Document:

Exhibit 10.50

 

 

*  Confidential Treatment Requested Under

17

C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

 

 

AGREEMENT FOR

PURCHASE OF A

SUREBEAM ELECTRON

BEAM SYSTEM

 

 

BETWEEN

 

 

SUREBEAM CORPORATION

AND

SALUBRIS LIMITED

PARTNERSHIP

 

 

TABLE OF CONTENTS

 

	

  1.

  	

  DEFINITIONS

  
	

  2.

  	

  EQUIPMENT AND SERVICES FURNISHED BY SELLER

  
	

  3.

  	

  BUYER FURNISHED ITEMS AND SERVICES.

  
	

  4.

  	

  TIME OF PERFORMANCE AND FORCE MAJEURE

  
	

  5.

  	

  DELIVERY, INSTALLATION AND ACCEPTANCE TEST

  
	

  6.

  	

  AGREEMENT PRICE AND TAXES

  
	

  7.

  	

  ROYALTY FEES

  
	

  8.

  	

  PAYMENTS, SECURITY INTEREST AND BONDS

  
	

  9.

  	

  WARRANTIES

  
	

  10.

  	

  CHANGES

  
	

  11.

  	

  INSURANCE

  
	

  12.

  	

  INDEMNIFICATION

  
	

  13.

  	

  ACCESS

  
	

  14.

  	

  TERMINATION FOR DEFAULT

  
	

  15.

  	

  TERMINATION

  
	

  16.

  	

  OWNERSHIP AND LICENSING OF TECHNOLOGY

  
	

  17.

  	

  AMENDMENTS

  
	

  18.

  	

  ASSIGNMENTS AND SUBCONTRACTS

  
	

  19.

  	

  NOTICES

  
	

  20.

  	

  MISCELLANEOUS

  
	

  21.

  	

  CONFIDENTIAL INFORMATION

  

 

2

 

* 

Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and

240.24b-2

 

AGREEMENT FOR

PURCHASE OF A

SUREBEAM ELECTRON

BEAM SYSTEM

BETWEEN

SUREBEAM CORPORATION

AND

SALUBRIS LIMITED

PARTNERSHIP

 

This Agreement for Purchase of

a SureBeam Electron Beam System (“Agreement”), effective August 1, 2002

(“Effective Date”), is between SureBeam Corporation, a Delaware corporation

with a principal place of business at 9276 Scranton Road, Suite 600, San Diego,

California 92121 (“Seller”), and Salubris Limited Partnership, a Texas limited

partnership with a principal place of business at 3113 South University Drive,

Suite 500, Fort Worth, Texas 76109 (“Buyer”).

 

A.            Seller is engaged in the business of

designing, manufacturing, selling, installing, operating and servicing

irradiation and pasteurization systems, including electron beam and x-ray

equipment and systems.

 

B.            Seller and Fort Worth-San Diego

Investments, LLC, an affiliate of Buyer, are parties to that certain Right of

First Negotiation Agreement dated March 22, 2002 (“Right of First Negotiation

Agreement”), pursuant to which Fort Worth-San Diego Investments, LLC was

obligated to enter into, or to cause an affiliate to enter into, a binding

purchase commitment for a food, hide and flower pasteurization, disinfestation

and preservation system manufactured by Seller that is destined for a proposed

service center in Fort Worth, Texas.

 

C.            Buyer, as the designated affiliate

of Fort Worth-San Diego Investments, LLC for purposes of the Right of First

Negotiation Agreement, desires to purchase and Seller desires to sell such

food, hide and flower pasteurization, disinfestation, and preservation system

pursuant to the terms and conditions set forth in this Agreement.

 

NOW,

THEREFORE, in consideration of the foregoing recitals, which are hereby

incorporated by reference, and the mutual agreements contained herein, and

other good and valuable consideration, the receipt and sufficiency of which are

hereby acknowledged, the parties hereto hereby agree as follows:

 

1.             DEFINITIONS

 

1.1.          “Acceptance” means the Buyer’s deemed

acceptance of the System pursuant to Section 5.2 below.

 

1.2.          “Agreement Price” means the System

Price and the Royalty Fee.

 

1.3.          “Buyer Materials” means all designs,

know-how, inventions, technical data, ideas, uses, engineering processes and

methods arising directly from the components provided by Buyer under Section 3.

 

1.4.          “Buyer Milestones” has the meaning

ascribed to it in Exhibit B, attached hereto and incorporated herein.

 

3

 

1.5.          “Cancellation Amount” means that

portion of the System Price received by Seller from Buyer as of the date of a

Termination for Convenience less (i) the Non-Recoverable Costs, and (ii) a

cancellation fee equal to ten percent of (10%) of the portion of the System

Price received by Seller from Buyer as of the date of the Termination for

Convenience.

 

1.6.          “Change” has the meaning ascribed to

it in Section 10.1.

 

1.7.          “Change Order” has the meaning

ascribed to it in Section 10.1.

 

1.8.          “Collateral” has the meaning ascribed

to it in Section 8.2.

 

1.9.          “Confidential Information” means

confidential or proprietary information of a party relating to any designs,

know-how, inventions, technical data, ideas, uses, processes, methods,

formulae, research and development activities, work in process, or any

scientific, engineering, manufacturing, marketing, business plan, financial or

personnel matter relating to the disclosing party, its present or future

products, sales, suppliers, customers, employees, investors or business,

whether in oral, written, graphic or electronic form (which is marked

confidential or acknowledged as being confidential prior to disclosure).  If the Confidential Information is disclosed

orally or visually, it shall be identified as such at the time of disclosure

and confirmed in writing by the disclosing party within thirty (30) days of

disclosure.  Confidential Information

shall also include any other information in oral, written, graphic or

electronic form which, given the circumstances surrounding such disclosure,

would be considered confidential. 

Notwithstanding anything to the contrary contained herein, the following

information shall not be deemed Confidential Information: (i) information that

either party knows about the other prior to the execution of this Agreement;

(ii) information that is publicly known, or becomes publicly known, through no

breach by either party to this Agreement; and (iii) information that is

rightfully obtained by either party from any third party who has no duty of

confidentiality under this Agreement.

 

1.10.        “Deliverables” means the System,

together with any other products, software, services, installation,

documentation and training provided under this Agreement by or through the

Seller, as defined in the Proposal, except for the Management Services or the

Operating Services.

 

1.11.        “Documentation” means the System

documentation provided by Seller to Buyer, including without limitation recommended

spare parts list, service and maintenance schedules, as-built drawings and

schematics, and operations, training, service and/or repair manuals.

 

1.12.        “Facility” or “Facilities” refers to the

collective premises, equipment, construction activities, and services required

to support the operation of the System, and includes electrical power, water

cooling (primary), compressed air, heating, ventilation, ozone ventilation, air

conditioning, radiation protection shield, fencing, building structure, lights,

storage areas, and finishes.

 

1.13.        “Force Majeure Event” has the meaning

ascribed to it in Section 4.4.

 

1.14.        “Gross Processing Receipts” means the

total amount of cash revenues actually received by Buyer for Processing

Services using the System during the applicable period, less all amounts

actually received by Buyer for sales and use taxes, insurance and shipping or

freight charges in connection with Processing Services provided by Buyer during

such period, less all 

 

4

 

amounts actually credited by

Buyer to its customers during such period for future Processing Services to be

provided by Buyer using the System.

 

1.15.        “Insolvency Event” shall mean, with

respect to any party, the occurrence of any of the following events:  (i) an assignment by such party for the

benefit of creditors; (ii) such party’s dissolution or loss of charter by

forfeiture that cannot be reinstated; (iii) such party having been adjudged bankrupt

or insolvent by a court of competent jurisdiction; (iv) a trustee or receiver

having been appointed for such party or its assets or any substantial part

thereof; (v) such party having filed a voluntary petition under any bankruptcy

or other similar law providing for its reorganization, dissolution or

liquidation; or (vi) such party having consented to the appointment of a

receiver or a trustee for itself or its assets or of any substantial part

thereof.

 

1.16.        “Intellectual Property Rights” means any

now known or hereafter existing (a) rights associated with works of authorship

throughout the universe, including exclusive exploitation rights, copyrights,

moral rights and mask works, (b) trademark and trade name rights and similar

rights, (c) trade secret rights, (d) patents, designs, algorithms and other

industrial property rights, (e) other intellectual and industrial property and

proprietary rights of every kind and nature throughout the universe, whether

arising by operation of law, by contract or license, or otherwise, and (f) all

registrations, applications, renewals, extensions, combinations, divisions or

reissues of the foregoing.

 

1.17.        “License Agreement” means that license

agreement attached hereto as Exhibit E and incorporated herein that allows

Buyer to use Seller’s proprietary technologies in its operation of the System.

 

1.18.        “Limited Warranty” has the meaning

ascribed to it in Section 9.1.

 

1.19.        “Management Services” means the

following services: operation support by assisting the Buyer in the

establishment of operating procedures, HACCP Plan, Product dose mapping,

validation compliance records, performance of quality audits, support in

evaluating candidates for quality assurance, maintenance technician and System

operator positions, initial training of employees with respect to System

operation, assistance with Company Group (as that term is defined in the Right

of First Negotiation Agreement) System sales efforts by providing marketing and

roll-out support, coordination of use of trademarks and reasonable

participation in System training seminars. 

Management Services specifically excludes any Operating Services.

 

1.20.        “Material Handling Subsystem” refers to

the material handling equipment provided by Seller as defined in the

Proposal.  This equipment includes the

conveyor, closing conveyor, process conveyor and associated controls.

 

1.21.        “Non-Recoverable Costs” means all

non-recurring engineering and other labor costs incurred by Seller in its

performance under the Statement of Work and this Agreement, and all material,

equipment, supplies and parts costs incurred by Seller pursuant to the

Statement of Work and this Agreement that are not capable, in Seller’s sole

discretion, of being reused for

 

5

 

other current orders for Seller

products or being returned to their respective suppliers without penalties.

 

1.22.        “Operating Agreement” means the

operating agreement that may be entered into between the parties.

 

1.23.        “Operating Fees” means the consideration

payable to Seller for performing the Operating Services as will be more fully

set forth in the Operating Agreement.

 

1.24.        “Operating Services” means, if the

parties select to enter into an Operating Agreement, System operation,

facilities management or administrative, accounting or other customer support

functions or technical, maintenance and support services in connection with the

post-Acceptance operation of the System, as specifically set out in the

Operating Agreement between the parties.

 

1.25.        “Processing Services” means providing

contract decontamination, pasteurization, disinfestation and preservation of

Products by using a System or Systems.

 

1.26.        “Products” means (i) any type or

category of food (including, without limitation, meat, fish, fowl, eggs,

seafood, fruits, vegetables and spices), (ii) animal hides, and (iii)

flowers.  Products shall not include

water and water shall not be considered as a type or category of food.

 

1.27.        “Project” refers to the electron beam

System project as described in the Proposal, which will be installed at Buyer’s

Fort Worth Service Center.

 

1.28.        “Proposal” refers to Seller’s Proposal,

which defines Seller’s responsibilities, scope-of-work, deliverables and

equipment as more fully set forth in Exhibit A attached hereto and incorporated

herein.

 

1.29.        “Royalty Fee” means the royalty fee

specified in Exhibit C attached hereto and incorporated herein.

 

1.30.        “Royalty Fee Statement” has the meaning

ascribed to it in Section 7.2.

 

1.31.        “Seller Materials” has the meaning

ascribed to it in Section 16.3.

 

1.32.        “Service Center” means Buyer’s facility

at which one or more Systems are or will be installed for the intended purpose

of providing Processing Services to one or more end-customers.

 

1.33.        “Site” refers to the dedicated location

where the System will be installed, at Buyer’s Service Center in Fort Worth,

Texas.

 

1.34.        “Specifications” means the final

specifications for the applicable System including but not limited to: (i)

electron accelerator system and controls; (ii) all required System conveyors;

(iii) equipment assembly and installation; (iv) equipment validation; (v)

dosimetry equipment, maintenance training and operating training; (vi) all

necessary x-ray targets; (vii)

 

6

 

control system; (viii) all

required System software; and (ix) all reasonable and customary Systems’

engineering, as more fully set forth on Exhibit A.

 

1.35.        “Statement of Work” means collectively

the Proposal, Exhibit B, Exhibit C and Exhibit F.

 

1.36.        “System” means the equipment provided

Seller as set forth in Section 2 hereof and further described in the Proposal,

which is required to electron beam process the Products.  The term “Systems” shall not include any

property, assets or rights retained by The Titan Corporation pursuant to that

certain License Agreement, dated as of August 4, 2000, between SureBeam and The

Titan Corporation, as amended (the “Titan License”).

 

1.37.        “System Price” means the price for

Seller to provide the Deliverables as more fully set forth in Section 6.1

below.

 

1.38.        “Termination for Convenience” has the

meaning ascribed to it in Section 15.1.

 

1.39.        “Type 1 Materials” means any individual

component of any improvement, enhancement or modification created solely by

Buyer that consists of (i) Seller Materials, or (ii) modifications,

enhancements and derivative works of Seller Materials that do not meet United

States law standards for patentability under 35 U.S.C. §§ 102 and 103, when

considered against “prior art” as defined by 35 U.S.C. § 102.

 

1.40.        “Type 2 Materials” means any individual

component of any improvement, enhancement or modification created solely by

Buyer that consists of (i) Buyer Materials, (ii) modifications, enhancements

and derivative works of Buyer Materials, or (iii) modifications, enhancements

and derivative works of Seller Materials that meet United States law standards

for patentability under 35 U.S.C. §§ 102 and 103, when considered against

“prior art” as defined by 35 U.S.C. § 102.

 

1.41.        “Type 3 Materials” means any individual

component of improvement, enhancement or modification or parts thereof created

solely by Buyer that consists of new inventions not derivative of or containing

any Seller Materials or Buyer Materials.

 

1.42.        “Warranty Period” means the 12-month

period commencing upon Acceptance of the Deliverables or commercial operation

of the System by the Buyer, whichever occurs first.

 

2.             EQUIPMENT AND SERVICES FURNISHED BY

SELLER

 

2.1.          Seller shall furnish all items set

forth in Items 1.1 through 1.11 of Seller’s Proposal under “System Equipment

and Deliverables”, which such items are incorporated herein by this reference,

but excluding specifically items identified as Salubris furnished items and

services.

 

2.2.          Seller shall furnish to Buyer the

Management Services and shall supply Buyer with the Documentation.

 

7

 

2.3.          Seller shall furnish to Buyer support

services to assist Buyer with Buyer’s tasks defined in the Proposal.

 

2.4.          If an Operating Agreement is entered

into between the parties, Seller shall furnish to Buyer the Operating Services

pursuant to an Operating Agreement the form of which to be mutually acceptable

to Buyer and Seller.

 

3.             BUYER FURNISHED ITEMS AND SERVICES.

 

3.1.          Buyer shall furnish at its own

expense, all items set forth in Items 1.12 through 1.16 of Seller’s Proposal

under “Salubris Furnished Items and Services”, which are incorporated herein by

this reference.

 

3.2.          Buyer shall additionally furnish at

its own expense (i) management of the overall Project (including scheduling,

budget definition and allocation, requirements definition, review and approval

of the work tasks and Product qualification); (ii) personnel to operate and

maintain the System; (iii) procurement, installation and validation of all

Buyer furnished equipment; (iv) operation of the System; and (v) all

administrative and support services needed to run the business (sales,

marketing, accounting, QA, etc.).

 

3.3.          Seller’s work, cost and schedule are

predicated upon Buyer providing the items set forth in this Section 3 in

accordance with the schedule defined in the Proposal.

 

4.             TIME OF PERFORMANCE AND FORCE MAJEURE

 

4.1.          Performance under this Agreement by

Seller and Buyer shall be in accordance with the project schedule defined in

the Proposal and the milestones set forth in Exhibit B.  Seller shall use commercially reasonable

efforts to complete such System, deliver and install the System at Buyer’s

Facility, and render it operational within the time period set forth in the

Statement of Work.  Notwithstanding

anything else to the contrary, Seller’s obligation to commence and complete the

manufacture of such System, as detailed in the project schedule shall be

conditioned on the timely performance by Buyer of all Buyer Milestones.

 

4.2.          Periodically, Seller shall provide

Buyer with a written status report on the progress of the work.  This report shall summarize the progress

achieved, identify any anticipated delays in the performance of this Agreement

and highlight future schedule milestones.

 

4.3.          If Buyer does not meet one or more

Buyer Milestones as defined in Exhibit B, Seller’s work, schedule and cost may

be adjusted accordingly as provided for in Section 10 below.

 

4.4.          Except for Buyer’s payment obligations

under this Agreement, neither party shall be liable for delays or

non-performance due to any events beyond its control, including acts of god,

natural casualties, acts or war or terror, strikes, invasions, civil war or

rebellion (“Force Majeure Event”), for the shorter of (i) the duration of such

Force Majeure Event plus ten (10) business days or (ii) a period of ninety (90)

days.  If the Force Majeure Event lasts

more than ninety (90) days, the party whose performance has not been affected

by the Force Majeure Event 

 

8

 

has the right to terminate this

Agreement immediately by providing to the other party written notice of

termination.  During the Force Majeure

Event, the party whose performance has been affected will use its best efforts

to develop a mutually acceptable work around plan within thirty (30) days which

will minimize the impact of the Force Majeure Event on the other party.  Unless this Agreement is terminated by a

party pursuant to this Section 4.4, performance by the party whose performance

has been affected shall be promptly resumed upon termination of the Force

Majeure Event.

 

5.             DELIVERY,

INSTALLATION AND ACCEPTANCE TEST

 

5.1.          The System shall be packed for

shipment and storage in accordance with Seller’s standard commercial

practices.  Seller shall ship the System

FOB destination, for delivery at the applicable Site.  The risk of loss, injury or destruction of any System or

Deliverable, from any cause whatsoever, shall be borne by Seller until delivery

of such System and Deliverables to Buyer’s designated Site.  Unless a common carrier is designated in the

Statement of Work, Seller shall choose the common carrier.

 

5.2.          After the equipment is received at

Buyer’s designated Site, Seller will supply qualified personnel to inspect and

install the System.  Buyer shall provide

reasonable access to its premises, proper environmental and site conditions and

the full and complete cooperation of its staff and any other contractors to

assist Seller during installation and testing of Deliverables.  Seller also shall do all of the following:

(i) properly calibrate and test the System and all components thereof to ensure

that it is operating properly and within acceptable tolerances in accordance

with the Specifications therefor; (ii) obtain, or provide to Buyer all

necessary information and/or documentation, necessary for obtaining, all

required federal, state, local and/or other governmental approvals, licenses

and/or certifications required for the operation of the System and its

components; (iii) provide to Buyer and its employees or designees training (as

set forth in the Statement of Work) in the proper use and operation of the

System and each of its components such that Buyer can properly operate the

System independently and without continued assistance of Seller; and (iv)

deliver to Buyer all System Documentation for the System as required above in

Section 2.2.  The System shall be deemed

accepted by Buyer upon performance by Seller of items (i) through (iv) above,

provided Seller is not in material breach of any other term of this Agreement

or the Right of First Negotiation Agreement (“Acceptance”).  On-site testing as set forth above shall be

conducted by reference to a written “test procedure” approved by the Seller and

Buyer in advance of the commencement of such testing.  Buyer shall provide to Seller contemporaneous “sign-offs” as each

function on the test procedure is demonstrated by the Seller.  Except for losses to the System covered

under Seller’s Limited Warranty and indemnification obligations under this

Agreement, risk of loss to the System shall pass from Seller to Buyer in

accordance with the terms of shipment.

 

6.             AGREEMENT

PRICE AND TAXES

 

6.1.          Seller shall furnish the System, all

Documents and all other Deliverables for the sum of Eight Million Nine Hundred

and Forty Six Thousand Dollars (US$ 8,946,000.00), as more fully set forth on

Exhibit C.

 

9

 

6.2.          Seller hereby represents that the

price set forth in Section 6.1 as of the Effective Date does not exceed the

lowest price charged or offered by any of the SureBeam Parties, as defined in

the Right of First Negotiation Agreement, to any other purchaser or prospective

purchaser at any time within one hundred eighty (180) days immediately before

the Effective Date, in the United States (and its territories), of

substantially similar Systems for use specifically in contract processing of

Products, and further provided that such lowest price is adjusted appropriately

by Seller to correspond to any changes in design, scope and size and any

modifications to the System being purchased hereunder.  The previous determination for Systems shall

specifically exclude any Systems used for research purposes and any In-Line

Systems, as defined in the Right of First Negotiation Agreement.

 

6.3.          The Agreement Price includes the cost

of obligations assumed by Seller under this Agreement, but excludes sales, use

taxes, tariffs, VAT, duties, local taxes, permits and fees, for which Buyer

shall be solely  responsible.

 

7.             ROYALTY FEES

 

7.1.          In consideration for the favorable

provisions of this Agreement, the Management Services performed by Seller and

the License Agreement, Buyer shall pay the Royalty Fees to Seller for each year

during the operation of the System. 

Royalty Fees shall be paid within forty-five (45) days after the end of

each month in which such Royalty Fees have accrued.

 

7.2.          Buyer shall provide Seller with a

monthly statement (“Royalty Fee Statement”) certified by Buyer’s chief

financial officer or controller on or before the thirtieth (30th) day following

each month that the System in operated and on or before the thirtieth (30th)

day following the effective date of any termination of operation of such System,

reporting as to the System (i) the amount (in pounds) of Products for which

Processing Services were provided by Buyer for the preceding month; (ii) the

Gross Processing Receipts with respect to such System for the preceding month;

and (iii) the calculation of the Royalty Fees due with respect to such System

for the preceding month.  Seller’s

receipt or acceptance of any Royalty Fee Statement or other information

furnished pursuant to this Agreement and/or of any Royalty Fee paid hereunder

shall not preclude Seller from questioning the accuracy thereof at any

time.  In the event that any

inconsistency or mistake is discovered in any Royalty Fee Statements or other

payments, it shall be rectified as promptly as possible and the appropriate

corrected statement and/or Royalty payment shall be made by Buyer to Seller.

 

7.3.          Buyer shall agree that it will keep

during the term of the License Agreement and for three (3) years after any

termination of the License Agreement correct and complete books and records

regarding (i) Gross Processing Receipts with respect to the System and (ii) the

amount (in pounds) of Products for which it provided Processing Services using

the System.  Such books and records

shall be in sufficient detail to establish compliance by Buyer with all the

provisions of this Agreement.  A

certified public accountant selected by Seller shall have the right to inspect,

copy and audit at reasonable times during normal business hours (but not more

than once during any year), and upon reasonable advance notice to Buyer, both

during and after the term of the License Agreement, such books and records or

other documents.  Seller agrees that the

information contained in Buyer’s books and records is Buyer’s Confidential

Information and will protect it in accordance with Section 21 hereof.  Any inspection or audit shall be paid

 

10

 

for by Seller, except as

otherwise provided below.  In the event

it is ultimately determined that Buyer has (a) under-reported Gross Processing

Receipts with respect to the System and/or the amount of Products for which

Processing Services were provided using the System by five percent (5%) or more

for any given period and/or (b) underpaid Royalty Fees with respect to the

System by five percent (5%) or more for any given period, then Buyer shall pay

to Seller within forty-five (45) days after such ultimate determination, the

deficiency in the Royalty Fee payment, plus interest thereon at the rate of

seven percent (7%) per annum from the original due date to the date of payment,

and shall also pay the actual cost of such inspection or audit, including

without limitation Seller’s reasonable attorneys’ fees, reasonable accountant’s

fees and other reasonable out-of-pocket costs.

 

7.4.          In the event of Buyer’s failure to pay

Royalty Fees finally determined to be due and payable hereunder to Seller for

any period of at least six (6) consecutive months and such delinquency is not

cured within forty-five (45) days after written notice thereof is delivered by

Seller to Buyer, Seller shall have the right to terminate the License Agreement

and Buyer’s right to use the Systems owned or operated by Buyer.

 

7.5.          The rights and obligations of the

parties under this Section 7 shall survive any termination of this Agreement

for so long as the System is being used.

 

8.             PAYMENTS, SECURITY INTEREST AND BONDS

 

8.1.          The System Price set forth in Section

6.1 above shall be due Seller according to the schedule set forth in Exhibit

C.  Buyer shall make payments no later

than the 10th day of the month following the month such milestone is invoiced

by Seller.  Any late payment shall be

subject to any cost of collection (including reasonable legal fees) and shall

bear interest at the rate of one and one-half (1.5%) percent per month, until

paid.

 

8.2.          Buyer hereby grants to Seller a

security interest in all Systems now or hereafter sold by SureBeam

(collectively, the “Collateral”) to secure the payment of the System Price of

the Collateral and all amounts now or hereafter owing from Buyer to Seller in

connection with such sale (including taxes and delivery charges); provided,

however, that such security interest shall not serve to secure the payment of

Royalty Fees or Operating Services from Buyer to Seller.  The amount of the security interest in any

item of Collateral shall not exceed the System Price of such item of Collateral

plus the amount of all taxes and delivery charges due in connection with the

sale thereof.  Buyer authorizes Seller

to file one or more financing statements in all states, counties and other

jurisdictions as Seller may elect without Buyer’s signature if permitted by

law.  Buyer agrees to cooperate fully

with Seller in executing any additional documents, instruments, financing

statements or amendments thereto as Seller may request to perfect or continue

the security interest granted herein. 

Upon a breach by Buyer of any of its obligations to Seller, Seller shall

have all rights and remedies of a secured party under the Texas Uniform

Commercial Code, which rights and remedies shall be cumulative and not

exclusive.  Buyer agrees to pay Seller’s

reasonable costs and expenses (including but not limited to attorneys’ fees and

costs and any fees and costs incurred in connection with a bankruptcy proceeding

of or involving Buyer) incurred to collect any amount unpaid or to enforce

Seller’s other rights and remedies, whether or not suit is commenced.  Promptly following the receipt of payment in

full of the System Price of any item of Collateral and all amounts owing to

Seller in

 

11

 

connection with the sale

thereof (including taxes and delivery charges), Seller shall release and waive

any lien on or security interest in such Collateral and shall execute and file

any additional documents necessary to effect such release or waiver.  The rights and obligations of the parties

under this Section 8.2 shall survive any termination of this Agreement.

 

9.             WARRANTIES AND LIMITATIONS

 

9.1.          Parts Warranty.  With respect to System parts or components

supplied by Seller pursuant to the Proposal and this Agreement:

 

9.1.1.       Seller Parts and Software.  For System parts or components manufactured

by Seller, or for System software developed by Seller, (“Seller Parts and

Software”), Seller warrants that Seller Parts and Software will be free from

defects in materials and workmanship for a period of one (1) year from the date

of acceptance or commercial operation of such System by Buyer, whichever occurs

first (“Parts Warranty”). The foregoing Parts Warranty is subject to the

following conditions: (i) in the case of Software developed by Seller, the

defect must be specifically traced to Seller’s software, (ii) none of the parts

or components supplied by Seller have been damaged because of improper use,

maintenance, handling, or operation, (iii) All parts or components supplied by

Seller are replaced during normal preventative maintenance, as required, and

(iv) the part in question must have a value of $250 or more and must not be a consumable.  For Seller Parts and Software, Buyer’s sole

and exclusive remedies and Seller’s entire liability for breach of the Parts

Warranty, provided none of the conditions above apply, shall be limited to

repair or replacement, at Seller’s option, of such defective Seller Parts and

Software.  Seller’s entire liability

only extends to System parts, components or software manufactured by Seller,

and all costs of labor to install, test, or calibrate such Seller Parts and

Software are the sole responsibility of Buyer.

 

9.1.2.       Third Party Parts and Software.  For System parts or components not

manufactured by Seller and System software not developed by Seller (“Third

Party Parts and Software”), Seller shall use commercially reasonable efforts to

secure warranties from the manufacturer or developer of such Third Party Parts

and Software (each a “Manufacturer”). 

Buyer acknowledges that Seller is not a manufacturer or developer of

such Third Party Parts and Software, that Seller DISCLAIMS WITH RESPECT TO ALL

THIRD PARTY PARTS AND SOFTWARE, ALL WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR

OTHERWISE, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY,

FITNESS FOR A PARTICULAR PURPOSE, OR INTELLECTUAL PROPERTY INFRINGEMENT, and

that Buyer’s sole and exclusive remedies and Seller’s entire liability for any

defective Third Party Parts and Software shall be that Seller agrees to pass

through to Buyer all warranties which are provided to Seller by the

Manufacturer, and which are permitted to be passed through to Buyer by the

Manufacturer’s specific warranty. 

SELLER ASSUMES NO RESPONSIBILITY OR LIABILITY WHATSOEVER FOR

MANUFACTURER’S SPECIFICATIONS OR PERFORMANCE OR ADEQUACY OR ANY DESIGN OR

SPECIFICATION PROVIDED TO SELLER BY OR ON BEHALF OF BUYER.

 

9.1.3.       SELLER REPRESENTS AND WARRANTS THAT NONE

OF THE SELLER PARTS AND SOFTWARE, THIRD PARTY PARTS AND SOFTWARE OR ANY OTHER

DELIVERABLES PROVIDED HEREUNDER CONSTITUTE “CONSUMER

 

12

 

PRODUCTS” WITHIN THE MEANING OF

THE MAGNUSON-MOSS WARRANTY ACT AND THAT IF ANY WARRANTY IS NEVERTHELESS IMPOSED

UNDER THAT ACT IT SHALL BE LIMITED TO A PERIOD OF THIRTY (30) DAYS FROM THE

DATE OF DELIVERY.

 

9.2.          System Warranty.  Seller warrants to Buyer that (i) as of the

completion of Buyer’s acceptance test, the System supplied hereunder shall

materially comply with the Statement of Work and the Specifications applicable

to the System, and (ii) for a period of one (1) year from the date of

acceptance or commercial operation of such System by Buyer, whichever occurs

first, the System will perform and operate substantially in accordance with the

Specifications applicable to the System and the performance criteria set forth

in the Statement of Work (collectively “System Warranty”). The foregoing System

Warranty is subject to the following conditions: (i) all Deliverables are

installed (if by any person other than Seller), implemented, operated, and

maintained as defined in the Specifications and the Documentation;  (ii) the Buyer notifies Seller of any defect

as soon as practicable after the appearance thereof and provides supporting

data according to Seller’s standard “trouble report” procedures; (iii) the

Buyer has properly installed and paid all applicable fees for all updates made

available with respect to Deliverables and any updates recommended by Seller

with respect to any other equipment or software that materially affects the

performance of the Deliverable; (iv) the Buyer has properly installed,

maintained and operated all associated equipment, software and has maintained

all environmental conditions and utilities in accordance with applicable

specifications and industry standards; (v) the Buyer has not introduced other

equipment or software, or made changes to the System, that create an adverse

impact on the System or any other Deliverables; (vi) the Buyer has paid all

amounts due hereunder and is not in default of any provision of this Agreement,

and (vii) the Buyer has made no changes (nor permitted any changes to be made

other than by or with the express approval of Seller) to the System or to the

source code of any Deliverable.  ANY

UNAUTHORIZED CHANGES TO THE SYSTEM OR TO THE SOURCE CODE OF ANY SYSTEM

DELIVERABLE WILL VOID THE LIMITED WARRANTY PROVIDED UNDER THIS SUBSECTION

9.1.  Buyer’s sole and exclusive

remedies and Seller’s entire liability for any breach of the Limited Warranty,

provided none of the conditions above apply, shall be (i) limited to repair or

replacement, at Seller’s option, of the defective Deliverable causing the breach,

or, (ii) if Seller reasonably determines that such remedy is not economically

or technically feasible, to obtain in accordance with the specific provisions

of this Agreement an equitable partial refund of amounts paid with respect to

the defective Deliverable. 

NOTWITHSTANDING THE PREVIOUS SENTENCE, BUYER SHALL BE ENTITLED TO

EXERCISE ITS LEGAL REMEDIES WITH RESPECT TO A REFUND OF THE PURCHASE PRICE PAID

FOR THE SYSTEM, IF SELLER IS UNABLE TO SUPPLY A SYSTEM THAT MATERIALLY COMPLIES

WITH THE STATEMENT OF WORK AND THE SPECIFICATIONS APPLICABLE TO THE SYSTEM UPON

COMPLETION OF ALL MILESTONES SET FORTH ON EXHIBIT B AND IN THE PROPOSAL, AS

ADJUSTED PURSUANT TO THIS AGREEMENT.

 

9.3.          Limitations.

 

9.3.1.       BUYER AND SELLER AGREE THAT ANY

MANAGEMENT SERVICES OR OPERATING SERVICES PROVIDED BY THE SELLER ARE ONLY

PROVIDED “AS IS” AND THAT SELLER MAKES NO WARRANTY AS TO SUCH

 

13

 

MANAGEMENT SERVICES OR

OPERATING SERVICES WHATSOEVER.  THE

ABOVE PARTS WARRANTY AND LIMITED WARRANTY ARE IN LIEU OF ALL OTHER EXPRESS OR

IMPLIED WARRANTIES, AND SELLER SPECIFICALLY DISCLAIMS ALL WARRANTIES, EXPRESS,

IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF

MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, INTELLECTUAL PROPERTY

INFRINGEMENT, OR ARISING OUT OF COURSE OF CONDUCT OR OTHER TRADE CUSTOM OR

USAGE, WITH RESPECT TO THE SYSTEM, SELLER PARTS AND SOFTWARE, THIRD PARTY PARTS

AND SOFTWARE OR ANY OTHER DELIVERABLES PROVIDED HEREUNDER.

 

9.3.2.       EXCEPT FOR ITS SPECIFIC INDEMNIFICATION

OBLIGATIONS UNDER SECTIONS 12.2 AND 12.3 SELLER SHALL NOT BE LIABLE TO BUYER

FOR ANY DAMAGES IN CONNECTION WITH THE SALE, INSTALLATION OR USE OF THE SYSTEM

UNDER THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, STRICT LIABILITY OR

OTHERWISE UNDER THE STATEMENT OF WORK IN EXCESS OF THE SYSTEM PRICE FOR THE

SYSTEM PROVIDED PAID TO SELLER AND RETAINED BY SELLER UNDER THE STATEMENT OF

WORK GIVING RISE TO THE CLAIM.

 

9.3.3.       TO THE MAXIMUM EXTENT PERMITTED UNDER

APPLICABLE LAW, SELLER’S AGGREGATE ENTIRE LIABILITY TO THE BUYER FOR MANAGEMENT

SERVICES OR OPERATING SERVICES, REGARDLESS OF THE FORM OF ACTION, SHALL IN NO

EVENT EXCEED TOTAL FEES PAID TO SELLER AND RETAINED BY SELLER FOR THE SPECIFIC

MANAGEMENT SERVICE OR OPERATING SERVICE GIVING RISE TO THE CLAIM.

 

9.3.4.       NOTWITHSTANDING ANYTHING TO THE CONTRARY

HEREIN, NO PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,

CONSEQUENTIAL OR EXEMPLARY DAMAGES, WHETHER FORESEEABLE OR NOT, THAT ARE IN ANY

WAY RELATED TO THIS AGREEMENT, THE BREACH THEREOF, THE USE OR INABILITY TO USE

THE SYSTEM, THE RESULTS GENERATED FROM THE USE OF THE SYSTEM, THE QUALITY OF

THE SYSTEM, ANY DEFECT IN THE SYSTEM, FAILURE OF THE SYSTEM TO PERFORM AS

REPRESENTED OR EXPECTED, MANAGEMENT SERVICES, THE USE OR INABILITY TO USE

RESULTS OF MANAGEMENT SERVICES, OPERATING SERVICEES, ANY TRANSACTIONS RESULTING

FROM THIS AGREEMENT, LOSS OF GOODWILL OR PROFITS, LOST BUSINESS HOWEVER

CHARACTERIZED AND/OR FROM ANY OTHER CAUSE WHATSOEVER.

 

9.3.5.       THE PARTIES FURTHER AGREE THAT EACH AND

EVERY PROVISION OF THIS AGREEMENT THAT PROVIDES FOR A LIMITATION OF LIABILITY,

DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES IS EXPRESSLY INTENDED TO BE

SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION SINCE THOSE PROVISIONS

REPRESENT SEPARATE ELEMENTS OF RISK ALLOCATION BETWEEN THE PARTIES AND SHALL BE

SEPARATELY ENFORCED.

 

14

 

9.3.6.       THE PARTIES HEREBY AGREE THAT, TO THE

EXTENT ANY DELIVERABLE HEREUNDER IS USED FOR THE PURPOSE OF GENERATING OUTPUT

USED IN COMPLYING WITH GOVERNMENTAL LAWS AND REGULATIONS (INCLUDING TAX LAWS

AND REGULATIONS), BUYER SHALL ASSUME ALL RESPONSIBILITY FOR COMPLIANCE WITH ANY

SUCH GOVERNMENTAL LAWS AND REGULATIONS.

 

9.4.          The rights and

obligations of the parties under this Section 9 shall survive any termination

of this Agreement.

 

10.          CHANGES

 

10.1.        No additions, changes or

modifications to any of Statement of Work by either party (each “Changes”) will

be considered by the other party unless such proposed Changes are first

submitted in writing to the other party and shall not have an effect until a

Change Order (as defined below) is executed by both parties.  The parties acknowledge and agree that any

Changes may affect or delay the delivery and/or the System Price for the

products or services set forth therein. 

Promptly after a requested Change has been submitted for approval to

Seller, or to Buyer (if Seller requests a Change), Seller shall prepare and

deliver to Buyer an estimate of the anticipated impact, if any, on the delivery

schedule and/or the System Price.  After

Buyer has received such information, Buyer shall indicate in writing whether it

approves such Changes.  Thereafter, the

parties shall mutually revise the Statement of Work upon mutual execution of a

written order complying with Section 17.2 below detailing the Changes to be

made (each, a “Change Order”).  Seller

shall not be obligated to implement any Changes specified in a Change Order

until Buyer has executed and returned such Change Order to Buyer.  Each Change Order shall state (i) a detailed

description of the Change to the System(s) or services to be provided under the

Statement of Work, (ii) the amount of the fixed adjustment to the fixed System

Price, and (iii) the extent of the adjustment, if any, in the delivery

schedule.  For all purposes under this

Agreement, each Change Order will be fully incorporated into the Statement of

Work to which such Change Order applies. 

Seller shall not be liable for any delays that occur in the delivery schedule

due to Changes requested by Buyer.

 

10.2.        Extensions of one or more

deadlines in the performance schedule may result from an excusable delay

authorized pursuant to the terms of Section 4.3.

 

11.          INSURANCE 

 

11.1.        Seller shall obtain, pay

for and maintain the following insurance covering the performance of work under

this Agreement:

 

11.1.1.     Comprehensive General Liability Insurance

for each occurrence of bodily injury and property damage, in an amount of not

less than One Million US Dollars (US$1,000,000.00) combined single limit, for

each occurrence of bodily injury and property damage, covering Buyer as an

additional insured and containing endorsements providing coverage for the

following: (a) Personal Injury Liability; (b) Premises - Operations Liability,

including “XCU” coverage; (c) Blanket Contractual Liability; and (d) Broad Form

Property Damage

 

15

 

11.1.2.     Comprehensive Automobile Liability

Insurance for owned, hired and non-owned motor vehicles, if any, used for the

performance of the services under this Agreement.  This insurance shall have the same minimum coverage limits as

specified above the Comprehensive General Liability Insurance.

 

11.1.3.     Worker’s Compensation Insurance,

Occupational Disease Insurance and Disability Benefits Insurance, in accordance

with applicable statutory requirements.

 

11.1.4.     Employers’ Liability Insurance in an amount

not less than Five Hundred Thousand US Dollars (US$500,000).

 

11.1.5.     All Risk Installation Floater Property

Insurance covering property damage arising out of the installation, assembly

and testing of the System at Buyer’s designated facility prior to Final

Acceptance.

 

11.2.        The insurance specified

above shall cover all work to be provided under this Agreement by Seller and

all of its agents, employees, representatives and subcontractors.

 

11.3.        Prior to Seller’s

commencement of any services on Buyer’s premises, Seller shall furnish valid

certificates of insurance to Buyer showing that Seller has obtained insurance

coverage as required under this Section 11. 

The certificate required for the insurance under Section 11.1.1 shall

specifically reference the endorsements required.  The insurance policies and certificates shall also state that at

least thirty (30) days’ written notice shall be provided to Buyer prior to any

cancellation, expiration, nonrenewal or material change in the insurance

coverage which occurs during the term of this Agreement.

 

12.          INDEMNIFICATION

 

12.1.        Buyer shall indemnify,

defend and hold Seller harmless from and against any and all claims, actions,

losses, damages, demands, liabilities, costs and expenses, including reasonable

attorney’s fees and expenses, whether a suit or other proceeding is initiated

or not, which may arise from the fraud, gross negligence, omissions or

intentional misconduct of Buyer, its representatives, agents or employees.  Seller shall promptly notify Buyer in

writing after it becomes aware of any such claims.  Buyer shall have exclusive control over the settlement or defense

of such claims or actions.  Seller shall

give Buyer, at Buyer’s expense, all information, assistance and cooperation

reasonably requested by Buyer to settle or defend such claims or actions.  Buyer shall be entitled to retain all

monetary proceeds, attorneys’ fees, costs and other rewards it receives as a

result of defending or settling such claims. 

In the event Buyer fails to promptly indemnify and defend such claims

and/or pay Seller’s expenses, as provided above, Seller shall have the right to

defend itself, and in that case, in addition to any other rights and remedies

that Seller may have, Buyer shall reimburse Seller for all of its reasonable

attorneys’ fees, costs and damages incurred in settling or defending such

claims within thirty (30) days of each of Seller’s written requests, provided

that any settlement shall only be with Buyer’s prior written approval.

 

12.2.        Seller shall indemnify,

defend and hold Buyer harmless from and against any and all claims, actions,

losses, damages, demands, liabilities, costs and expenses, including reasonable

attorney’s fees and expenses, whether a suit or other proceeding is initiated

or not,

 

16

 

which may arise from the fraud,

gross negligence, omissions or intentional misconduct of Seller, its

representatives, agents or employees. 

Buyer shall promptly notify Seller in writing after it becomes aware of

any such claims.  Seller shall have

exclusive control over the settlement or defense of such claims or

actions.  Buyer shall give Seller, at

Seller’s expense, all information, assistance and cooperation reasonably

requested by Seller to settle or defend such claims or actions.  Seller shall be entitled to retain all

monetary proceeds, attorneys’ fees, costs and other rewards it receives as a

result of defending or settling such claims. 

In the event Seller fails to promptly indemnify and defend such claims

and/or pay Buyer’s expenses, as provided above, Buyer shall have the right to

defend itself, and in that case, in addition to any other rights and remedies

that Buyer may have, Seller shall reimburse Buyer for all of its reasonable

attorneys’ fees, costs and damages incurred in settling or defending such

claims within thirty (30) days of each of Buyer’s written requests, provided

that any settlement shall only be with Seller’s prior written approval.

 

12.3.        Seller shall additionally

indemnify Buyer and hold Buyer harmless from and against any loss, claim,

damage or expense (including reasonable attorneys’ fees) sustained or incurred

by Buyer arising out of or in connection with any claim that the System or

Documentation, alone and not in combination with any other hardware, software

or process, infringes any third party’s United States Intellectual Property

Rights.  Seller’s indemnification

obligation is conditioned on (i) Buyer notifying Seller within ten (10) days of

Buyer’s first knowledge of such claim; provided, however, that Buyer’s failure

to notify Seller within such 10-day period shall not relieve Seller of its

indemnity obligations hereunder if such failure does not materially prejudice

Seller in its defense of such claim; (ii) Buyer making no admission without the

prior written consent of Seller; and (iii) Seller, at its own expense, being entitled

to conduct and/or settle all negotiations and litigation so arising (unless

such settlement imposes an obligation of Buyer to make any payment) and Buyer

agrees to provide all reasonable assistance with such negotiations or

litigation at Seller’s request.  In

addition to its indemnification obligations, if the System or Documentation (or

any of them) become, or in Seller’s reasonable opinion are likely to become,

the subject of a claim of infringement as aforesaid, then Seller may, at its

own expense, either (x) procure for Buyer the right to continue using the

System; or (y) replace the System with non-infringing products; or (z) modify

the System to make them non-infringing. 

The foregoing states the entire liability of Seller with respect to any

claim of infringement regarding the System or Documentation.  Notwithstanding anything to the contrary

herein, Seller shall have no obligation to indemnify, defend or hold harmless

Buyer for any claims, liabilities, losses or other damages that arise out of or

relate to (a) the use, combination, integration or merger of the System with

any other software, hardware, peripheral device or other materials not supplied

by Seller, (b) any changes or modifications to the System made by anyone other

than Seller, (c) any infringement claims relating to any Buyer Materials, third

party licensed materials or to any of Buyer’s existing software, hardware or

other technology, (d) the use of the System in a manner inconsistent with the

provisions of this Agreement and the Documentation, (e) the use of the System

with hardware or hardware configurations other than as recommended by Seller,

(f) the use of anything but the latest available release of software and

control systems provided by Seller to Buyer, (g) Seller’s compliance with any

of Buyer specifications, designs or other requirements, (h) Buyer’s negligent

or willfully wrongful actions or omissions, and/or (k) any matter or

circumstance to which Buyer indemnifies Seller under Section 12.1 above.

 

17

 

12.4.        The rights and obligations of the

parties under this Section 12 shall survive any termination of this Agreement.

 

13.          ACCESS

 

13.1.        Seller shall furnish or arrange Buyer’s

reasonable access to the System and its components at the site of their

manufacture and storage.  Buyer shall

furnish or arrange Seller’s reasonable access to the System during and after

installation at Buyer’s Site.

 

14.          TERMINATION FOR DEFAULT

 

14.1.        Either party shall be in

default hereof if (a) such party suffers an Insolvency Event; (b) such party is

in material breach of any representation or warranty made by such party herein,

or fails to perform in all material respects any obligation, including with

respect to Buyer any System Price payment obligation, or to comply with any

covenant or agreement on its part to be performed or complied with hereunder,

and such failure or breach remains uncured for a period of thirty (30) days

after written notice thereof, except with respect to any such failure or breach

that is not reasonably susceptible of cure within such 30-day period if the

other party promptly commences to cure such failure or breach within such

30-day period and diligently prosecutes such cure to completion as soon as is

reasonably practicable (but in no event later than ninety (90) days after

written notice of such failure or breach); (c) with respect to Buyer, Buyer

fails to pay Royalty Fees (except as to any such amount of Royalty Fees which

is the subject of a continuing good faith dispute) finally determined to be due

and payable hereunder by Buyer for any period of at least six (6) consecutive

months and such failure remains uncured for a period of forty-five (45) days

after written notice thereof is delivered by Seller to Buyer.  Any notice of default shall be sent in

accordance with Section 19 and shall identify the contract provision at issue

and describe in reasonable factual detail how the other party has materially

violated the provision.  If timely

corrective action is not forthcoming, the aggrieved party may then terminate

the Agreement pursuant to Section 15 and pursue all other available remedies.

 

14.2.        Except as may otherwise be

set forth in the Right of First Negotiation Agreement or any other agreement

entered into between Seller and any member of the Company Group, as that term

in defined in the Right of First Negotiation Agreement, a default by Buyer

under this Agreement shall not affect the rights of any member of the Company

Group under the Right of First Negotiation Agreement or other agreements

entered into between Seller and any member of the Company Group.

 

15.          TERMINATION

 

15.1.        This Agreement may be terminated by

Buyer, for any reason, by giving written notice of termination to Seller on or

before October 31, 2002 (“Termination for Convenience”).  Should Buyer elect to terminate this

Agreement pursuant to a Termination for Convenience on or before October 31,

2002, then Seller shall pay to Buyer the Cancellation Amount.

 

15.2.        If no Termination for Convenience

occurs, then this Agreement shall continue in full force and effect for so long

as the System is being used by Buyer, unless terminated earlier, upon one

party’s giving written notice of termination after following the procedures in

Section 14.1 or 4.4 above.

 

18

 

15.3.        Upon any termination of this Agreement,

neither party shall have any further right, liability or obligation hereunder

after the effective date of such termination except in respect to (a) any

liability or obligation arising out of such party’s (i) failure to perform

prior to such termination in all material respects any obligation or to comply

with any covenant or agreement on its part to be performed or complied with

hereunder prior to such termination or (ii) material breach of any of its

representations or warranties contained herein; (b) any liability or obligation

hereunder which was accrued or incurred under the terms hereof prior to the

effective date of such termination but remains unsatisfied or undischarged on

the effective date of such termination; (c) any right, liability, obligation or

provision which survives any such termination as expressly provided herein; or

(d) any liability or obligation hereunder with respect to the System acquired hereunder

prior to the effective date of such termination.  The rights and obligations of the parties under this Section 15.3

shall survive any termination of this Agreement.

 

16.          OWNERSHIP AND LICENSING OF TECHNOLOGY

 

16.1.        Third Party Software Products - In the

case of third party software products, Buyer hereby agrees to be bound and

governed by the terms and conditions of the original vendor’s license agreement

accompanying such products or, if no such license agreement is included, by the

vendor’s standard license terms generally applicable to the particular product.

 

16.2.        Seller’s System Deliverables - Seller

agrees to license, under the License Agreement attached in Exhibit E, the use

of its System Deliverables to Buyer for a single use license at the defined

Site. Seller will at all times maintain ownership of all licensable

Deliverables and derivative works. Buyer will not copy, use, or distribute the

licensed Deliverables for any purpose except as required to operate and

maintain the System at the Site without Seller’s explicit written approval.

 

16.3.        Buyer acknowledges and agrees that

Seller shall solely own and have exclusive worldwide right, title and interest

in and to (i) all designs, know-how, inventions, technical data, ideas, uses,

engineering processes and methods arising directly from the components of the

System provided by Seller under Section 2 hereof or any Management Services

provided by Seller or its designees, (ii) any Documentation related thereto,

(collectively “Seller Materials”) and to all modifications, enhancements and

derivative works thereof except for Type 2 or Type 3 Materials, and to all

Intellectual Property Rights related thereto. 

Buyer expressly recognizes and agrees that any Seller Materials

developed under this Agreement and the Statement of Work are not a “work made

for hire” under United States or any other law.  In the event, through operation of local law or otherwise, that

Buyer obtains any proprietary or intellectual property rights regarding any of

the Seller Materials, then as additional consideration for the favorable terms

of this Agreement, Buyer hereby assigns and conveys to Seller all right, title

and interest in and to the Seller Materials, and to all modifications,

enhancements and derivative works thereof except for Type 2 or Type 3

Materials, and to all Intellectual Property Rights related thereto.  Either during or following termination of

this Agreement, Buyer shall make any filings and execute any documents necessary

for Seller to record, register, or otherwise perfect its ownership rights in

the Seller Materials.  Buyer shall not

challenge, contest or otherwise impair Seller’s ownership of the Seller

Materials or the validity or enforceability of Seller’s Intellectual Property

Rights related thereto.  Nothing in this

Agreement will be deemed to grant, by implication, estoppel, or

 

19

 

otherwise, a license to any of

the foregoing under any of Seller’s existing or future Intellectual Property

Rights.

 

16.4.        Title to Type 2 Materials and Type 3

Materials shall always remain with Buyer. 

The Parties agree that Buyer shall solely own and have exclusive

worldwide right, title and interest in and to the Type 2 Materials and Type 3

Materials and to all modifications, enhancements and derivative works thereof

that are not Type 1 Materials, and to all Intellectual Property Rights related

thereto.  Seller shall not challenge,

contest or otherwise impair Buyer’s ownership of Type 2 Materials and Type 3

Materials or the validity or enforceability of Buyer’s Intellectual Property

Rights related thereto.  In the event

the Parties agree to enter into a license whereby Seller would be permitted to

make, use and/or sell any Type 2 Materials or Type 3 Materials on terms and conditions

to be negotiated by the Parties hereto, Buyer agrees that the price of such

license shall not exceed the lowest price charged or offered by Seller to any

other licensee or prospective licensee at any time within one hundred eighty

(180) days immediately before the effective date of such license agreement

between the Parties hereto, in the United States (and its territories), of

substantially similar licenses to make, use and/or sell the Type 2 Materials or

Type 3 Materials, and further provided that such lowest price shall be adjusted

appropriately by Buyer to correspond to any differences in scope between such

substantially similar third party license and the license contemplated by the

Parties hereto.

 

16.5.        The rights and obligations of the parties

under this Section 16 shall survive any termination of this Agreement.

 

17.          AMENDMENTS

 

17.1.        This Agreement contains

the entire understanding among the parties hereto with respect to the subject

matter hereof, and supersedes all prior and contemporaneous agreements and

understandings, inducements, or conditions, express or implied, oral, or

written, except as herein contained. 

The express terms hereof control and supersede any course of performance

or usage of the trade inconsistent with any of the terms hereof.

 

17.2.        This Agreement may not be

modified or amended other than by an agreement in writing signed by an

authorized representative of each party hereto (as designated from time to time

by such party).

 

18.          ASSIGNMENTS AND SUBCONTRACTS

 

18.1.        Except as otherwise

expressly provided herein, neither party shall, by operation of law or

otherwise, assign, transfer, pledge, mortgage or otherwise hypothecate this

Agreement or any right or interest hereunder without first obtaining the prior

written consent of the other party, which consent may be delayed, conditioned

or withheld in such other party’s sole discretion.  Notwithstanding anything to the contrary contained herein, Buyer

or any member of the Company Group (as that term is defined in the Right of

First Negotiation Agreement) may, without the consent of the other party

hereto, but upon written notice to Seller, assign this Agreement and its rights

and interests hereunder (in whole or in part) to any other member of the

Company Group.  No assignment or other

transfer permitted by this Section 18.1 shall operate as a release of the

assignor’s obligations or liabilities hereunder, and the assignor shall remain

liable

 

20

 

hereunder notwithstanding such assignment

or other transfer.  In the event of any

assignment permitted by this Section 18.1 (other than an assignment between

members of the Company Group), an instrument of assignment shall be executed by

the assignee and shall expressly state that the assignee assumes all of the

applicable obligations and liabilities of the assignor contained herein.

 

19.          NOTICES

 

19.1.        Any

notice, consent, approval, request, demand, declaration or other communication

required hereunder shall be in writing to be effective and shall be given and

shall be deemed to have been given if (i) delivered in person with receipt

acknowledged; (ii) telexed or telecopied and electronically confirmed; (iii)

deposited in the custody of a nationally recognized overnight courier for next day

delivery; or (iv) placed in the federal mail, postage prepaid, certified or

registered mail, return receipt requested, in each case addressed as follows:

 

	

  If to Buyer:

  	

  Salubris

  Limited Partnership

  
	

   

  	

  3113 South

  University Drive, Suite 500

  
	

   

  	

  Fort Worth, Texas  76109

  
	

   

  	

  Attention:

  David A. Corbin

  
	

   

  	

  Telephone:  817/335-8282

  
	

   

  	

  Fax #:  817/335-8281

  
	

   

  	

   

  
	

  If to

  Seller:

  	

  SureBeam

  Corporation

  
	

   

  	

  9276

  Scranton Road, Suite 600

  
	

   

  	

  San Diego,

  California  92121

  
	

   

  	

  Attention:

  President

  
	

   

  	

  Telephone:  858/795-6300

  
	

   

  	

  Fax #:  858/795-6301

  

 

or at such

other address as may be substituted by giving the other parties not fewer than

five (5) business days’ advance written notice of such change of address in

accordance with the provisions hereof. The giving of any notice required hereunder

may be waived in writing by the party entitled to receive such notice. Every

notice, demand, request, consent, approval, declaration or other communication

hereunder shall be deemed to have been duly served, delivered and received on

the date on which personally delivered with receipt acknowledged or telecopied

or telexed and electronically confirmed, or forty-eight (48) hours after being

deposited into the custody of a nationally recognized overnight courier for

next day delivery, or five (5) business days after the same shall have been

placed in the federal mail as aforesaid.

 

20.          MISCELLANEOUS

 

20.1.        Notwithstanding anything

to the contrary contained herein, the failure of either party to seek a redress

for violation, or to insist upon the strict performance, of any covenant,

agreement, provision, or condition hereof shall not constitute the waiver of

the terms of such covenant, agreement, provision, or condition at subsequent

times or of the terms of any other covenant, agreement, provision or condition,

and each party shall have all remedies provided

 

21

 

herein with respect to any

subsequent act which would have originally constituted the violation hereunder.

 

20.2.        THIS AGREEMENT, AND ALL

QUESTIONS RELATING TO ITS VALIDITY, INTERPRETATION, PERFORMANCE AND

ENFORCEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL

LAWS OF THE STATE OF TEXAS, NOTWITHSTANDING ANY CONFLICT-OF-LAWS DOCTRINES OF

SUCH STATE OR OTHER JURISDICTION TO THE CONTRARY.  THIS AGREEMENT HAS BEEN EXECUTED, ACCEPTED AND DELIVERED AND IS

PERFORMABLE IN TARRANT COUNTY, TEXAS, AND VENUE IN ANY SUIT, PROCEEDING OR

ACTION ARISING OUT OF OR INVOLVING THIS AGREEMENT SHALL BE IN THE COURTS OF THE

STATE OF TEXAS IN TARRANT COUNTY, TEXAS. 

SELLER HEREBY CONSENTS TO THE JURISDICTION OF SUCH COURTS FOR THE

PURPOSE OF ANY SUCH SUIT, PROCEEDING OR ACTION AND HEREBY IRREVOCABLY WAIVES

(I) ANY OBJECTION THAT IT NOW HAS OR MAY HEREAFTER HAVE TO THE VENUE OF ANY

SUCH COURT AND (II) ANY OBJECTION THAT ANY SUCH SUIT, PROCEEDING OR ACTION

BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

20.3.        The provisions hereof are

independent of and separable from each other, and no provisions shall be

affected or rendered invalid or unenforceable by virtue of the fact but for any

reason any other or others of them may be invalid or unenforceable in whole or

in part.

 

20.4.        Except where remedies are

designated under this Agreement as exclusive, the remedies and rights available

under this Agreement and the duties and obligations imposed by it shall be in

addition to, and not a limitation of, the remedies, rights, duties and

obligations otherwise available or imposed by law.

 

20.5.        The headings herein are

for convenience only; they form no part of this Agreement and shall not be

given any substantive or interpretive effect whatsoever.

 

20.6.        This Agreement may be

executed in counterparts, each of which shall be deemed an original, and all

such counterparts together shall constitute but one and the same instrument;

provided, however, that in making proof hereof, it shall not be necessary to

produce or account for more than one such counterpart.  It shall not be necessary that each party

hereto execute the same counterpart, so long as identical counterparts are

executed by each party.  A facsimile

signature will be accepted as if it were an original signature.

 

20.7.        The prevailing party in

any dispute between the parties arising out of the interpretation, application

or enforcement of any provision hereof shall be entitled to recover all of its

reasonable attorneys’ fees and costs whether suit be filed or not, including

without limitation costs and attorneys’ fees related to or arising out of any

arbitration proceeding, trial or appellate proceedings.

 

20.8.        This Agreement constitutes

the complete, exclusive and final statement of the agreement between the

Parties regarding the subject matter hereof and supersedes all prior or

contemporaneous understandings or agreements, whether oral or written.  Exhibits A through E,

 

22

 

inclusive, are fully

incorporated herein.  Should any term or

condition contained in Exhibits A through E be contrary to a similar term or

condition set forth in this Agreement, then the term or condition set forth in

this Agreement shall control.

 

20.9.        The parties to this

Agreement are independent contractors. 

No relationship of principal to agent, master to servant, employer to

employee, or franchisor to franchisee is established hereby between the

parties.  Neither party has the

authority to bind the other or incur any obligation on its behalf.

 

20.10.      During the term of this

Agreement and for a period of one (1) year thereafter, Buyer and Seller agree

not to hire, solicit, nor attempt to solicit, the services of any employee or

subcontractor of Buyer or Seller without the prior written consent of Buyer or

Seller.

 

20.11.      The rights and obligations

of the parties under this Section 20 shall survive any termination of this

Agreement.

 

21.          CONFIDENTIAL INFORMATION

 

21.1.        Acknowledgment of

Confidentiality - The parties anticipate that they may learn Confidential

Information of the other party as a consequence of the transactions

contemplated by this Agreement.  The

parties mutually agree to take all necessary steps, and to prepare and execute

all documents necessary, to protect and prohibit the disclosure of Confidential

Information under this Section 21.

 

21.2.        Covenant Not to Disclose -

With respect to the other party’s Confidential Information, the recipient

hereby agrees that during the term of this Agreement and at all times

thereafter it shall not use, commercialize or disclose such Confidential

Information to any person or entity, except to its own employees having a “need

to know” (and who are themselves bound by similar nondisclosure restrictions),

and to such other recipients as the other party may approve in a signed

writing; provided that all such recipients shall have first executed a

confidentiality agreement in a form acceptable to the owner of such

information.  Each party shall use at

least the same degree of care in safeguarding the other party’s Confidential

Information as it uses in safeguarding its own confidential information.  Neither party nor any recipient may alter or

remove from any software or associated documentation owned or provided by the

other party hereunder, any proprietary, copyright, trademark or trade secret

legend, nor may it attempt to decompile or reverse engineer the System.

 

21.3.        Remedies for Breach of

Confidentiality - Each party acknowledges that the unauthorized use,

commercialization or disclosure of the other party’s Confidential Information

would cause irreparable harm to such other party.  The parties acknowledge that remedies at law would be inadequate

to redress the actual or threatened unauthorized use, commercialization or

disclosure of such Confidential Information and that the foregoing restrictions

may be enforced by temporary and permanent injunctive relief.  In addition, any award of injunctive relief

shall include recovery of associated costs and expenses (including reasonable

attorneys’ fees).

 

21.4.        The rights and obligations

of the parties under this Section 21 shall survive any termination of this

Agreement.

 

23

 

IN WITNESS WHEREOF, the parties

have executed and delivered this Agreement to be effective as of the Effective

Date.

 

 

	

  SUREBEAM

  CORPORATION

  	

   

  	

  SALUBRIS

  LIMITED PARTNERSHIP

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  By:

  	

  /s/J. Thomas

  Allen

  	

   

  	

   

  	

  By:

  	

  /s/Dean

  Davis

  	

   

  
	

   

  	

   

  	

   

  
	

  Name:

  	

  J. Thomas

  Allen

  	

   

  	

   

  	

  Name:

  	

  Dean Davis

  	

   

  
	

   

  	

   

  	

   

  
	

  Title:

  	

  Vice

  President

  	

   

  	

   

  	

  Title:

  	

  Managing

  Partner

  	

   

  
											

 

24

 

EXHIBIT A

SELLER’S PROPOSAL

 

 

 

PROPOSAL # 1-0002817

FOR A

SUREBEAMÒ E-BEAM SYSTEM

 

 

August 1, 2002

 

 

Prepared for:

 

Salubris Limited

Partnership

 

Fort Worth, Texas

 

 

Submitted by:

SureBeam Corporation

9276 Scranton Road, Suite 600

San Diego, CA  92121

 

 

	

  This document contains SureBeam Proprietary Information to be used

  solely for

  evaluating this Proposal and may not be disclosed to any outside 3rd

  party.

  

 

 

August 1, 2002

 

 

Mr. David F. Corbin

Chief Financial Officer

Corbin & Company

3113 S. University Drive, Suite 500

Fort Worth, TX  76109

 

 

Subject:                                                     Proposal

#1-0002817 – SureBeam E-Beam System

 

 

Dear Mr. Corbin:

 

SureBeam appreciates the opportunity to work with you in the

development of SureBeam Proposal (#1-0002817) (“Proposal”) for the

implementation of a SureBeam System to process food products at your Fort Worth

facility.

 

Purpose of the

Proposal

 

This Proposal defines our

recommendations to implement an E-Beam system at your Fort Worth facility, to

meet the following objectives:

 

ý            Reduce or Eliminate

Potential Pathogens in Meats

ý            Disinfest Various

Fruits and Vegetables

ý            Minimize the

Processing Cost per Pound

ý            Meet Processing

Requirements (Volume, Dose, etc.)

ý            Achieve System

Availability > 95%

ý            Minimize Capital

Expenditures

ý            Minimize Logistics

Expenses

 

 

The purpose of this Proposal is to provide Salubris Limited Partnership

with a price, schedule, and scope-of-work for a SureBeam System consistent with

Salubris’ requirements for the processing of food products, and if acceptable,

to provide a binding framework within which to commence performance until a

definitive purchase agreement memorializing the detailed terms of the supply

relationship (the “Agreement”). Salubris has chosen a site in the Fort Worth

area.  The recommended concept has been

tailored to this site with the goal of achieving the “best processing

concept”.  This Proposal is intended by

SureBeam Corporation (“SureBeam”) and Salubris Limited Partnership (“Salubris”)

to be a binding commitment regarding the SureBeam System to be purchased by

Salubris and shall be governed by the terms of

 

2

 

the RIGHT OF FIRST NEGOTIATION

AGREEMENT dated March 22, 2002 entered into between the parties, which is

incorporated herein in its entirety, until the “Agreement is entered into

between the parties.  It is contemplated

that the principal terms of the Agreement shall be based upon SureBeam’s

Standard Terms and Conditions for purchase of a System and the applicable terms

and conditions contained in the RIGHT OF FIRST NEGOTIATION AGREEMENT dated

March 22, 2002 and will also include the terms set forth below as well as well

as any additional customary terms that are mutually acceptable to the

parties.   To the extent that any term

of the RIGHT OF FIRST NEGOTIATION AGREEMENT dated March 22, 2002 contradicts a

term in this Proposal, the term in this Proposal shall prevail.

 

Requirements

Definition

 

Salubris requirements to be

addressed by the SureBeam system include the following:

 

•              Integrate

the E-beam system into the Salubris facility.

 

•              [...***...]

 

•                                          Meet

required quality, process integrity, and regulatory requirements defined by

Salubris, ISO-11137, TNRCC (Texas Natural Resource Conservation Commission) and

USDA guidelines.

 

•                                          Develop

an operating concept that meets the production, processing, and operating requirements

defined in this Proposal.

 

•                                          Integrate

equipment, subsystems, procedures, and processes into an overall operating

“System” to achieve performance requirements.

 

•                                          Define

a System concept that provides > 95% system availability, and maintains overall

process integrity, safety and security at 100%.

 

Proposal Summary

 

To meet Salubris’ requirements,

we are proposing to implement a SureBeamÒ

Electron Beam Processing System using SureBeam technology and patented system

concepts. The system design is based upon field proven concepts and utilizes

equipment with a demonstrated track record. The design uses a simple “flow

through” concept – products are continuously moved through the e-beam field at

a defined processing rate and scan height.

 

System Description

 

 

*CONFIDENTIAL TREATMENT REQUESTED

 

3

 

To meet Salubris’ requirements,

SureBeam is proposing to implement a SureBeamâ

Electron Beam processing System (refer to attached system layout drawings). The

System concept is based upon field proven designs and consists of the following

major subsystems:

 

•           Electron

Beam Source or “Accelerator”

•           Material

Handling System

•           Information

& Control System - “SureTrack”

•           Safety

Equipment

•              Radiation

Shield and Support Utilities

 

 

Figure 1-1  Proposed E-Beam Layout

 

To provide protection from

ionizing energy, the SureBeam system uses a concrete shield sized to contain

the E-beam accelerator and material handling system.  The shield consists of concrete walls and roof.  Thickness gradually decreases as you move

from the beam area to the entry or exit portions of the maze.  The purpose of the maze is to provide

several 90° turns that provide a “torturous path” limiting any ionizing

radiation from escaping (i.e. no direct line of sight path). The shield design

features a common wall between E-Beam and X-Ray systems.  The E-Beam portion of the shield occupies

approximately 4,000ft2 with the overall shield occupying 7,500ft2.

 

The accelerator centerlines are

located inside of the shield and protected from ionizing radiation and ozone by

interior walls.  The accelerator design

philosophy is to limit variability in the accelerator to one parameter (scan

width). All other operating parameters (such as energy, and power) are fixed at

validated set points and pre-defined high/low limits. The goal is to provide

stable equipment operation that always produces a consistent, uniform beam. If

the beam characteristics exceed pre-defined limits, then the system is

shutdown.

 

4

 

The system utilizes two

split-beam accelerators that enable double-sided processing.  A unique scan horn directs the beam to the

top and bottom of product in an opposed fashion.   Each accelerator is dedicated to a single processing lane.   The split beam approach eliminates the need

to flip product and facilitates very high speed processing by eliminating

product transfers (patent pending). In addition, double sided processing

increases the efficiency and throughput of the system as well as increase the

uniformity of the delivered dose. Product is conveyed into the shield and

through the e-beam process on a material handling system that was specifically

designed to operate in a food processing application. Basic transport functions

are accomplished using powered roller conveyor.  This conveyor efficiently moves product from the load station to

the beam area and back out to the unload station.   The conveyor close packs product prior to processing for further

efficiency. To achieve precise dose delivery an independent process conveyor is

used to control the movement of product through the e-beam field. An

independent servo controlled conveyor is used to achieve positioning and speed

control of ±0.5% variance from the set point.

 

The SureTrack information and

control system oversees all information and processing functions. SureTrack

uses a system PC and a distributed network of industrial PLCs to monitor and

control system functions. The software modules have been proven in similar

applications to ensure a robust control system.

 

Description of Operation

 

The system is simple to operate

with built-in integrity checks that ensure compliance with the processing

protocol. The basic operation is as follows:

 

The System operator initiates

“Lot” setup and release by entering the Product Code, Lot Information, and

selecting a pre-defined processing protocol or “recipe”.

 

5

 

Figure 1-2  Operator at SureTrack Computer

 

The SureTrack control system

checks the information to ensure the validity of the data and schedules the Lot

for processing. When the integrity of the data has been verified, the control

system downloads to the accelerator and material handling controllers the

predetermined processing set points for the key parameters.  These include processing rate, scan height,

dosimeter placement criteria, and key high/low limit settings, and error recovery

directions. The control system verifies all parameters are set correctly, the

equipment is operating within specifications, and that system validation

parameters are initialized to previously validated settings.  Process integrity is assured.

 

A typical operational overview

follows.  Product moves to both load

areas where it is transferred onto the inbound conveyors.  Specific parameters to achieve best

processing results are predetermined considering product size, shape, density

and results from dose mapping tests. 

These include optimal dose, max/min ratio, and processing rate released

into the system.  Specially designed

fixtures containing dosimeters are used as an independent means of monitoring

integrity of the delivered dose. In general, dosimeters are inserted into the

process before the first product, periodically between product, and after the

last product in a Lot.  Current

regulatory guidelines recommend placement of dosimeters at the beginning,

middle, and end of a Lot (at a minimum). The quantity or frequency of

dosimeters processed within the Lot will be determined by QA and input into the

system as part of the Lot processing instructions.

 

The SureTrack information and

control system monitors the status and operation of the system.  It informs the system operator of the

overall process checking for the completion of each task and verifying the

integrity of the process.  SureTrack

also verifies that the operating parameters and variables are correctly set and

operating within the pre-defined limits before the product is released into the

system.

 

6

 

Released product is transported

to the process area on a roller conveyor. The conveyor is the primary means of

transporting product from load/unload areas to and from the process area. The

control system manages the traffic flow and accumulation of product within the

system.

 

Immediately prior to entering

the process area, an automatic closing conveyor is used to stage product.  The closing conveyor close-packs product to

minimize the gap between products. 

Speed is precisely matched with that of the subsequent process.  This close packing of product maximizes the

utilization of the e-beam field and hence maximizes throughput.

 

An independent, servo driven

“Process Conveyor” is used to precisely control the movement and positioning of

product through the e-beam field. The speed of the conveyor is selectable

to  allow delivery of a variety of dose

levels. To verify accuracy, two independent sensors constantly monitor conveyor

speed to stay within predetermined parameters.

 

The electron beam is scanned

over the product as it moves through the process. Double sided processing is

achieved by using split beam accelerators. 

The beam from one accelerator is split and each split beam is magnetically

deflected to the desired direction.  One

deflected beam shoots down onto a product lane while the other shoots up at the

same product lane.  Each accelerator is

dedicated to a single processing lane.  

The split beam approach eliminates the need to flip product and

facilitates very high speed processing by eliminating product transfers (patent

pending). In addition, double sided processing increases the efficiency and

throughput of the system, and increases the uniformity of the delivered dose.

 

Product moves through the

e-beam field at a pre-defined speed. Product is typically “in the beam” less

than a second. The control system continuously monitors key process parameters

to ensure the process is within defined operating limits. Any out of limits

condition will cause a coordinated shutdown of the equipment.

 

Product exiting from the e-beam

process is conveyed directly to the unload area where product  is unloaded onto shipping pallets. Fixtures

containing dosimeters are removed for subsequent processing. The overall cycle

time to move product through the process is about 7-8 minutes. Changeover from

one Lot to another can be accomplished in 3-5 minutes.

 

When the last product in the

Lot clears the process area, the SureTrack control system checks to ensure the

Lot processing is complete and records/archives all processing information

required to substantiate successful completion of the process. Once QA reviews

the dosimetry and processing information, a determination will be made as to

whether the Lot can be released. 

Released product is moved to waiting trucks and returned to the

customer.

 

7

 

System Equipment and Deliverables

 

The SureBeam

System consists of the following deliverables and services:

 

	

  1.1

  	

  Engineering

  Analysis & Concept Definition. An initial engineering effort will be

  performed prior to the implementation of the system to develop answers to the

  following issues:

  
	

  1.1.1

  	

  Define the

  system concept and the site-specific layout to fit the Salubris selected

  site.

  
	

  1.1.2

  	

  Assist

  Salubris with the qualification and selection of the facility General

  Contractor. Salubris will contract directly with the General Contractor for

  the construction of the Facility and all support utilities.

  
	

  1.1.3

  	

  Assist Salubris

  resolve site specific questions (location, local codes, finalize costs,

  utilities, ozone ventilation)

  
	

  1.1.4

  	

  Assist

  Salubris evaluate process containers, if required, in sizes best suited for

  achieving the processing and production requirements

  
	

  1.1.5

  	

  Define

  interfaces to other operations

  
	

  1.2

  	

  Linear

  Accelerator – The e-beam source consists of two linear accelerators that

  generate electrons at 10 MeV energy. 

  The e-beam source will include the following equipment:

  
	

  1.2.1

  	

  Two

  split-beam E-Beam LX1 accelerators, 10MeV at low power

  
	

  1.2.2

  	

  Horizontal

  accelerator configuration with split beam scan horns

  
	

  1.2.3

  	

  Selectable

  scan widths (3)

  
	

  1.2.4

  	

  Secondary

  water conditioning and accelerator cooling system

  
	

  1.2.5

  	

  Packing and

  Freight to the site

  
	

  1.3

  	

  Material Handling

  system - A material handling system is provided to contain, position, and

  move product through the process. The equipment shall be capable of conveying

  various case sizes through the system while providing integrity over the

  process. The MH system shall include the following items:

  
	

  1.3.1

  	

  Roller

  Conveyor – Chain driven live roller conveyor is provided to transport product

  cases into and out of the process area. Two independent lanes are

  provided.  Rollers are plated for

  corrosion resistance.

  
	

  1.3.2

  	

  Closing

  Conveyor – Two (2) independent servo driven closing conveyors are provided to

  “close pack” product cases on the process conveyor in two dimensions –

  between cases and across lanes. This increases the processing efficiency.

  Product cases do not “bump” into each other so the dose in the process area

  is not compromised.

  
	

  1.3.3

  	

  Process

  Conveyor – Two (2) independent servo driven process conveyors are provided to

  precisely control the speed of the product 

  case through the beam to within ± 0.5% variance from the set point.

  This provides precise control over the delivery of the dose.

  
	

  1.3.4

  	

  Control

  System – Controls are provided to monitor and control the flow of product

  cases through the system. All actions that result in product movements (such

  as merge, divert, release, rotate, and stop) shall be confirmed as being

  successfully completed. Any action that affects the dose or integrity of the

  process shall be redundantly monitored. Errors or out-of-limit conditions

  will result in a system

  

 

8

 

	

  1.3.5

  	

  shutdown. A

  means, independent of the control system, shall be provided to automatically

  maintain the logical processing sequence of the product cases. The control

  system shall guide the operator through error recovery and provide a check

  that recovery actions were completed successfully.

  
	

  1.4

  	

  Packing and

  Freight to the Site.

  
	

  1.4.1

  	

  SureTrack

  Control System – a real-time information and control system is provided to

  monitor and control the overall process. The control system shall provide the

  data management, system operating functions, “logical” error detection, and

  overall error recovery functions for the entire System, and provide the

  following capabilities:

  
	

  1.4.2

  	

  Industrial

  PC based information and control computer, Pentium CPU with 512Mb RAM,

  mirrored hard drives (2), color graphics monitor, and interface to Allen

  Bradley PLC.

  
	

  1.4.3

  	

  Real-time

  PLC control system for monitoring, tracking and control of the sterilization

  process

  
	

   

  	

  Real-time

  SureTrack information system to perform the following functions:

  
	

  •

  	

  System

  start-up and shutdown

  
	

  •

  	

  Creation,

  audit, and scheduling of processing protocols

  
	

  •

  	

  Sterilization

  lot control

  
	

  •

  	

  Real-time

  monitor and information display

  
	

  •

  	

  Process

  integrity checks

  
	

  •

  	

  Error

  detection and recovery

  
	

  •

  	

  Processing

  reports, data management, and information archiving

  
	

  1.4.4

  	

  Redundant

  sensors for all key process monitors

  
	

  1.4.5

  	

  Software

  Validation per SureBeam Software Development Procedures

  
	

  1.4.6

  	

  Packing and

  Freight to the Site.

  
	

  1.5

  	

  Safety

  System — a safety system is provided that meets the requirements for E-beam

  system protection as specified by OSHA, IAEA Safety Series 107, NCRP Report

  51 regulatory requirements. Safety system shall be fail-safe, and provide

  “defense-in-depth”, redundancy, and independence. All safety system

  components shall be fit for the purpose intended and include the following

  capabilities:

  
	

  1.5.1

  	

  Intrusion

  alarms to detect unauthorized access into controlled areas (pressure mats,

  light curtain, electronically locked doors).

  
	

  1.5.2

  	

  Emergency

  stop(s) and pull cords.

  
	

  1.5.3

  	

  Fire / smoke

  detection.

  
	

  1.5.4

  	

  System

  start-up & shutdown.

  
	

  1.5.5

  	

  Key

  lockouts.

  
	

  1.5.6

  	

  Radiation

  monitors for out-of-limits conditions.

  
	

  1.5.7

  	

  Status

  display (accelerator ON / OFF, Access OK / PROHIBITED.

  
	

  1.5.8

  	

  Start-up

  alarms and horns.

  
	

  1.5.9

  	

  Start-up

  timer.

  
	

  1.5.10

  	

  Status

  alarms and beacons (rotating beacons).

  
	

  1.5.11

  	

  Ozone

  exhaust flow monitor.

  

 

9

 

	

  1.5.12

  	

  Safety signs

  and markings (Radiation Hazard, Access Prohibited, High Voltage, etc.).

  
	

  1.5.13

  	

  Automatic

  shutdown for out-of-limits conditions.

  
	

  1.5.14

  	

  Sequenced

  start-up.

  
	

  1.6

  	

  Dosimetry

  System – a dosimetry system is provided to independently measure delivered

  dose to the product. The system shall conform to applicable ANSI standards.

  Systems are sufficiently sized and will be shared by E-Beam and X-Ray

  systems.  The following equipment

  shall be included:

  
	

  1.6.1

  	

  Equipment -

  One (1) Genesys 20 spectrophotometers with accompanying software shall be

  provided.  Units shall be integrated

  to a PC for data processing.

  
	

  1.6.2

  	

  Dosimeters -

  Five thousand (5,000) B3 radiochromic dosimeters that cover a range of doses

  from 1.0 kGy — 100 kGy shall be provided.

  
	

  1.6.3

  	

  One (1)

  Bruker E-Scan II EPR Analyzer

  
	

  1.6.4

  	

  Five

  thousand (5,000) Alanine pellets or film

  
	

  1.6.5

  	

  Beam Energy

  Measurement Equipment - Two (2) Certified RISO Aluminum Energy Wedges or

  Plates shall be provided.

  
	

  1.6.6

  	

  Dosimetry

  Computer (PC) and associated software and laser printer.

  
	

  1.6.7

  	

  Equipment

  calibration and procedures.

  
	

  1.6.8

  	

  Packing and

  Freight to the Site.

  
	

  1.7

  	

  Facilities

  and Utilities

  
	

  1.7.1

  	

  General

  design and specification of facility and utility requirements (power,

  compressed air, water, ozone exhaust) associated with the E-beam processes.

  Detail design, structural, and shop drawings will be the responsibility of

  the General Contractor / Salubris.

  
	

  1.7.2

  	

  General

  design and specification of the shielding requirements. SureBeam will be

  responsible for the layout and design of the shield. Salubris and the General

  Contractor will be responsible for the construction of the shield, building,

  and all utilities. Detail design and shop drawings will be the responsibility

  of the General Contractor / Salubris.

  
	

  1.7.3

  	

  Hookup of

  SureBeam equipment to Salubris furnished utilities (power, compressed air,

  water, ozone exhaust).

  
	

  1.8

  	

  Participate

  in design review(s) of Salubris furnished equipment on an as needed basis.

  
	

  1.8.1

  	

  Equipment

  installation, checkout, and system validation to ISO-11137, USDA, and ASTM

  standards

  
	

  1.8.2

  	

  Installation

  and checkout of SureBeam furnished equipment

  
	

  1.8.3

  	

  Hook-up of

  Salubris furnished utilities to SureBeam equipment

  
	

  1.8.4

  	

  Checkout and

  testing of equipment

  
	

  1.8.5

  	

  System

  integration and performance testing

  
	

   

  	

  Validation

  of the system to ISO-11137 requirements:

  
	

  •

  	

  Installation

  Qualification

  
	

  •

  	

  Irradiator

  Dose Mapping

  
	

  •

  	

  Certification

  
	

  1.9

  	

  Maintenance

  system and support – the following maintenance support is provided to augment

  the Salubris provided support:

  

 

10

 

	

  1.9.1

  	

  A

  computerized maintenance system (MPII) will be used to track and schedule the

  maintenance activities. This system will be loaded with maintenance

  instructions and schedules, and maintained to provide a record of maintenance

  activities for regulatory reviews.

  
	

  1.9.2

  	

  On-line link

  connecting the site control system to SureBeam support personnel to provide

  remote diagnostic capability will be provided. Salubris is responsible for

  providing an appropriate telephone line to establish reliable communications.

  
	

  1.9.3

  	

  Two system

  check-ups during the warranty period. SureBeam will check the equipment at

  the site and perform an audit of the system. Additional training shall be

  performed during these site visits

  
	

  1.9.4

  	

  Additional

  service and maintenance support is defined in a separate agreement. Refer to

  the Technical Services Agreement.

  
	

  1.10

  	

  Project

  management, engineering, technical services, and documentation – SureBeam

  will organize and manage the delivery of the SureBeam System and provide the

  following services and support:

  
	

  1.10.1

  	

  Structured

  development methodology (Project Plan, etc.)

  
	

  1.10.2

  	

  Project

  management and engineering

  
	

  1.10.3

  	

  Hazards

  analysis

  
	

  1.10.4

  	

  Radiation

  Survey

  
	

  1.10.5

  	

  Ozone survey

  
	

  1.10.6

  	

  Project documentation

  (Design History Record)

  
	

  1.10.7

  	

  Manuals –

  Operation, Equipment

  
	

  1.10.8

  	

  Documentation

  - drawings, schematics, source code, and logic diagrams to define the system

  
	

  1.11

  	

  System

  Start-up and Operations Support – To ensure proper start-up of the system the

  following technical services are provided:

  
	

  1.11.1

  	

  Operations

  training (processing tasks and procedures, dosimetry).

  
	

  1.11.2

  	

  Assist

  Salubris develop and implement standard operating procedures (SOPs, and HACCP

  Plan) for the overall operation of the System.

  
	

  1.11.3

  	

  Assist

  Salubris perform dose mapping of selected products to be processed – define

  the processing parameters and protocol.

  
	

   

  	

   

  
	

  Salubris Furnished Items and Services

  
	

   

  	

   

  
	

   

  	

  The

  following items or services are to be provided by Salubris:

  
	

   

  	

   

  
	

  1.12

  	

  Land and

  Facility

  
	

  1.12.1

  	

  Land for the

  facility

  
	

  1.12.2

  	

  Detail

  design and construction of the facility. The facility will include all

  equipment need to operate the system not furnished by SureBeam including:

  access roads, parking, truck staging areas, docks, offices, product staging

  areas (in and out), load and unload areas, shield, mechanical and electrical

  sub-systems, lighting (internal and external), cooling equipment, finishes,

  furniture, work stations, maintenance tools, spare parts, and telephones.

  
	

  1.12.3

  	

  Dosimetry

  Lab — 10 x 15 ft.; temperature and humidity controlled with UV filters on

  fluorescent lights.

  

 

11

 

	

  1.12.4

  	

  Equipment

  Room — 15 x 30 ft.; conditioned air, noise protection. Room to contain

  modulator equipment and other LINAC equipment.

  
	

  1.12.5

  	

  Control Room

  – 10 x 10 ft.; temperature controlled; secured access.

  
	

  1.12.6

  	

  Storage and

  work areas – size to be determined

  
	

  1.12.7

  	

  Offices –

  size and functionality to be determined

  
	

  1.12.8

  	

  Implementation

  of concrete shield at the site. Design and specification by SureBeam. The

  shield is designed to provide protection from ionizing radiation generated

  from the interaction of the beam and material. The design requirements for

  the system require that radiation levels in the load and unload areas be <

  20 mSv per year; and in areas such as the Equipment Room the levels can be

  < 20 mSv per 400 hours. Access to the beam area is strictly prohibited

  because the radiation level exceeds 3 mSv per hour. The shield can be

  designed as an external building.

  
	

  1.12.9

  	

  Temporary

  construction offices.

  
	

  1.12.10

  	

  Permits and

  licenses

  
	

  1.13

  	

  Utilities –

  both temporary and permanent utilities. Temporary utilities are required when

  the shield is completed and ready for joint occupancy or use by SureBeam.

  Permanent utilities are required 4 weeks later. The following utilities are

  required for the system equipment:

  
	

  1.13.1

  	

  Compressed

  air – 15 CFM @ 100PSI; two drops

  
	

  1.13.2

  	

  Air

  Compressor for Pneumatic Door – Size TBD

  
	

  1.13.3

  	

  Electrical

  power - Salubris shall supply transformers matching their primary line power

  to the SureBeam accelerators.

  
	

  1.13.4

  	

  Electrical

  power requirements are listed below and pertain to each accelerator included

  in the system. All system voltages are ±10%, 3Φ, 60Hz, 3 wire plus

  ground for 480VAC and 4 wire plus ground for 208 VAC. A panel supplying and

  providing a single point of disconnect for the following sources:

  
	

  1.13.5

  	

  480 VAC ,

  290A each (580A total) -  Linac and

  Modulator Power, water system, and air blower.

  
	

  1.13.6

  	

  208 VAC, 80A

  each (160A total) — Modulator and Linac controls.

  
	

  1.13.7

  	

  Isolated 480

  VAC ±10%, 3φ, 60Hz., 120A, 4 wire plus ground - Material Handling System

  
	

  1.13.8

  	

  480VAC, 100A

  — Pneumatic Door Air Compressor

  
	

  1.13.9

  	

  Building

  electrical power for cooling, lights, or other equipment – to be defined

  
	

  1.13.10

  	

  Ground Rod,

  resistance = 1 W to ground

  
	

  1.13.11

  	

  Heating,

  Ventilation, and Air Conditioning (HVAC) - Conditioned Air 70°F Non

  Condensing to be supplied to Equipment Room. The equipment heat load for the

  HVAC system is 36 kW. Air will be drawn from the room through the cabinets

  and exhausted out the cabinet top through ducting.

  
	

  1.13.12

  	

  Heating,

  Ventilation, and Air Conditioning (HVAC) for the facility – to be defined

  
	

  1.13.13

  	

  Water cooling

  (primary) - Chilled water generated from an overall chilled water system, not

  greater than the values listed in the following table below nor less than 40o

  F (4o C) up to the flow rates listed below, is to be delivered to each

  SureBeam Water Cooling System heat exchanger. The chilled water must run

  through ball valves designed to throttle water flow to each heat

  exchanger.   A

  

 

12

 

flow meter

must be provided to monitor the flow of facility water through each ball valve.

The heat exchanger connections size and type are listed below. Pressure drop

across each SureBeam Water Cooling System is less than 20 PSI (1.4 Bar).  All lines must be flushed prior to connection

of system components with a solution of TSP (Tri-Sodium Phosphate, 1 cup to 10

gallons) and then clear water. The overall Chilled Water System shall have the

capability to continuously operate at 25% of rated capacity. Inlet temperature

and flow may vary depending on the system design.

 

	

  System

  Description

  	

   

  	

  Heat

  Load/

  Ea

  	

   

  	

  Flow

  Rate

  GPM/Ea

  	

   

  	

  Max.

  Inlet

  Temp

  	

   

  	

  Connection

  Size & Type

  	

   

  
	

  SB LX1 LINAC System Water Skid

  	

   

  	

  100kW

  	

   

  	

  60

  	

   

  	

  75 ̊ F

  	

   

  	

  1 1⁄2” hose barb

  	

   

  

 

1.13.14                    Ozone ventilation – Salubris

shall install an Ozone Extraction system to continuously extract ozone from the

process chamber of the Shield Cell. The system shall be designed to maintain a

net negative pressure (> 0.025 Inch. W.C.) inside the cell as compared to

outside the cell at the entrance. The duct system may be installed in or under

the concrete floor of the shield or inside the cell via ductwork running

through the labyrinth. If ductwork inside the cell is chosen, the ductwork must

be 100% stainless steel from the inside of the shield to the ozone exhaust fan

as schematically shown by SureBeam. The fan shall be controlled by a Variable

Frequency Drive Controller that is furnished by SureBeam (max. cap. 5 HP). The

fan and ductwork shall be designed to maintain the minimum net negative

pressure in the cell as specified under a low fan speed setting. It also should

be able to provide exhaust capability of 1 complete air change of the cell

within 3 minutes or less at the maximum design capacity/speed of the fan.

1.13.15                    Interface Control Panel - A

panel housing the following signals:

1.13.16                    Inputs from Salubris to

SureBeam System:

•      One

set dry contacts - Ozone Exhaust Flow

•      One

set dry contacts - Facility Fire Alarm OK

•      One

set dry contacts - HVAC OK

•      One

set dry contacts - Chilled Water OK

1.13.17                    Outputs from SureBeam System

to Salubris:

•      24            VDC relay - E-Beam Fire Alarm

•      24            VDC contactor - Run Ozone Exhaust

Fan

1.13.18                    Lighting — work areas,

rooms, inside shield

1.13.19                    Permits and licenses

1.14         Other Equipment

1.14.1      Maintenance Tools

1.14.2      Fork Trucks, telephones, office equipment, or other processing

equipment

1.14.3      Stretch wrap equipment

1.14.4      Air Compressor and Associated Hardware for Pneumatic Door

 

13

 

1.15         Regulatory compliance (Local agency, US FDA, ISO11137,

TNRCC)

1.15.1      Product qualifications

1.15.2      Process qualifications

1.15.3      Dose determination and setting

1.15.4      Regulatory filings

1.15.5      System modifications required to meet local regulatory or

building department requirements

1.15.6      Salubris system operating procedures

1.16         Other engineering support

1.16.1      A&E services

1.16.2      Application development

 

14

 

System Price

 

The price for the E-Beam System

defined above is as follows:

 

System Price

(SureBeam Deliverables-items 1.1 - 1.13):

	

  •   Base System with 2

  LX1 Accelerators

  	

   

  	

  [...***...]

  
	

  •   Cost to split

  e-beam and x-ray systems into separate projects

  	

   

  	

  [...***...]

  
	

  Subtotal

  	

   

  	

  $8,946,000

  

 

Options

	

  Spare Parts

  	

   

  	

  To be determined

  

 

 

[...***...]

 

 

Payments will be funded through the following

milestone payment schedule:

 

	

  Milestone

  Number

  	

   

  	

  Description

  	

   

  	

  Milestone

  Value (%)

  	

   

  	

  Comments

  
	

  1A

  	

   

  	

  Initial

  Payment of Down Payment

  	

   

  	

  [...***...]

  	

   

  	

  Payment made

  on or before November 1, 2002

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1B

  	

   

  	

  Final

  Payment of Down Payment

  	

   

  	

  [...***...]

  	

   

  	

  Payment made

  on or before December 20, 2002

  
	

  2

  	

   

  	

  System

  Design Complete

  	

   

  	

  [...***...]

  	

   

  	

  Payment made

  on the completion of this milestone. 

  System design refers to the overall design and specification of the

  facility and processing system. The following documentation shall be submitted

  by SureBeam as evidence of the completion of the milestone: general design

  drawings (plan and elevation views) defining the facility layout, utilities

  (single line diagrams), description of operation, and processing equipment

  layouts. In addition, the design of the shield will be defined including the

  information required for regulatory submissions.

  
	

  3

  	

   

  	

  Accelerator

  Factory Test Complete and shipment to the Site

  	

   

  	

  [...***...]

  	

   

  	

  SureBeam

  will assemble and test the accelerator in the factory test cell. Upon successful

  completion of the factory test as witnessed by Salubris, and shipment of the

  equipment the milestone will be complete. The following documentation shall

  be submitted by SureBeam as evidence of the completion of the milestone:

  signed and approved factory test plan, test report defining the test results,

  SureBeam certification of the test results, appropriate bills-of-lading,

  packing list, shipping documents.

  
	

  4

  	

   

  	

  Accelerator

  and Material Handling Equipment Installed

  	

   

  	

  [...***...]

  	

   

  	

  SureBeam

  will install the accelerator and material handling equipment. Once installed

  and powered up in a manual mode the milestone will be complete. The following

  documentation shall be submitted by SureBeam as evidence of the completion of

  the milestone: Salubris approved checklist certifying the installation and

  power up of the equipment.

  
	

  5

  	

   

  	

  System

  Acceptance Test Complete

  	

   

  	

  [...***...]

  	

   

  	

  Upon

  successful completion of the System Acceptance Test, the milestone will be

  complete. The following documentation shall be submitted by SureBeam as

  evidence of the completion of the milestone: signed and Contractor approved

  Acceptance Test Document, test report defining the test results, Validation

  Report per ISO-11137 requirements.

  
	

   

  	

   

  	

  Total

  	

   

  	

  100%

  	

   

  	

   

  

 

*CONFIDENTIAL TREATMENT REQUESTED

 

15

 

Implementation

Schedule

 

The overall implementation of the system will be completed four months

after SureBeam receives beneficial access and use of the shield, utilities, and

facility provided by Salubris. The overall project is expected to take [...***...]

to complete, and is predicated upon Salubris’ furnishing their deliverables by

[...***...]. We expect completion of major milestones to approximate the following

schedule:

 

	

  Event

  	

   

  	

  Months after Award

  
	

  Contract Award

  	

   

  	

  [...***...]

  
	

  System Design Complete (joint SureBeam and Salubris effort)

  	

   

  	

  [...***...]

  
	

  Shipment of Material Handling & Controls Equipment

  	

   

  	

  [...***...]

  
	

  Substantial completion of shield, facility and utilities (by

  Salubris)

  	

   

  	

  [...***...]

  
	

  LINAC Factory Demo

  	

   

  	

  [...***...]

  
	

  Building Construction Complete (permanent utilities available)

  	

   

  	

  [...***...]

  
	

  Accelerator On Site

  	

   

  	

  [...***...]

  
	

  MH & Controls Installation Complete

  	

   

  	

  [...***...]

  
	

  Accelerator Installation Complete

  	

   

  	

  [...***...]

  
	

  System Integration & Test Complete

  	

   

  	

  [...***...]

  
	

  Acceptance Test Complete

  	

   

  	

  [...***...]

  

 

 

We hope this information will assist you in your efforts to implement

Electron Beam processing at your Fort Worth facility.   We at SureBeam enjoy working with you and look forward to

assisting you as we move forward with the “next step”.

 

The transaction and negotiations contemplated by this Proposal may not

be abandoned or terminated by Salubris. 

The parties agree that each shall be liable for the payment of all of

their own expenses and fees associated with the negotiation of this Proposal

and the Agreement.

 

The laws of the State of Texas will govern this Proposal, and both

parties acknowledge and agree that this Proposal, as governed by the RIGHT OF

FIRST NEGOTIATION AGREEMENT dated March 22, 2002 entered into between the

parties constitutes an agreement among the parties hereto with respect to the

subject matter hereof, and supersedes all prior and contemporaneous agreements

and understandings, inducements, or conditions, express or implied, oral, or

written, except as herein contained. 

This Proposal may not be modified or amended other than by an agreement

in writing signed by an authorized representative of each party hereto (as

designated from time to time by such party).

 

16

 

Proposal Agreed to by:

 

	

  SureBeam Corporation

  	

  Salubris Limited Partnership

  
	

   

  	

   

  
	

  By:

  	

   /s/  J. Thomas

  Allen

  	

   

  	

  By:

  	

   /s/  Dean Davis

  	

   

  
	

  Name:

  	

  J. Thomas Allen

  	

   

  	

  Name:

  	

  Dean Davis

  	

   

  
	

  Title:

  	

  Vice President

  	

   

  	

  Title:

  	

  Managing Partner

  	

   

  
	

   

  	

   

  
	

  cc:

  	

  Kevin Claudio — SureBeam

  
	

   

  	

  Larry Oberkfell – SureBeam

  
	

   

  	

  David Rane - SureBeam

  
	

   

  	

  George Sullivan – SureBeam

  
	

   

  	

   

  
	

  Attachment:   Overall System Layout

  
									

 

17

 

EXHIBIT B

MILESTONES

 

 

1.             Implementation Milestones

 

(a)           The overall implementation of the

system will be completed four months after SureBeam receives beneficial access

and use of the shield, utilities, and facility provided by Buyer. The overall

project is expected to take [...***...] to complete, and is predicated upon Buyer’s

furnishing their deliverables by [...***...] (“Buyer Milestones”).

 

We expect the major milestones

to approximate the following schedule:

 

 

	

  Event

  	

   

  	

  Months after Execution of Agreement

  
	

  Contract

  Award

  	

   

  	

  [...***...]

  
	

  System

  Design complete (joint Seller and Buyer effort)

  	

   

  	

  [...***...]

  
	

  Shipment of

  Material Handling & Controls Equipment

  	

   

  	

  [...***...]

  
	

  Substantial

  completion of shield, facility and utilities (by Buyer)

  	

   

  	

  [...***...]

  
	

  LINAC

  Factory Demo

  	

   

  	

  [...***...]

  
	

  Building

  Construction Complete (permanent utilities available)

  	

   

  	

  [...***...]

  
	

  Accelerator

  On Site

  	

   

  	

  [...***...]

  
	

  MH &

  Controls installation complete

  	

   

  	

  [...***...]

  
	

  Accelerator

  installation complete

  	

   

  	

  [...***...]

  
	

  System

  Integration & Test complete

  	

   

  	

  [...***...]

  
	

  Acceptance

  Test complete

  	

   

  	

  [...***...]

  

 

*CONFIDENTIAL TREATMENT REQUESTED

 

18

 

EXHIBIT C

PAYMENT SCHEDULE

 

 

C1           SYSTEM

PRICE 

 

1.             The price for the system defined above is as follows:

 

	

  System Price

  (Exhibit A items 1.1 – 1.13)

  	

   

  	

  [...***...]

  
	

  Options (not

  included in base price):

  	

   

  	

   

  
	

  Cost to

  split e-beam and x-ray systems into separate projects

  	

   

  	

  [...***...]

  
	

   

  	

   

  	

   

  
	

  Spare parts,

  tools

  	

   

  	

  To be

  determined

  

 

2.             [...***...]

 

 

3.             Payments will be made by bank wire to the bank account

designated by Seller, and based upon the Payment Terms as outlined below.

 

Payment Terms

 

1.             The System Price to be paid by Buyer to Seller shall be

paid in installments in accordance with the following payment schedule:

 

 

(a)           Payment

of [...***...] to be made on or before November 1, 2002;

(b)           Payment

of [...***...] to be made on or before December 20, 2002;

(c)           Payment

of [...***...] to be made on the completion of the System Design.  “System Design” refers to the overall design

and specification of the facility and processing system. The following

documentation shall be submitted by SureBeam as evidence of the completion of

the milestone: general design drawings (plan and elevation views) defining the

facility layout, utilities (single line diagrams), description of operation,

and processing equipment layouts. In addition, the design of the shield will be

defined including the information required for regulatory submissions;

(d)           Payment of  [...***...] to be made on completion of the accelerator factory test

and shipment of the accelerator to the Site. 

SureBeam will assemble and test the accelerator in the factory test cell.

Upon successful completion of the factory test as witnessed by Salubris, and

shipment of the equipment the milestone will be complete. The following

documentation shall be submitted by SureBeam as evidence of the completion of

the milestone: signed and approved

 

19

 

factory test plan, test report

defining the test results, SureBeam certification of the test results,

appropriate bills-of-lading, packing list, shipping documents;

(e)           Payment of [...***...] to be made on

completion of the accelerator and material handling equipment

installation.  SureBeam will install the

accelerator and material handling equipment. Once installed and powered up in a

manual mode the milestone will be complete. The following documentation shall

be submitted by SureBeam as evidence of the completion of the milestone:

Salubris approved checklist certifying the installation and power up of the

equipment; and

(e)           Payment of [...***...] to be made on

completion of the System Acceptance Test. 

Upon successful completion of the System Acceptance Test, the milestone

will be complete. The following documentation shall be submitted by SureBeam as

evidence of the completion of the milestone: signed and Contractor approved

Acceptance Test Document, test report defining the test results, Validation

Report per ISO-11137 requirements.

 

C2      

ROYALTY FEE

1.             In accordance with this Agreement, Buyer shall pay

Seller a Royalty Fee equal to the following:

 

(a)                                  [...***...]

per pound of Products for which Processing Services are provided by Buyer

during a calendar year until the cumulative number of pounds of Products for

which Processing Services are so provided during such calendar year equals

[...***...] pounds (provided, however, that the total amount of Royalty

Fees due and payable hereunder for any portion of a calendar year until the

cumulative number of pounds of Products for which Processing Services are so

provided during a calendar year equals [...***...] pounds, shall not exceed an

amount equal to [...***...] of Gross Processing Receipts with respect to such

portion of the applicable calendar year);

 

(b)                                 [...***...]

per pound of Products for which Processing Services are provided by Buyer

during a calendar year after the cumulative number of pounds of Products for

which Processing Services are so provided during such calendar year equals

[...***...] pounds until the cumulative number of pounds of Products for which

Processing Services are so provided during such calendar year equals [...***...]

pounds (provided, however, that the total amount of Royalty Fees

due and payable hereunder for any portion of a calendar year after the

cumulative number of pounds of Products for which Processing Services are so

provided during a calendar year equals [...***...] pounds until the cumulative

number of pounds of Products for which Processing Services are so provided

during a calendar year equals [...***...] pounds, shall not exceed an amount equal

to [...***...] of Gross Processing Receipts with respect to such portion of the

applicable calendar year);

 

(c)                                  [...***...]

per pound of Products for which Processing Services are provided by Buyer

during a calendar year after the cumulative number of pounds of Products

 

20

 

for which

Processing Services are so provided during such calendar year equals [...***...]

pounds until the cumulative number of pounds of Products for which Processing

Services are so provided during such calendar year equals [...***...] pounds (provided,

however, that the total amount of Royalty Fees due and payable hereunder

for any portion of a calendar year after the cumulative number of pounds of

Products for which Processing Services are so provided during a calendar year

equals [...***...] pounds until the cumulative number of pounds of Products for

which Processing Services are so provided during a calendar year equals [...***...]

pounds, shall not exceed an amount equal to [...***...] of Gross Processing

Receipts with respect to such portion of the applicable calendar year);

 

(d)                                 [...***...]

per pound of Products for which Processing Services are provided by Buyer

during a calendar year after the cumulative number of pounds of Products for

which Processing Services are so provided during such calendar year equals

[...***...] pounds until the cumulative number of pounds of Products for which

Processing Services are so provided during such calendar year equals [...***...]

pounds (provided, however, that the total amount of Royalty Fees

due and payable hereunder for any portion of a calendar year after the

cumulative number of pounds of Products for which Processing Services are so

provided during a calendar year equals [...***...] pounds until the cumulative

number of pounds of Products for which Processing Services are so provided

during a calendar year equals [...***...] pounds, shall not exceed an amount equal

to [...***...] of Gross Processing Receipts with respect to such portion of the

applicable calendar year); and

 

(e)                                  [...***...]

per pound of Products for which Processing Services are provided by Buyer

during a calendar year after the cumulative number of pounds of Products for

which Processing Services are provided during such calendar year for volumes

greater than [...***...] pounds (provided, however, that the total

amount of Royalty Fees due and payable hereunder for any portion of a calendar

year after the cumulative number of pounds of Products for which Processing

Services are so provided during a calendar year equals [...***...] pounds, shall

not exceed an amount equal to [...***...] of Gross Processing Receipts with respect

to such portion of the applicable calendar year).

 

21

 

EXHIBIT D

THIRD PARTY

MANUFACTURER WARRANTIES

 

 

( Not Applicable )

 

22

 

EXHIBIT E

LICENSE AGREEMENT

 

 

( Separately Provided )

 

23EXHIBIT 10.21

 

THIRD AMENDMENT TO CREDIT

AGREEMENT

 

 

                THIS THIRD

AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of

September 30, 2002, by and between Northwest Pipe Company, an Oregon

corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

 

RECITALS

 

                WHEREAS, Borrower

is currently indebted to Bank pursuant to the terms and conditions of that

certain Credit Agreement between Borrower and Bank dated as of May 30, 2001, as

amended from time to time (“Credit Agreement”).

 

                WHEREAS, Bank and

Borrower have agreed to certain changes in the terms and conditions set forth

in the Credit Agreement and have agreed to amend the Credit Agreement to

reflect said changes.

 

                NOW, THEREFORE,

for valuable consideration, the receipt and sufficiency of which are hereby

acknowledged, the parties hereto agree that the Credit Agreement shall be

amended as follows:

 

                1.  Section 1.1 (a) is hereby amended (a)

by deleting “September 30, 2003” as the last day on which Bank will make

advances under the Line of Credit, and by substituting for said date “June 30,

2004,” and (b) by deleting “Thirty Million Dollars ($30,000,000.00)” as the

maximum principal amount available under the Line of Credit, and by

substituting for said amount “Forty Million Dollars ($40,000,000.00),” with

such changes to be effective upon the execution and delivery to Bank of a

promissory note substantially in the form of Exhibit A attached hereto

(which promissory note shall replace and be deemed the Line of Credit Note defined

in and made pursuant to the Credit Agreement) and all other contracts,

instruments and documents required by Bank to evidence such change.

 

                2.             Section 1.2. (c) is hereby

deleted in its entirety, and the following substituted therefor:

 

                                                                         “Commitment

Fee.  Borrower shall pay to Bank an

annual non-refundable commitment fee for the Line of Credit equal to Fifteen

Thousand Dollars ($15,000.00).”

 

                3.             Section 1.4. is hereby deleted

in its entirety, without substitution.

 

 

4.             Section 4.9

(b) is hereby deleted in its entirety, and the following substituted therefor:

 

“(b)         EBITDA

Coverage Ratio not less than 1.30 to 1.0, determined as of each fiscal quarter

end on a trailing four (4) fiscal quarter basis, increasing to 1.35 to 1.0 at

December 31, 2002; increasing to 1.40 to 1.0 at March 31, 2003; increasing to

1.45 to 1.0 at June 30, 2003; increasing to 1.50 to 1.0 at September 30, 2003

thereafter; with “EBITDA” defined as net profit before tax plus interest

expense (net of capitalized interest expense), depreciation expense and

amortization expense, and with “EBITDA Coverage Ratio” defined as EBITDA

divided by the aggregate of total interest expense plus the prior period

current maturity of long-term debt, the prior period current maturity of

capital leases and the prior period current maturity of subordinated debt.

Prior period current maturity of long-term debt (“CMLTD”), defined to include

the $10.7MM in annual senior debt payments as scheduled (whether classified

long term or short term).”

 

                5.             Section 4.9 (c) is hereby

deleted in its entirety, and the following substituted therefor:

 

“(c)         Ratio

of Funded debt to EBITDA, determined as of each fiscal quarter end on a

trailing four (4) fiscal quarter basis, not greater than 3.35 to 1.00 to and

including September 30, 2002, and 3.30 to 

 

 

1.00 thereafter, with “Funded Debt” defined as the aggregate of

all interest bearing obligations, inclusive of (without duplication) letters of

credit excluding undrawn letters of credit, capital leases and guaranteed indebtedness,

and with “EBITDA” as defined above.”

 

                6.             Except as specifically provided

herein, all terms and conditions of the Credit Agreement remain in full force

and effect, without waiver or modification. 

All terms defined in the Credit Agreement shall have the same meaning

when used in this Amendment.  This

Amendment and the Credit Agreement shall be read together, as one document.

 

                7.             Except as provided in Schedule I

attached hereto, Borrower hereby remakes all representations and warranties

contained in the Credit Agreement (provided, however, as to the representations

contained in Section 2.5 of the Credit Agreement, Borrower represents only that

those representations were true as of the date of the Credit Agreement) and

reaffirms all covenants set forth therein as previously modified and modified

herein.

 

UNDER

OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER

OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR

PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S

RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE

ENFORCEABLE.

 

                IN

WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed

as of the day and year first written above.

 

	

   

  	

  WELLS

  FARGO BANK,

  	

   

  
	

  Northwest

  Pipe Company

  	

   

  	

  NATIONAL

  ASSOCIATION

  
	

   

  	

   

  
	

  By: /s/ John D Murakami______________________

  	

  By: /s/ S Myers_________________

  
	

   

  	

  John D. Murakami, Vice President/CFO

  	

  Stanton Myers, Relationship Manager

  	

   

  
							

 

 

 

REVOLVING LINE OF CREDIT NOTE

 

 

$40,000,000.00                                                                                                                                                         Portland,

Oregon

September 30, 2002

 

                FOR VALUE

RECEIVED, the undersigned NORTHWEST PIPE COMPANY (“Borrower”) promises to pay

to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office

at Portland RCBO, 1300 S.W. Fifth Avenue T-13, Portland, Oregon, or at such

other place as the holder hereof may designate, in lawful money of the United

States of America and in immediately available funds, the principal sum of

Forty Million Dollars ($40,000,000.00), or so much thereof as may be advanced

and be outstanding, with interest thereon, to be computed on each advance from

the date of its disbursement as set forth herein.

 

DEFINITIONS:

 

                As used herein,

the following terms shall have the meanings set forth after each, and any other

term defined in this Note shall have the meaning set forth at the place

defined:

 

                (a)           “Business Day” means any day except a

Saturday, Sunday or any other day on which commercial banks in Oregon are

authorized or required by law to close.

 

                (b)           “Fixed Rate Term” means a period

commencing on a Business Day and continuing for 1, 2, 3 or 6 months, as

designated by Borrower, during which all or a portion of the outstanding

principal balance of this Note bears interest determined in relation to LIBOR;

provided however, that no Fixed Rate Term may be selected for a principal

amount less than Two Hundred and Fifty Thousand Dollars ($250,000.00); and

provided further, that no Fixed Rate Term shall extend beyond the scheduled

maturity date hereof.  If any Fixed Rate

Term would end on a day which is not a Business Day, then such Fixed Rate Term

shall be extended to the next succeeding Business Day.

 

                (c)           “LIBOR” means the rate per annum

(rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined

pursuant to the following formula:

 

	

  LIBOR =

  	

  Base LIBOR

  	

   

  
	

   

  	

  100% - LIBOR Reserve Percentage

  	

   

  

 

                (i)            “Base LIBOR” means the rate per

annum for United States dollar deposits quoted by Bank as the Inter-Bank Market

Offered Rate, with the understanding that such rate is quoted by Bank for the

purpose of calculating effective rates of interest for loans making reference

thereto, on the first day of a Fixed Rate Term for delivery of funds on said

date for a period of time approximately equal to the number of days in such

Fixed Rate Term and in an amount approximately equal to the principal amount to

which such Fixed Rate Term applies. 

Borrower understands and agrees that Bank may base its quotation of the

Inter-Bank Market Offered Rate upon such offers or other market indicators of

the Inter-Bank Market as Bank in its discretion deems appropriate including,

but not limited to, the rate offered for U.S. dollar deposits on the London

Inter-Bank Market.

 

(ii)           “LIBOR

Reserve Percentage” means the reserve percentage prescribed by the Board of

Governors of the Federal Reserve System (or any successor) for “Eurocurrency

Liabilities” (as defined in Regulation D of the Federal Reserve Board, as

amended), adjusted by Bank for expected changes in such reserve percentage during

the applicable Fixed Rate Term.

 

                (d)           “Prime Rate” means at any time the

rate of interest most recently announced within Bank at its principal office as

its Prime Rate, with the understanding that the Prime Rate is one of Bank’s

base rates and serves as the basis upon which effective rates of interest are

calculated for those loans making reference thereto, and is evidenced by the

recording thereof after its announcement in such internal publication or

publications as Bank may designate.

 

 

INTEREST:

 

                (a)           Interest.  The outstanding principal balance of this

Note shall bear interest (computed on the basis of a 360–day year, actual

days elapsed) either (i) at a fluctuating rate per annum one quarter of one

percent (.25%) below the Prime Rate in effect from time to time, or (ii) at a

fixed rate per annum determined by Bank to be two percent above LIBOR in effect

of the first day of each Fixed Rate Term. 

When interest is determined in relation to the Prime Rate, each change

in the rate of interest hereunder shall become effective on the date each Prime

Rate change is announced within Bank. 

With respect to each LIBOR selection hereunder, Bank is hereby

authorized to note the date, principal amount, interest rate and Fixed Rate

Term applicable thereto and any payments made thereon on Bank’s books and

records (either manually or by electronic entry) and/or on any schedule

attached to this Note, which notations shall be prima facie evidence of the

accuracy of the information noted.

 

                (b)           Selection of Interest Rate

Options.  At any time any portion of

this Note bears interest determined in relation to LIBOR, it may be continued

by Borrower at the end of the Fixed Rate Term applicable thereto so that all or

a portion thereof bears interest determined in relation to the Prime Rate or to

LIBOR for a new Fixed Rate Term designated by Borrower.  At any time any portion of this Note bears

interest determined in relation to the Prime Rate, Borrower may convert all or

a portion thereof so that it bears interest determined in relation to LIBOR for

a Fixed Rate Term designated by Borrower. 

At such time as Borrower requests an advance hereunder or wishes to

select a LIBOR option for all or a portion of the outstanding principal balance

hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice

specifying: (i) the interest rate option selected by Borrower; (ii) the

principal amount subject thereto; and (iii) for each LIBOR selection, the

length of the applicable Fixed Rate Term. Any such notice may be given by

telephone (or such other electronic method as Bank may permit) so long as, with

respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to

Bank written confirmation thereof not later than three (3) Business Days after

such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m.

on the first day of the Fixed Rate Term, or at a later time during any Business

Day if Bank, at it’s sole option but without obligation to do so, accepts

Borrower’s notice and quotes a fixed rate to Borrower.  If Borrower does not immediately accept a

fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent

LIBOR request from Borrower shall be subject to a redetermination by Bank of

the applicable fixed rate.  If no specific

designation of interest is made at the time any advance is requested hereunder

or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a

Prime Rate interest selection for such advance or the principal amount to which

such Fixed Rate Term applied.

 

                 (c)          Taxes

and Regulatory Costs.  Borrower

shall pay to Bank immediately upon demand, in addition to any other amounts due

or to become due hereunder, any and all (i) withholdings, interest equalization

taxes, stamp taxes or other taxes (except income and franchise taxes) imposed

by any domestic or foreign governmental authority and related in any manner to

LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR

Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance

Corporation, or similar requirements or costs imposed by any domestic or

foreign governmental authority or resulting from compliance by Bank with any

request or directive (whether or not having the force of law) from any central

bank or other governmental authority and related in any manner to LIBOR to the

extent they are not included in the calculation of LIBOR.  In determining which of the foregoing are

attributable to any LIBOR option available to Borrower hereunder, any

reasonable allocation made by Bank among its operations shall be conclusive and

binding upon Borrower.

 

                (d)           Payment of Interest.  Interest accrued on this Note shall be

payable on the last day of each Month, commencing October 31, 2002.

 

(e)           Default Interest. 

From and after the maturity date of this Note, or such earlier date as

all principal owing hereunder becomes due and payable by acceleration or

otherwise, the outstanding principal balance of this Note shall bear interest

until paid in full at an increased rate per annum (computed on the basis of a

360-day year, actual days elapsed) equal to three percent (3%) above the rate

of interest from time to time applicable to the credit agreement dated May 30,

2001.

 

 

BORROWING AND REPAYMENT:

 

                (a)           Borrowing and Repayment.  Borrower may from time to time during the

term of this Note borrow, partially or wholly repay its outstanding borrowings,

and reborrow, subject to all of the limitations, terms and conditions of this

Note and of any document executed in connection with or governing this Note;

provided however, that the total outstanding borrowings under this Note shall

not at any time exceed the principal amount stated above.  The unpaid principal balance of this

obligation at any time shall be the total amounts advanced hereunder by the

holder hereof less the amount of principal payments made hereon by or for any

Borrower, which balance may be endorsed hereon from time to time by the

holder.  The outstanding principal

balance of this Note shall be due and payable in full on June 30, 2004.

 

                (b)           Advances.  Advances hereunder, to the total amount of

the principal sum stated above, may be made by the holder at the oral or

written request of (i) Paul Parsons, Mike Van Note, Al Rose or John Murakami,

any one acting alone, who are authorized to request advances and direct the

disposition of any advances until written notice of the revocation of such

authority is received by the holder at the office designated above, or (ii) any

person, with respect to advances deposited to the credit of any deposit account

of any Borrower, which advances, when so deposited, shall be conclusively

presumed to have been made to or for the benefit of each Borrower regardless of

the fact that persons other than those authorized to request advances may have

authority to draw against such account. 

The holder shall have no obligation to determine whether any person

requesting an advance is or has been authorized by any Borrower.

 

                (c)           Application of Payments.  Each payment made on this Note shall be credited

first, to any interest then due and second, to the outstanding principal

balance hereof.  All payments credited

to principal shall be applied first, to the outstanding principal balance of

this Note which bears interest determined in relation to the Prime Rate, if

any, and second, to the outstanding principal balance of this Note which bears

interest determined in relation to LIBOR, with such payments applied to the

oldest Fixed Rate Term first.

 

PREPAYMENT:

 

                (a)           Prime Rate.  Borrower may prepay principal on any portion

of this Note which bears interest determined in relation to the Prime Rate at

any time, in any amount and without penalty.

 

                (b)           LIBOR.  Borrower may prepay principal on any portion

of this Note which bears interest determined in relation to LIBOR at any time

and in the minimum amount of One Hundred Thousand Dollars ($100,000.00);

provided however, that if the outstanding principal balance of such portion of

this Note is less than said amount, the minimum prepayment amount shall be the

entire outstanding principal balance thereof. 

In consideration of Bank providing this prepayment option to Borrower,

or if any such portion of this Note shall become due and payable at any time

prior to the last day of the Fixed Rate Term applicable thereto by acceleration

or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is

the sum of the discounted monthly differences for each month from the month of

prepayment through the month in which such Fixed Rate Term matures, calculated

as follows for each such month:

 

                                                                         (i)            Determine

the amount of interest which would have accrued each month on the amount

prepaid at the interest rate applicable to such amount had it remained

outstanding until the last day of the Fixed Rate Term applicable thereto.

 

                                                                      (ii)            Subtract

from the amount determined in (i) above the amount of interest which would have

accrued for the same month on the amount prepaid for the remaining term of such

Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made

for such term and in a principal amount equal to the amount prepaid.

 

                                                                   (iii)            If

the result obtained in (ii) for any month is greater than zero, discount that

difference by LIBOR used in (ii) above.

 

 

Each Borrower acknowledges that prepayment of such amount may result in

Bank incurring additional costs, expenses and/or liabilities, and that it is

difficult to ascertain the full extent of such costs, expenses and/or

liabilities.  Each Borrower, therefore,

agrees to pay the above–described prepayment fee and agrees that said

amount represents a reasonable estimate of the prepayment costs, expenses

and/or liabilities of Bank.  If Borrower

fails to pay any prepayment fee when due, the amount of such prepayment fee

shall thereafter bear interest until paid at a rate per annum two percent

(2.00%) above the Prime Rate in effect from time to time (computed on the basis

of a 360–day year, actual days elapsed). 

Each change in the rate of interest on any such past due prepayment fee

shall become effective on the date each Prime Rate change is announced within

Bank.

 

EVENTS OF DEFAULT:

 

                This

Note is made pursuant to and is subject to the terms and conditions of that

certain Credit Agreement between Borrower and Bank dated as of May 30th, 2001,

as amended from time to time (the “Credit Agreement”).  Any default in the payment or performance of

any obligation under this Note, after the expiration of any applicable notice

or cure periods as may be provided in the Credit Agreement, or any defined

event of default under the Credit Agreement, shall constitute an “Event of

Default” under this Note.

 

MISCELLANEOUS:

 

                (a)           Remedies.  Upon the occurrence of any Event of Default,

the holder of this Note, at the holder’s option, may declare all sums of

principal and interest outstanding hereunder to be immediately due and payable

without presentment, demand, notice of nonperformance, notice of protest,

protest or notice of dishonor, all of which are expressly waived by each

Borrower, and the obligation, if any, of the holder to extend any further

credit hereunder shall immediately cease and terminate.  Each Borrower shall pay to the holder

immediately upon demand the full amount of all payments, advances, charges,

costs and expenses, including reasonable attorneys’ fees (to include outside

counsel fees and all allocated costs of the holder’s in–house counsel),

expended or incurred by the holder in connection with the enforcement of the

holder’s rights and/or the collection of any amounts which become due to the

holder under this Note, and the prosecution or defense of any action in any way

related to this Note, including without limitation, any action for declaratory

relief, whether incurred at the trial or appellate level, in an arbitration

proceeding or otherwise, and including any of the foregoing incurred in

connection with any bankruptcy proceeding (including without limitation, any

adversary proceeding, contested matter or motion brought by Bank or any other

person) relating to any Borrower or any other person or entity.

 

                (b)           Obligations Joint and Several.  Should more than one person or entity sign

this Note as a Borrower, the obligations of each such Borrower shall be joint

and several.

 

                (c)           Governing Law.  This Note shall be governed by and construed

in accordance with the laws of the State of Oregon.

 

UNDER

OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER

OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR

PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S

RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE

ENFORCEABLE.

 

                IN WITNESS

WHEREOF, the undersigned has executed this Note as of the date first written

above.

 

NORTHWEST PIPE COMPANY

 

	

  By: /s/ John D Murakami___________________

  	

   

  
	

   

  	

  John D. Murakami, Vice President/CFO

  
			

 

 

ADDENDUM TO PROMISSORY

NOTE

(LIBOR PRICING

ADJUSTMENTS)

 

 

                THIS ADDENDUM is

attached to and made a part of that certain promissory note executed by

NORTHWEST PIPE COMPANY (“Borrower”) and payable to WELLS FARGO BANK, NATIONAL

ASSOCIATION (“Bank”), or order, dated as of September 30, 2002, in the

principal amount of Forty Million Dollars ($40,000,000.00) (the “Note”).

 

                The following

provisions are hereby incorporated into the Note to reflect the interest rate

adjustments agreed to by Bank and Borrower:

 

INTEREST RATE ADJUSTMENTS:

 

                (a)           Initial LIBOR Margin.  The initial LIBOR margin applicable to this

Note shall be as set forth in the “Interest” paragraph herein.

 

                (b)           LIBOR Rate Adjustments.  Bank shall adjust the LIBOR margin used to

determine the rate of interest applicable to LIBOR options selected by Borrower

under this Note on a quarterly basis, commencing with Borrower’s fiscal quarter

ending June 30, 2002, if required to reflect a change in Borrower’s ratio of

Ratio of Funded debt to EBITDA (as defined in the Credit Agreement referenced

herein), in accordance with the following grid:

	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Applicable

  
	

  Funded Debt to

  	

   

  	

  LIBOR

  
	

  EBITDA

  	

   

  	

  Margin

  
	

   

  	

   

  	

   

  
	

  3.00 to 1.0 or greater

  	

   

  	

  3.25%

  
	

   

  	

   

  	

   

  
	

  at least 2.75 to 1.0 but

  	

   

  	

   

  
	

  equal to or less than 3.00 to 1.0

  	

   

  	

  3.00%

  
	

   

  	

   

  	

   

  
	

  at least 2.50 to 1.0 but

  	

   

  	

   

  
	

  equal to or less than 2.75 to 1.0

  	

   

  	

  2.75%

  
	

   

  	

   

  	

   

  
	

  at least 2.00 to 1.0 but

  	

   

  	

   

  
	

  equal to or less than 2.50 to 1.0

  	

   

  	

  1.75%

  
	

   

  	

   

  	

   

  
	

  at least 1.50 to 1.0 but

  	

   

  	

   

  
	

  equal to or less than 2.00 to 1.0

  	

   

  	

  1.50%

  
	

   

  	

   

  	

   

  
	

  Equal to or less than

  1.50 to 1.0

  	

   

  	

  1.25%

  

 

Each such adjustment shall be effective on the first Business Day of

Borrower’s fiscal quarter following the quarter during which Bank receives and

reviews Borrower’s most current quarter-end financial statements in accordance

with any requirements established by Bank for the preparation and delivery

thereof.

 

                IN

WITNESS WHEREOF, this Addendum has been executed as of the same date as the

Note.

 

NORTHWEST PIPE COMPANY

 

	

  By :/s/ John D Murakami____________

  	

   

  
	

   

  	

  John D. Murakami, Vice President/CFO

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