Document:

ex10-13.htm

 

Exhibit 10.13

 

 

March 1, 2011

Mr. Chet Staron, CEO

Topline Energy Systems

2251TopLine Way

Brooksville, FL 43604

Re:           Letter of Understanding

Dear Mr. Staron:

This Letter of Understanding will provide the general terms and conditions under which TopLine Energy Systems, LLC or assigns (“TopLine”), a Florida limited liability company, and Cyclone Power Technologies, Inc. (“Cyclone”), including its subsidiary, Cyclone-WHE LLC (“C-WHE”), will work together to build prototype WHE-25 model engines over the following several months. This letter will also provide an understanding of how the parties wish to move forward towards a broader manufacturing agreement for future engine development and production.

For the clarification of all parties:

	
  

	
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Cyclone has provided to C-WHE in return for approximately 80% of C-WHE’s equity, a worldwide, exclusive license to manufacture, market and sell Cyclone engines for the specific purpose of waste heat recovery systems (including industrial, vehicular and landfill systems). C-WHE will also manufacture and sell engines to Phoenix Power Group LLC (“Phoenix”), a licensee of Cyclone to power their waste motor oil power generators, as well as other customers to be determined in the future.

	
  

	
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Cyclone will receive from C-WHE certain development fees for the improvement and integration of the engine technology, and will receive distributions from C-WHE as profits commence. Until and unless Cyclone owns less that 51% of C-WHE, there will be no license fees due from subsidiary to parent on the sales of the engines.

	
  

	
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In the near term, it is the objective of Cyclone to complete final development and designs for the WHE-25 engine, which will allow C-WHE to produce the first 12 or more prototype WHE-25 engines. Approximately 6 of these will be sold to Phoenix for use in a waste motor oil power generator. The remaining 6 WHE-25 engines will be used by C-WHE for integration with waste heat recovery beta systems at specific pilot sites. The baseline engine for both these applications will be the same; however, the Phoenix engines will also include a combustion chamber for the burning of liquid fuels.

 

  

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Based upon these understandings, Cyclone currently desires TopLine to assist in the completion of the designs of individual parts and/or components for the WHE-25 engine. This will include:

	
  

	
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Review of all design drawings provided by Cyclone to TopLine;

	
  

	
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Consultation with Harry Schoell on observations regarding potential design flaws or suggested improvements to the durability, functionality and manufacturability of the engines; and

	
  

	
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Other engineering services that Cyclone in good faith requests or TopLine in good faith suggests towards the successful development of the WHE-25 engine.

Upon the completion of design drawings for individual parts and/or components, the parties will commence prototype production for 12 complete engine sets. Work will begin on each specific part after each party has signed-off in writing to the final designs, or any other protocols reasonably requested by TopLine.

It is Cyclone and C-WHE’s desire that TopLine either produce all parts for each of the 12 engines, or if the parties agree that Cyclone can purchase or produce certain parts cheaper and more efficiently, finish such Cyclone-provided parts at TopLine’s facility (including matching specs, hard coating, etc.).  Assembly of the 12 engines will take place at Cyclone’s facility, unless the parties subsequently agree that some or all engines should be assembled at TopLine’s facility. The parties may also determine that one or more visits to each other’s facilities during this process may be necessary.

It is C-WHE desire to have parts for 12 completed engines within 60 days of this letter; provided however, both parties understand that there may be delays caused by design changes and other improvements that are not currently contemplated.

In addition to completing 12 working engines, the goals of this initial prototyping process are to:

	
  

	
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Commence the transfer of intellectual property and know-how to TopLine to allow for a more efficient transition into production manufacturing and assembly;

	
  

	
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Review all parts and components for potential operating or manufacturing flaws; and

	
  

	
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Provide a Rough Order of Magnitude (ROM) cost estimate for the production of engines in quantities of 100 units, 1,000 units and 10,000 units. This ROM estimate is important for both C-WHE and its customer, Phoenix, to generate business plans for product deployment; and therefore, TopLine will try to provide it within 30 days of this Letter.

TopLine will bill C-WHE for the initial 12 engine parts at TopLine’s cost to manufacture the parts. The invoices will be payable 75 days from delivery to and acceptance by C-WHE of the finished parts. C-WHE will inform TopLine of any visible or apparent flaws in the delivered parts within 5 business days of receipt.

Cyclone and C-WHE understand that TopLine will not make a profit on the initial 12 engines, and will most likely expend considerable of its own funds and resources on the project. TopLine has agreed to make this important investment in the commercialization of Cyclone’s engines because it believes in the future potential of the technology.  Cyclone and C-WHE acknowledge this investment and, provided that TopLine can provide the initial 12 engine parts to Cyclone’s reasonable satisfaction and demonstrate a commitment to the future commercialization of production engines, desire to provide the following long-term assurances to TopLine:

 

  

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TopLine will become C-WHE’s “Preferred Manufacturer” of the WHE-25. Under this designation, TopLine will produce all WHE-25 engines required by C-WHE or by C-WHE’s customers that buy these engines from C-WHE.

	
  

	
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As Preferred Manufacturer, TopLine and C-WHE will work together to limit costs and increase margins along each step of the manufacturing process. The parties understand that the relationship will not work unless both parties are able to make a fair and reasonable profit on the production and sale of the engines, which will subsequently be determined by the parties in good faith.

	
  

	
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Such costs and prices will be reviewed by both parties in good faith after the first 100 units, 1,000 units and 10,000 units are produced. Costs and prices will also be reviewed annually.

	
  

	
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After the third full year of engine production or 10,000 units are produced, whichever is first, C-WHE may seek quotes from other manufacturers, either in the US or internationally. TopLine will have the first right of refusal to match such pricing to remain Preferred Manufacturer. Cyclone and C-WHE understand that quality control, prior working relationships and other intangible factors are integral components in choosing a manufacturer, and therefore, such considerations must be included in all future discussions.

	
  

	
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The parties do not intend for this structure to be construed as price fixing, price collusion or otherwise, and should any such issue arise, the parties may re-evaluate their pricing structure.

The parties also wish to pursue other opportunities, which include:

	
  

	
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Expanding the manufacturing relationship to other engines and projects that may arise in the future;

	
  

	
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Working together and with other parties on grant opportunities and other funding for Cyclone, including a possible direct investment in Cyclone or C-WHE by TopLine or its affiliates/principals;

	
  

	
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Creating press and media announcements to support Cyclone and its business objectives, including a press release announcing the current letter of understanding;

	
  

	
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Having TopLine sponsor the Land Speed Record (LSR) car, and GG-Mom boat.

It is our pleasure to present this letter of understanding to TopLine and believe that the working relationship that arises from it will be a long and successful one for all parties involved.

This letter of understanding signifies a statement of intent to collaborate but is not intended to be legally binding or to give rise to any other rights or obligations until a formal contract is executed by both parties.  This letter of understanding does not constitute an offer by either party to acquire or sell any asset arising out of the business relationship and does not constitute a partnership or other legal combination of the parties.   The terms set out in this letter of understanding are an expression of the current intention of the parties for the production of 12 engines.  Both parties agree that a formal
contract shall be executed if production expends beyond the initial 12 engines. All matters concerning this Letter of Understanding and any contracts arising therefrom shall be governed by Florida law.  Venue shall be in Hernando County, Florida.

 

  

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Sincerely

 

Harry Schoell, Chairman & CEO

Cyclone Power Technologies, Inc.

 

Accepted by:

/s/ Chet Staron

Chet Staron, CEO

TopLine Energy Systems, LLC

Date: 3-1-11ex10-14.htm

Exhibit 10.14

 

SECURITY AGREEMENT

1.           Grant. On this 1ST day of August, 2007, Cyclone Power Technologies, Inc., a Florida corporation with its principal place of business at 601 NE 26th Ct., Pompano Beach, FL 33064 ("Debtor"), for valuable consideration, receipt whereof is acknowledged, grants to Schoell Marine, Inc., a Florida corporation with its principal place of business in Pompano
Beach, Florida ("Secured Party") a security interest in, and mortgages to Secured Party, the intellectual property and patent interests of Debtor set forth on Exhibit A hereof (the "Collateral") to secure payment for services performed and other value property and cash provided to Debtor in the total amount of $379,800.00 (the "Obligations").

2.           Warranties and Covenants of Debtor.  Debtor warrants and covenants that:

(a)           Except for the security interest granted hereby, Debtor is the owner of the Collateral free from any adverse lien, security interest or encumbrance; and Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein.

(b)           No Financing Statement covering any of the Collateral or any proceeds thereof is on file in any public office. The Debtor shall immediately notify the Secured Party in writing of any change in name, address, identity or corporate structure from that shown in this Agreement and shall also upon demand furnish to the Secured Party such further information and shall execute and deliver to Secured Party such financing statements and other documents in form satisfactory to Secured Party and shall do all such acts and things as Secured Party may at any time or from time to time reasonably request or as may be necessary or
appropriate to establish and maintain a perfected security interest in the Collateral as security for the Obligations, subject to no adverse liens or encumbrances; and Debtor will pay the cost of filing the same or filing or recording this agreement in all public offices wherever filing or recording is deemed by Secured Party to be necessary or desirable. A carbon, photographic or other reproduction of this agreement is sufficient as a financing statement.

(c)           Debtor will not sell or offer to sell, assign, pledge, lease or otherwise transfer or encumber the Collateral or any interest therein, without the prior written consent of Secured Party.

(d)           Debtor will keep the Collateral free from any adverse lien, security interest or encumbrance and in good order and repair, shall not waste or destroy the Collateral or any part thereof, and shall not use the Collateral in violation of any statute, ordinance or policy of insurance thereon. Secured Party may examine and inspect the Collateral at any reasonable time or times, wherever located.

(e)           Debtor will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation or upon this Agreement or upon any note or notes evidencing the Obligations.

3.           Additional Rights of Parties.  At its option, Secured Party may discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral, may place and pay for insurance on the Collateral upon failure by the Debtor, after having been requested to do so, to provide insurance satisfactory to the Secured Party, and may pay for the maintenance, repair, and preservation of the Collateral including additional governmental filings required to keep the Collateral in good standing. To the extent permitted by applicable
law, Debtor agrees to reimburse Secured Party on demand for any payment made, or any expense incurred by Secured Party pursuant to the foregoing authorization. Until default Debtor may have possession of the Collateral and use it in any lawful manner not inconsistent with this agreement and not inconsistent with any policy of insurance thereon.

 

  

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4.           Events of Default.  Debtor shall be in default under this agreement upon the occurrence of any of the following events or conditions, namely: (a) default in the payment or performance of any of the Obligations or of any covenants or liabilities contained or referred to herein or in any of the Obligations; (b) any warranty, representation or statement made or furnished to Secured Party by or on behalf of Debtor proving to have been false in any material respect when made or furnished; (c) loss, theft, substantial damage, destruction, sale or encumbrance
to or any of the Collateral, or the making of any levy, seizure or attachment thereof or thereon, or the inability of the Debtor to keep current filings and payments on the Collateral in order to keep them in good standing; (d) dissolution, termination of existence, filing by Debtor or by any third party against Debtor of any petition under any Federal bankruptcy statute, insolvency, business failure, appointment of a receiver of any part of the property of, or assignment for the benefit of creditors by, Debtor; or (e) the occurrence of an event of default in any agreement between Debtor and/or Secured Party and/or any other creditor or note holder of the Debtor.

5.           Remedies.  UPON DEFAULT AND AT ANY TIME THEREAFTER, SECURED PARTY MAY DECLARE ALL OBLIGATIONS SECURED HEREBY IMMEDIATELY DUE AND PAYABLE AND SHALL HAVE THE REMEDIES OF A SECURED PARTY UNDER THE UNIFORM COMMERCIAL CODE OF FLORIDA, including without limitation the right to take immediate and exclusive possession of the Collateral, or any part thereof, and for that purpose may, so far as Debtor can give authority therefor, with or without judicial process, enter (if this can be done without breach of the peace), upon any premises on which the Collateral or
any part thereof may be situated and remove the same therefrom (provided that if the Collateral is affixed to real estate, such removal shall be subject to the conditions stated in the Uniform Commercial Code of Florida); and the Secured Party shall be entitled to hold, maintain, preserve and prepare the Collateral for sale, until disposed of, or may propose to retain the Collateral subject to Debtor's right of redemption in satisfaction of the Debtor's Obligations as provided in the Uniform Commercial Code of Florida. Secured Party without removal may render the Collateral unusable and dispose of the Collateral on the Debtor's premises.  Secured Party may require Debtor to assemble the Collateral and make it available to Secured Party for possession at a place to be designated by Secured Party which is reasonably convenient to both parties.  Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will give Debtor at least 5 days' notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made.  The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the address of Debtor shown at the beginning of this agreement at least ten days before the time of the sale or disposition.  Secured Party may buy at any public sale. The net proceeds realized upon any such disposition, after deduction for the expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorney's fees and legal expenses incurred by Secured Party, shall be applied in satisfaction of the
Obligations secured hereby.  The Secured Party will account to the Debtor for any surplus realized on such disposition and the Debtor shall remain liable for any deficiency.

 

  

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The remedies of the Secured Party hereunder are cumulative and the exercise of any one or more of the remedies provided for herein or under the Uniform Commercial Code of Florida shall not be construed as a waiver of any of the other remedies of the Secured Party so long as any part of the Debtor's Obligation remains unsatisfied.

6.           General.  No waiver by Secured Party of any default shall operate as a waiver of any other default or of the same default on a future occasion. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all obligations of Debtor shall bind its successors or assigns. If there be more than one Debtor, their obligations hereunder shall be joint and several.  This agreement shall become effective when it is signed by Debtor.

All rights of the Secured Party in, to and under this agreement and in and to the Collateral shall pass to and may be exercised by any assignee thereof.  The Debtor agrees that if the Secured Party gives notice to the Debtor of an assignment of said rights, upon such notice the liability of the Debtor to the assignee shall be immediate and absolute.  The Debtor will not set up any claim against the Secured Party as a defense, counterclaim or set-off to any action brought by any such assignee for the unpaid balance owed hereunder or for the possession of the Collateral, provided that Debtor shall not waive hereby any right of action to the extent that waiver thereof is
expressly made unenforceable under applicable law.

If any provision of this agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this agreement.

 

 

	
Secured Party: 

 

Schoell Marine, Inc. 

	 	 	
Debtor:

 

Cyclone Power Technologies, Inc.

	 
	 	 	 	 	 
	By:  /s/ Harry Schoell 	 	 	By: /s/ Frankie Fruge	 
	
Harry Schoell, President 

	 	 	
Frankie Fruge, COO

	 

 

  

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EXHIBIT A

COLLATERAL

CYCLONE POWER TECHNOLOGIES, INC.

U.S. PATENT APPLICATIONS

	
Patent App Serial No.

	Title
	  	  
	
11/486,335

	
 Heat Regenerative Engine

	  	  
	
11/410,224

	
Centrifugal Condenser

	  	  
	
11/416,039

	
Steam Generator in a Heat Regenerative Engine

	  	  
	
11/509,202

	
Splitter Valve in a Heat Regenerative Engine

	  	  
	
11/509,207

	
Pre-Heater Coil in a Heat Regenerative Engine

	  	  
	
11/879,589

	
Connecting Rod Journals and Crankshaft Spider Bearing in an Engine

	  	  
	
11/786,845

	
Engine Reversing and Timing Control Mechanism

	  	  
	
11/827,854

	
Valve Controlled Throttle Mechanism in a Heat Regenerative Engine

	  	  
	
11/827,846

	
Clearance Volume in a Heat Regenerative Engine

	  	  
	
11/879,586

	
Engine Shrouding with Air to Air Exchanger

Provisional Patent Application No.

60/840,786                      Heat Regenerative Mini-Turbine Generator

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