EXHIBIT 10.3 COLLABORATION AGREEMENT

 

 

COLLABORATION AGREEMENT

THIS AGREEMENT made the 11th day of October, 2006

BETWEEN:

CLEAN POWER TECHNOLOGIES INC., a company duly incorporated pursuant to the laws of the State of Nevada and having an office at 436 - 35 Avenue NW, Calgary, Alberta, Canada T2K 0C1

(“CPTI”)

AND:

MITSUI BABCOCK LIMITED, a company duly registered pursuant to the laws of England and Wales and having its registered head office at 11, The Boulevard, Crawley, West Sussex RH10 1UX, United Kingdom

(“Mitsui Babcock”)

WHEREAS:

A.

CPTI is a public company quoted on the NASD OTC Bulletin Board in the United States of America and is trading under the symbol “CPWE”;

B.

CPTI is involved in the research and development of gas (petrol) and steam and diesel/steam hybrid fuel technologies (the “Hybrid Technologies”);

C.

Mitsui Babcock is a multi-specialist energy services company operating in the thermal power, nuclear, petrochemical, oil and gas and pharmaceutical industries and is a leading international steam generation OEM and supplier of clean and efficient coal powered technology; and

D.

CPTI seeks the participation and collaboration of Mitsui Babcock and Mitsui Babcock wishes to participate and collaborate with CPTI to develop steam accumulator technology (the “Accumulator Technology”) for use in CPTI’s Hybrid Technologies;

NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the parties hereby agree as follows:

1.

DEFINITIONS

(a)

“Accumulator Technology” has the meaning set out in Recital D of this Agreement;

(b)

“Affiliate” of any of the parties hereto means any corporation or entity which is directly or indirectly controlled by the principal of that party or the family member of the principal of that party, or any corporation or entity which is controlled by such family member or combination thereof, whether such control be direct or indirect;

(c)

“Agreement” means this agreement and all schedules hereto;

(d)

“Business Day” means a day other than a Saturday, Sunday or a civic or statutory holiday in Calgary, Alberta, Canada;

(e)

“Collaboration Program” means any and all research programs and associated activities contemplated by CPTI and Mitsui Babcock during the term of this Agreement, which program and activities shall, from time to time, be attached to this Agreement as Schedule “B”;

(f)

“control” includes: (i) the right to exercise a majority of the votes which may be cast at a general meeting of a corporation; and (ii) the right to elect or appoint, directly or indirectly, a majority of the directors of a corporation or other persons who have the right to manage or supervise the management of the affairs and business of the corporation;

(g)

“CPTI Shares” means shares of common stock in the capital of CPTI;

(h)

“Development Costs” means the costs incurred by Mitsui Babcock in relation to the Collaboration Program for the development of the Accumulator Technology;

(i)

“Hybrid Technologies” has the meaning set out in Recital B of this Agreement;

(j)

“ICC Rules” has the meaning set out in Section 9.1(d) of this Agreement;

(k)

“including” means including without limitation or prejudice to the generality of any preceding description, definition, term or phrase;

(l)

“Intellectual Property” means all technology rights and patents rights, which are patented or patentable and developed and/or designed since November 2005 as set out in the attached Schedule “A” or subsequent to the date hereof under this Agreement, including any improvements, refinements, updates, discoveries or inventions related to the Accumulator Technology developed by Mitsui Babcock in the course of or within the Collaboration Program; and

(m)

“Subscription Agreement” means the subscription agreement substantially in the form attached as Schedule “C” for the subscription of CPTI Shares.

2.

SCHEDULES

2.1

The following are the Schedules attached to and incorporated in this Agreement by reference and deemed to be part hereof:

(a)

Schedule A – Intellectual Property;

(b)

Schedule B – Collaboration Program; and

(c)

Schedule C – Subscription Agreement.

3.

COLLABORATION

3.1

CPTI and Mitsui Babcock agree that the aim of the Collaboration Program will be the development of an Accumulator Technology and the process and technologies related thereto for use in the Hybrid Technologies.  The program and activities comprising the Collaboration Program shall be attached, and as amended from time to time, to this Agreement as Schedule “B”;

3.2

Mitsui Babcock will provide all that is necessary or as reasonably requested by CPTI, including scientists, engineers, experts and other personnel, facilities, equipment and materials, under the Collaboration Program to develop the Accumulator Technology with CPTI for use in CPTI’s Hybrid Technologies.

3.3

Mitsui Babcock will fund up to US$400,000 (or, for information purposes, approximately £200,000) towards the Development Costs of the Accumulator Technology under the Collaboration Program and as consideration CPTI will issue to Mitsui Babcock 4,000,000 CPTI Shares.  CPTI will issue to Mitsui Babcock the 4,000,000 CPTI Shares within five Business Days after Mitsui Babcock delivers to CPTI a duly executed Subscription Agreement substantially in the form attached as Schedule “C”.

3.4

Within eighteen months after the first gas (petrol)/steam vehicle is publicly and formally unveiled by either Mitsui or CPTI, Mitsui may, at its option, seek cash reimbursement from CPTI of all or part of the Development Costs that Mitsui has incurred up to US$400,000 (or, for information purposes, approximately £200,000).  Upon the reimbursement of Mitsui by CPTI of the Development Costs amount sought by Mitsui Babcock, Mitsui Babcock will return 3,000,000 CPTI Shares to CPTI and CPTI will cancel such CPTI Shares.

3.5

If Mitsui Babcock provides funds toward the Development Costs of the Accumulator Technology under the Collaboration Program amounting to US$400,000 or more, Mitsui Babcock will have the option to request from CPTI either: (i) cash reimbursement from CPTI of the excess above US$400,000 or (ii) subject to applicable securities laws, the number of CPTI Shares equal in value to the excess above US$400,000 at a price to be negotiated.

3.6

All technology and Intellectual Property that are developed by Mitsui Babcock in connection with the Collaboration Program or the Accumulator Technology and are patentable and/or patented, or otherwise is or may be protected, will at all times belong and be owed solely to CPTI.  Mitsui Babcock will not use such technology or intellectual property in any way without the prior written approval of CPTI.  Any technology or intellectual property which is not patentable, or otherwise protected, may be used by Mitsui Babcock without the prior written approval of CPTI.

3.7

If CPTI is unable to reimburse Mitsui Babcock in accordance with Sections 3.4 or 3.5 hereof, CPTI will transfer an equal share of the intellectual property developed under this Agreement, the Collaboration Program and the Accumulator Technology, whether patented and/or patentable, to Mitsui Babcock, so that such intellectual property will be jointly owned by CPTI and Mitsui Babcock in equal parts.

3.8

Subject to applicable securities laws, CPTI will issue up to 100,000 CPTI Shares, at the direction of Mitsui Babcock, to key personnel or employees of Mitsui Babcock who have participated in development of the Accumulator Technology.  Mitsui Babcock will cause such key personnel or employees to execute and deliver to CPTI a Subscription Agreement substantially in the form attached as Schedule “C” prior to the issuance of the CPTI Shares to such persons.

3.9

CPTI will cause the appointment of Richard Dennis (or such other person nominated from time to time by Mitsui Babcock) to the Board of Directors of CPTI and the appointment of Alastair Fraser (or such other person nominated from time to time by Mitsui Babcock) to the Advisory Board of CPTI, and cause the maintenance of such appointments, to the best of its ability, for as long as Mitsui Babcock owns 2,000,000 shares in CPTI.  Both Richard Dennis and Alastair Fraser are representatives of Mitsui Babcock.

4.

COOPERATION

4.1

Mitsui Babcock shall keep the Board of Directors of CPTI and CPTI’s wholly-owned subsidiary, Clean Power Technologies Limited, fully informed of the status of the Collaboration Program.  Mitsui Babcock shall cause its scientists, engineers and experts to co-operate in the performance of the Collaboration Program.  Mitsui Babcock shall exchange information and materials as necessary with CPTI to carry out the Collaboration Program.

5.

EXPENSES

5.1

Each of CPTI and Mitsui Babcock will bear their respective costs and expenses (including all of their legal fees and expenses) in connection with this Agreement, the actions contemplated by this Agreement and their participation in the Collaboration Program.

6.

DISCLOSURE OF INVENTION

6.1

Mitsui Babcock shall promptly inform CPTI of all inventions that are conceived, made or developed in the course of carrying out the Collaboration Program by its employees, consultants or other personnel or those of its Affiliates.

7.

FILING OF PATENTS

7.1

CPTI will determine at its sole discretion the patents to be filed on the Accumulator Technology or other technology or intellectual property developed or acquired by Mitsui Babcock under the Collaboration Program or this Agreement.  CPTI will determine at its sole discretion the jurisdiction for such patent filing as it may deem appropriate and beneficial to its overall corporate, business or scientific strategies and it will be solely responsible for the actions (including the defense of interferences and similar proceedings) of patent protection for all intellectual property covered under this Agreement.

8.

TERM AND TERMINATION

8.1

This Agreement shall continue in full force and effect until terminated at the end of 36 calendar months from the date hereto.  Prior to the termination of this Agreement, this Agreement may be extended by mutual agreement for a further period as determined by the parties hereto upon mutually agreed upon terms and conditions.

8.2

The parties may terminate this Agreement as provided below:

(a)

CPTI and Mitsui Babcock may terminate this Agreement by mutual written consent at any time;

(b)

CPTI may terminate this Agreement by giving written notice to Mitsui Babcock at any time in the event Mitsui Babcock has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, CPTI has notified Mitsui Babcock of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach; and

(c)

Mitsui Babcock may terminate this Agreement by giving written notice to CPTI at any time in the event CPTI has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Mitsui Babcock has notified CPTI of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach.

8.3

Upon termination of the Agreement or if any party terminates this Agreement pursuant to Section 8.2 above, all rights and obligations of the Parties hereunder shall terminate without any liability of any party to any other party (except for any liability of any party then in breach); provided, however, that the confidentiality provisions contained in Section 10 and the non-competition provisions contained in Section 11 below shall survive termination.

9.

DISPUTE RESOLUTION

9.1

If a dispute arises out of or relates to this Agreement or its breach (the “Matter”), the parties agree to resolve the Matter as follows:

(a)

a party shall submit written notice of the Matter to the other parties and request negotiation;

(b)

the parties shall attempt in good faith to resolve any Matter arising out of or relating to this Agreement promptly by negotiation between representatives which the parties may appoint;

(c)

if the Matter has not been resolved within 60 days of a party’s request for negotiation, either party may request that the Matter be submitted to a sole mediator selected by the parties for mandatory mediation of not more than five days’ duration; and

(d)

if the Matter has not been resolved within 60 days of a party’s request for mediation, either party may request that the Matter be submitted for binding arbitration, to a sole arbitrator in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce as in effect on the date hereof (the “ICC Rules”), except where such ICC Rules conflict with the provisions and spirit of this Agreement in which event the provisions of this Agreement shall prevail.

9.2

If the parties fail to agree on the appointment of the sole arbitrator within 20 days after one party has served the other party a written notice to concur in the appointment of the single arbitrator nominated by the serving party, the sole arbitrator shall be appointed in accordance with the rules governing the arbitration process in England and Wales.  The arbitrator shall have at least 10 years of experience in corporate commercial or intellectual property law. The arbitrator shall render a final award within 20 days following the completion of evidence and arguments on the Matter.

9.3

The parties shall not be entitled to rely on or introduce as evidence before any arbitral proceedings whether or not such proceedings relate to the Matter that is the subject of the negotiations:

(a)

views expressed or suggestions made by another party in respect of a possible settlement of the Matter;

(b)

admissions or proposals made by another party in the course of negotiations; or

(c)

the fact that the other party had indicated his willingness to accept a proposal for settlement made by another party.

9.4

The mediation or arbitration shall be held in London or Brighton in England.  The parties, their representatives, the mediator and the arbitrator shall hold the existence, content and results of any negotiation, mediation or arbitration in confidence unless disclosure is required by law or regulation, and in such case the parties shall take reasonable precautions to only disclose what is required by law or governmental regulation.

9.5

Any award of the arbitration shall be final and binding on the parties and shall be enforceable in any Court having jurisdiction over the party from whom enforcement is requested.

10.

CONFIDENTIAL INFORMATION

10.1

Each party will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to CPTI or destroy, at the request and option of CPTI, all tangible embodiments (and all copies) of the Confidential Information which are in its possession.  In the event that Mitsui Babcock is requested or required pursuant to oral or written question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process to disclose any Confidential Information, Mitsui Babcock will notify CPTI promptly of the request or requirement so that CPTI may seek an appropriate protective order or waive compliance with the provisions of this Section 10.1.  If, in the absence of a protective order or the receipt of a waiver hereunder, Mitsui Babcock is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, Mitsui Babcock may disclose the Confidential Information to the tribunal; provided, however, that Mitsui Babcock shall use its reasonable best efforts to obtain, at the reasonable request of CPTI, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as CPTI shall designate.

10.2

No party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other party; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing party will use its reasonable best efforts to advise the other party prior to making the disclosure).

11.

NON-COMPETITION

11.1

For a period of three years from and after the termination of this Agreement, Mitsui Babcock and its Affiliates will not engage in competition with CPTI in the business of researching, developing, producing, sale, marketing and/or licensing of gas (petrol) and steam and diesel/steam hybrid fuel technologies. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 11.1 is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

12.