Note 4 — GTI License Agreement
On November 5, 2009, the Company entered into an Amended and Restated License Agreement (the
“New Agreement”) with GTI, replacing the Amended and Restated License Agreement between the Company
and GTI dated August 31, 2006, as amended, or the Original Agreement. Under the New Agreement, the
Company maintains its exclusive worldwide right to license the U-GAS® technology for all types of
coals and coal/biomass mixtures with coal content exceeding 60%, as well as the non-exclusive right
to license the U-GAS® technology for 100% biomass and coal/biomass blends exceeding 40% biomass.
The New Agreement differs from the Old Agreement most critically by allowing the Company to
sublicense U-GAS® to third parties for coal, coal and biomass mixtures or 100% biomass projects
(subject to the approval of GTI, which approval shall not be unreasonably withheld), with GTI to
share the revenue from such third party licensing fees based on an agreed percentage split (the
“Agreed Percentage”). In addition, the prior obligation to fabricate and put into operation at
least one U-GAS® system for each calendar year of the Original Agreement in order to maintain the
license has been eliminated in the New Agreement.
In order to sublicense any U-GAS® system, the Company is required to comply with certain
requirements set forth in the New Agreement. In the preliminary stage of developing a potential
sublicense, the Company is required to provide notice and certain information regarding the
potential sublicense to GTI and GTI is required to provide notice of approval or non-approval
within ten business days of the date of the notice from the Company, provided that GTI is required
to not unreasonably withhold their approval. If GTI does not respond within that ten business day
period, they are deemed to have approved of the sublicense. The Company is required to provide
updates on any potential sublicenses once every three months during the term of the New Agreement.
The Company is also restricted from offering a competing gasification technology during the term of
the New Agreement.
For each U-GAS® unit which the Company licenses, designs, builds or operates for itself or for
a party other than a sublicensee and which uses coal or a coal and biomass mixture or biomass as
the feed stock, the Company must pay a royalty based upon a calculation using the MMBtu per hour of
dry syngas production of a rated design capacity, payable in installments at the beginning and at
the completion of the construction of a project (the “Standard Royalty”). Although it is calculated
using a different unit of measurement, the Standard Royalty is effectively the same as the royalty
payable to GTI under the Original Agreement. If the Company invests, or has the option to invest,
in a specified percentage of the equity of a third party, and the royalty payable by such third
party for their sublicense exceeds the Standard Royalty, the Company is required to pay to GTI the
Agreed Percentage of such royalty payable by such third party. However, if the royalty payable by
such third party for their sublicense is less than the Standard Royalty, the Company is required to
pay to GTI, in addition to the Agreed Percentage of such royalty payable by such third party, the
Agreed Percentage of its dividends and liquidation proceeds from its equity investment in the third
party. In addition, if the Company receives a carried interest in a third party, and the carried
interest is less than a specified percentage of the equity of such third party, the Company is
required to pay to GTI, in its sole discretion, either (i) the Standard Royalty or (ii) the Agreed
Percentage of the royalty payable to such third party for their sublicense, as well as the Agreed
Percentage of the carried interest. The Company will be required to pay the Standard Royalty to GTI
if the percentage of the equity of a third party that the Company (a) invests in, (b) has an option
to invest in, or (c) receives a carried interest in, exceeds the percentage of the third party
specified in the preceding sentence.
The Company is required to make an annual payment to GTI for each year of the term beginning
December 31, 2010, with such annual payment due by the last day of January of the following year;
provided, however, that the Company is entitled to deduct all royalties paid to GTI in a given year
under the New Agreement from this amount, and
if such royalties exceed the annual payment amount in a given year, the Company is not
required to make the annual payment. The Company accrues the annual royalty expense ratably over
the calendar year as adjusted for any royalties paid during year. The Company must also provide GTI
with a copy of each contract that it enters into relating to a U-GAS® system and report to GTI with
its progress on development of the technology every six months.
For a period of ten years, the Company and GTI are restricted from disclosing any confidential
information (as defined in the New Agreement) to any person other than employees of affiliates or
contractors who are required to deal with such information, and such persons will be bound by the
confidentiality provisions of the New Agreement. The Company has further indemnified GTI and its
affiliates from any liability or loss resulting from unauthorized disclosure or use of any
confidential information that the Company receives.
The term of the New Agreement is the same as the Original Agreement, expiring on August 31,
2016, but may be extended for two additional ten-year periods at the Company’s option.