with the Company (including any material and adverse diminution of
            such duties or responsibilities);

                        (ii) the relocation of the Company's principal executive
            offices outside of Washoe County, Nevada, unless such relocation is
            less than one year and due to a change in control of the Company;

                        (iii) the failure of the Company to continue in effect
            any material employee benefit plan, compensation plan, welfare
            benefit plan or fringe benefit plan in which the Executive is then
            participating, or the taking of any action by the Company or any
            Affiliate which would adversely affect the Executive's participation
            in or reduce the Executive's benefits under any such plan, unless
            the Executive is permitted to participate in other plans providing
            the Executive with substantially equivalent benefits;

                        (iv) any purported termination of the Executive's
            employment for Good Cause which is not affected pursuant to the
            procedures of Section 11.3;

                                       5
<PAGE>

                        (v) the Company's failure to provide in all material
            respects the indemnifications and liability insurance as set forth
            in Section 4 of this Agreement; or

                        (vi) any other breach of a material provision of this
            Agreement by the Company.

            In the event the Executive terminates employment for Good Reason,
the Executive shall be entitled to the severance payments and other termination
benefits set forth in Section 12.1.

            11.6 Without Good Reason. The Executive shall have the right to
terminate his employment under this Agreement without Good Reason by providing
the Company with a Notice of Termination at least thirty (30) days prior to such
termination, and such termination shall not in and of itself be, nor shall it be
deemed to be, a breach of this Agreement. In the event of a termination of
employment for Good Cause, the Executive shall not be entitled to any severance
payments or other termination benefits except as provided in Section 12.2 below.

            12. Severance Payments and Benefits upon Termination.

            12.1 Termination by Company without Good Cause or by the Executive
for Good Reason. If the Executive's employment is terminated by the Company
without Good Cause or by the Executive for Good Reason:

                        (i) within five days following such termination, the
            Company shall pay to the Executive (A) his Base Salary and any
            Incentive Compensation earned and/or accrued, but unpaid through the
            date of termination, as soon as practicable following the date of
            termination, (B) any accrued vacation pay; and (C) a lump-sum cash
            payment equal to two times the sum of the Executive's Base Salary
            and highest Incentive Compensation paid to the Executive in the
            three-year period immediately preceding the date of termination; and

                        (ii) the Company shall maintain in full force and
            effect, for the continued benefit of the Executive, his spouse and
            his dependents for a period of two years following the date of
            termination the medical, hospitalization, and dental programs in
            which the Executive, his spouse and his dependents were
            participating immediately prior to the date of termination at the
            level in effect and upon substantially the same terms and conditions
            (including without limitation contributions required by the
            Executive for such benefits) as existed immediately prior to the
            date of termination; PROVIDED, THAT, if the Executive, his spouse or
            his dependents cannot continue to participate in the Company
            programs providing such benefits, the Company shall arrange to
            provide the Executive, his spouse and his dependents with the
            economic equivalent of such benefits which they otherwise would have
            been entitled to receive under such plans and programs ("Continued

                                       6
<PAGE>

            Benefits"), FURTHER PROVIDED, THAT, such Continued Benefits shall
            terminate on the date or dates the Executive receives equivalent
            coverage and benefits, without waiting period or pre-existing
            condition limitations, under the plans and programs of a subsequent
            employer (such coverage and benefits to be determined on a
            coverage-by-coverage, or benefit-by-benefit, basis); and

                        (iii) the Company shall reimburse the Executive pursuant
            to Section 8 for reasonable expenses incurred, but not paid, prior
            to termination of employment; and

                        (iv) the Executive shall be entitled to any other
            rights, compensation and/or benefits as may be due to the Executive
            in accordance with the terms and provisions of any other agreements,
            plans or programs of the Company; and

                        (v) with respect to any stock option, stock appreciation
            right, restricted stock or similar agreements between the Company
            and the Executive, and notwithstanding any provision therein to the
            contrary, such agreements shall be deemed to be amended such that
            the Executive shall vest, as of the date of termination, in all
            rights under such agreements (e.g., stock options that would
            otherwise vest after the date of termination) and, in the case of
            stock options, stock appreciation rights or similar awards, the
            Executive shall be permitted to exercise any and all such rights
            (regardless of any termination of employment restrictions therein
            contained).

            12.2 Termination by Company for Good Cause or by the Executive
without Good Reason. If the Executive's employment is terminated by the Company
with Good Cause or by the Executive without Good Reason:

                        (i) within five days following termination of
            employment, the Company shall pay the Executive his Base Salary, any
            Incentive Compensation and his accrued vacation pay through the date
            of termination; and

                        (ii) the Company shall reimburse the Executive pursuant
            to Section 8 for reasonable expenses incurred, but not paid prior to
            such termination of employment; and

                        (iii) the Executive shall be entitled to any other
            rights, compensation and/or benefits as may be due to the Executive
            in accordance with the terms and provisions of any other agreements,
            plans or programs of the Company.

            13. Mitigation. The Executive shall not be required to mitigate
amounts payable under this Agreement by seeking other employment or otherwise,
and there shall be no offset against amounts due the Executive under this
Agreement on account of subsequent employment except as specifically provided
herein. Additionally, amounts owed to the Executive under this Agreement shall
not be offset by any claims the Company may have against the Executive and the
Company's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations under this Agreement, shall not be affected
by any other circumstances, including, without limitation, any counterclaim,
recoupment, defense or other right which the Company may have against the
Executive or others.

                                       7
<PAGE>

            14. Restrictive Covenants.

            14.1 Non-Solicitation. The Executive agrees that, after his
termination of employment and through the first anniversary thereof, the
Executive shall not directly or indirectly induce any employee of the Company to
terminate such employment or to become employed by any other company whose
business is competitive to that of the Company.

            14.2 Non-Competition. The Executive agrees that, after his
termination of employment and through the first anniversary thereof, he shall
not be employed by or perform activities on behalf of, or have an ownership
interest in, any person, firm, corporation or other entity, or in connection
with any business enterprise, that is competitive with the business of the
Company.

            14.3 Remedies. The Executive hereby expressly acknowledges that any
breach or threatened breach by the Executive of any of the terms set forth in
this Section 14 may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief.

            15. Legal Fees; Arbitration. Except as provided for in Section 14.3
of this Agreement, if any contest or dispute arises between the parties with
respect to this Agreement, such contest or dispute shall be submitted to binding
arbitration for resolution in Reno, Nevada in accordance with the rules and
procedures of the Employment Dispute Resolution Rules of the American
Arbitration Association then in effect. The decision of the arbitrator shall be
final and binding on both parties, and any court of competent jurisdiction may
enter judgment upon the award. The Company shall pay all expenses relating to
such arbitration, including, but not limited to, the Executive's legal fees and
expenses, regardless of outcome, unless the arbitrator determines that the
Executive has acted in bad faith.

            16. Successors; Binding Agreement.

            16.1 Company's Successors. No rights or obligations of the Company
under this Agreement may be assigned or transferred except that the Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as herein before defined and any successor to
its business and/or assets (by merger, purchase or otherwise) which executes and
delivers the agreement provided for in this Section 16 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.

                                       8
<PAGE>

            16.2 Executive's Successors. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to payments or benefits under this Agreement, which may be
transferred only by will or the laws of descent and distribution. Upon the
Executive's death, this Agreement and all rights of the Executive under this
Agreement shall inure to the benefit of and be enforceable by the Executive's
beneficiary or beneficiaries, personal or legal representatives, or estate, to
the extent any such person succeeds to the Executive's interests under this
Agreement. The Executive shall be entitled to select and change a beneficiary or
beneficiaries to receive any benefit or compensation payable under this
Agreement following the Executive's death by giving the Company written notice
thereof. In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary(ies), estate or other legal
representative(s). If the Executive should die following his date of termination
while any amounts would still be payable to him under this Agreement if he had
continued to live, all such amounts unless otherwise provided herein shall be
paid in accordance with the terms of this Agreement to such person or persons so
appointed in writing by the Executive, or otherwise to his legal representatives
or estate.

            17. Notices. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered either personally or
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed to the Company at its registered office in Nevada and to the
Executive at his residential address last advised to the Company.

            18. Miscellaneous. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by the Executive and by a duly authorized officer of the Company,
and such waiver is set forth in writing and signed by the party to be charged.
No waiver by either party of any breach by the other party of any condition or
provision of this Agreement shall be deemed a continuing waiver of the same
provision or a waiver of any other provision. The respective rights and
obligations of the parties under this Agreement shall survive the Executive's
termination of employment and the termination of this Agreement to the extent
necessary for the intended preservation of such rights and obligations. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Nevada without regard to its conflicts
of law principles.

            19. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.

                                       9
<PAGE>

            20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

            21. Entire Agreement. Except as otherwise specifically provided
herein, this Agreement sets forth the entire agreement of the parties in respect
of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto in respect of such subject matter.

            22. Withholdings. All payments under this Agreement, including the
signing bonus, shall be subject to any required withholding of Federal, state
and local taxes pursuant to any applicable law or regulation.

            23. Section Headings. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.

            24. Independent Counsel. The Company acknowledges that it has had
the full opportunity to consult with counsel of its choice concerning this
Agreement.

            25. Conditions Subsequent to Effectiveness. This Agreement shall be
rendered null and void, with each party being restored to status quo ante, in
the event that either of the following conditions is not satisfied:

            (i)         Approval of Board of Directors. The Board of Directors
                        must approve this Agreement before February 18, 2003; or

            (ii)        Receipt of Loan Proceeds or Royalties. Unless waived by
                        the Executive, the Company must receive loan proceeds in
                        excess of $25,000,000, or advance royalties in excess of
                        $10,000,000, before March 18, 2003.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

Company:    SULPHCO, INC.

                                                  By  /S/  RUDOLF GUNNERMAN
                                                      ---------------------
                                                      Dr. Rudolf Gunnerman,
                                                      Chief Executive Officer

Executive:                                        /S/  KIRK S. SCHUMACHER
                                                  -----------------------
                                                  Kirk S. Schumacher

                                       10

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