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AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
DCH TECHNOLOGY, INC.
(Name of small business issuer in its charter)
Colorado 84-1349374
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
27811 Avenue Hopkins #6
Valencia, California 91355
(Address of principal executive offices, including Zip Code)
Issuer's telephone number, including area code: (661) 775-8120
Securities to be registered pursuant to Section 12(b) of the Act: Not
applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
<PAGE>
PART I
ITEM 1. BUSINESS.
DCH Technology, Inc., a Colorado corporation ("DCH"), seeks out patented
technologies, secures those patented technologies through licensing agreements
with the patent holders and converts the technologies into viable products which
DCH then produces and sells. DCH focuses on technologies related to the use of
hydrogen, primarily hydrogen gas sensors and fuel cells.
History
- -------
DCH was formed in November 1994 as a partnership between David P. Haberman,
DCH's Vice President of Technology and Planning and Chairman of DCH's Board of
Directors, and David A. Walker, DCH's President and a member of the Board of
Directors. DCH's initial strategy was to assist a small engineering company in
Marina Del Rey, California in the manufacturing and sale of aircraft
thermocouples based on the engineering company's design and development work.
DCH initially established offices in Sherman Oaks, California in December
1994. DCH was incorporated in California in January 1995.
By mid-1995, DCH had abandoned the thermocouple business when the local
engineering company's design was found to have irrecoverable flaws. Management
of DCH then re-directed its efforts toward the commercialization of a hydrogen
gas detector developed and patented by Sandia National Laboratories ("Sandia")
in Albuquerque, New Mexico. From this time until mid 1997, DCH funded itself
primarily through research contracts and the resale of aerospace equipment.
After investigating the hydrogen energy industry and related technologies,
management of DCH decided to pursue the licensing of the Sandia patent. In
April 1996, DCH entered into a license with Sandia and began to concentrate on
the production and qualification of the hydrogen sensors. DCH commenced initial
pre-production and qualification of the hydrogen sensors in February 1997, and
continued redesign of the sensors to improve performance and reduce costs.
In May 1997, in an attempt to raise capital and provide a trading market
and liquidity for the stockholders of DCH, all of the outstanding capital stock
of DCH was acquired by Connection Sports, Inc., a publicly traded Colorado
corporation ("CSI") in exchange for the issuance of 6,000,000 shares of CSI
common stock. At the time of the acquisition, CSI was a shell corporation with
no assets, and there was no pre-existing relationship or affiliation between or
among DCH, CSI and their respective officers and directors. CSI's name was
changed after the acquisition to DCH Technology, Inc. This stock exchange
transaction is treated as an acquisition by DCH of the net tangible book value
of the assets of CSI, at the date of the acquisition. In this Registration
Statement, the term "DCH" refers to DCH Technology, Inc., a Colorado
corporation, and DCH Sensors Corp., its wholly owned California subsidiary. DCH
is currently traded on the Over-the-Counter Bulletin Board under the symbol
"DCHT".
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DCH expanded its offices and moved to Valencia, California in June 1998.
This relocation allowed DCH to set up offices, manufacturing and engineering
areas, including a design and engineering laboratory, a test and calibration
laboratory and a manufacturing/assembly area. DCH's offices are located at 27811
Avenue Hopkins #6, Valencia, California 91355; its telephone number is
(661) 775-8120. It also has a Web site, located at http:\\www.dcht.com.
General / Products
- ------------------
DCH seeks out patented technologies, secures those patented technologies
through licensing agreements with the patent holders, and converts the
technologies into viable products which DCH then produces and sells. DCH focuses
on technologies related to the use of hydrogen. To date, DCH has licensed four
technologies: three technologies involving hydrogen gas sensors and one
concerning hydrogen fuel cells. They are:
-- The Robust Hydrogen Sensor, licensed from Sandia National Laboratory.
DCH currently manufacturers products based on this technology. The
Robust Hydrogen Sensor is discussed below under "Hydrogen Gas Sensors--
The Robust Hydrogen Sensor".
-- The Thick Film Hydrogen Sensor, licensed from Oak Ridge National
Laboratory. This technology is still under development. The Thick Film
Hydrogen Sensor is discussed below under "Hydrogen Gas Sensors--Thick
Film Hydrogen Sensor".
-- The Universal Gas Detector, licensed from Simon Fraser University. This
technology is still under development. The Universal Gas Detector is
discussed below under "Hydrogen Gas Sensors--Universal Gas Detector".
-- The PEM Fuel Cell, licensed from Los Alamos National Laboratory. This
technology is still under development. The PEM Fuel Cell is discussed
below under "Fuel Cells--PEM Fuel Cell".
In addition to these technologies, DCH may license an additional
technology, the Fiber Optic Sensor, from the National Renewable Energy
Laboratory. The Fiber Optic Sensor is discussed below under "Hydrogen Gas
Sensors--Fiber Optic Hydrogen Sensor".
Hydrogen Gas Sensors
--------------------
DCH's sensors are used for detection of hydrogen, the most plentiful
element on the earth. Hydrogen is one of two major elements of water, which
covers over 60% of the planet. It appears in different forms in plants, animals,
fossil fuels and a wide range of chemical compounds. Hydrogen is a combustible,
odorless and colorless gas that is widely used in industrial, commercial and
medical applications. When hydrogen burns, it generates only energy and water,
and thus is a clean non-polluting fuel. Based on industry analyses and
investments by several automobile manufacturers in hydrogen-based fuel cells,
DCH believes that in the future, hydrogen may replace fossil fuels in both
electrical power generation and as the fuel of choice for the automotive
industry.
Hydrogen is also the key component in the manufacture of chemicals,
especially ammonia and methanol. It is used in large quantities in refineries
for manufacturing gasoline and heating oil, as well as to make fertilizers,
glass, refined metals, vitamins, cosmetics, semiconductor circuits, soaps,
lubricants, cleaners, margarine, peanut butter and rocket fuel. DCH's sensors
act to monitor and measure the amount of hydrogen used in processes within these
and other industries.
In addition to its uses, however, hydrogen carries certain dangers.
Hydrogen is explosive when it reaches an approximate four percent concentration
in air or oxygen (this is known as the "Lower Explosive Limit" of hydrogen). In
order to avoid these explosions, it is necessary to monitor and measure the
concentration of hydrogen in areas of concern and to either sound warnings as
this danger point is approached or to activate control equipment which results
in the avoidance of hazardous situations. DCH's sensors act to alert, warn,
measure and/or control the flow and use of hydrogen.
Based on industry sources, DCH estimates that the total annual worldwide
sales of gas detectors amounted to approximately $1.09 billion in 1997.
Approximately one-half of these sales involved gas detectors for carbon
monoxide, hydrogen sulfide, ammonia, oxygen and hydrogen, with hydrogen
detectors comprising approximately 9.8% of total sales.
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DCH's technologies have opened additional markets for hydrogen gas sensors.
For example, DCH's sensors have been sold to Westinghouse for installation in
the Leningrad Nuclear Power Plant as safety monitors, as they were the only
economically priced hydrogen gas sensors that could withstand the harsh
environment of a nuclear power plant.
DCH has licensed certain sensor technologies from several sources, and is
currently developing products based on these technologies: the Robust Hydrogen
Sensor, the Thick Film Hydrogen Sensor and the Universal Gas Detector. DCH is
also developing a Fiber Optic Hydrogen Sensor.
The Robust Hydrogen Sensor. The Robust Hydrogen Sensor technology was
--------------------------
invented and patented (patent number 5,279,795) by the U.S. Department of Energy
at Sandia in Albuquerque, New Mexico. The technology, an Applications Specific
Integrated Circuit, or microchip, was developed by Sandia for the U.S.
Department of Defense for a classified nuclear weapons application. After Sandia
had patented the technology, it was made available to the commercial market for
licensing. This process permits the U.S. government to receive royalties and
licensing fees for the technology without expending the resources required to
commercialize products.
DCH licensed the Robust Hydrogen Sensor from Sandia in April 1996. The
Sandia license agreement, which expires on the earlier of January 1, 2015 or the
expiration of Sandia's patent rights, required DCH to pay an up-front license
fee, payable in three equal installments. All of these installments have been
paid. In addition to the license fee, DCH will pay a royalty to Sandia for every
sensor sold (whether sold alone or installed in a device or system), subject to
certain minimum royalties. In 1998 and 1999, DCH paid royalties of $1,000 and
$8,000, respectively, to Sandia under the Sandia license agreement. No royalties
were earned in 1997.
The Robust Hydrogen Sensor technology consists of an array of two sensing
elements: field effect transistors and resistors, both made of palladium nickel.
Hydrogen reacts with the palladium nickel, and the reactions produce changes in
the electrical signal of both devices corresponding to the amount of hydrogen in
the environment. The field effect transistors detect hydrogen in concentrations
from approximately 0.0001% to one percent. The resistors allow sensing from
about one percent to 100% concentration. The technology also includes a micro-
thermometer (temperature diode) and micro-heaters for maintaining on-chip
temperature control and other chip functions. In addition, the heaters are used
to temporarily heat the chip to "boil" off hydrogen molecules, which may stick
to the palladium nickel, thus freeing the sensor for repeated use.
The Sandia license agreement defines two fields of use for the licensed
technology. The first field of use, covering the petrochemical, energy, waste
management, environmental and manufacturing industries, is exclusive to DCH
through
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April 24, 2001. After that date, the license in this field becomes non-exclusive
for the remaining term of the license agreement. The second field of use covers
all other commercial applications and is non-exclusive.
DCH offers the Robust Hydrogen Sensor technology in three basic forms. The
first, an integration kit, is used for installation into customized systems as
leak detectors and measurement devices. The second form consists of a hand-held
unit, affording portability in hydrogen detection and measurement. The third
form is a sensor system, a fixed installation arrangement for leak detection
and/or measurement in remote locations. DCH anticipates that this third product
will have the ability to be remotely interrogated whenever desired, and may be
coupled with a modem or radio tag which could power the sensor and send a
reading back to a computer or other equipment at another location.
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To date, DCH has received over $700,000 in orders for its Robust Hydrogen
Sensor products. The largest of these was received in March 1998, when
Westinghouse Nuclear Products Division (Monroeville, Pennsylvania) placed an
order for a retrofit of the reactor and turbine areas of the Leningrad Nuclear
Power Plant in Russia. Westinghouse Nuclear Products Division was the only
customer that accounted for 10% or more of DCH's gross revenues in fiscal 1998,
accounting for 48% of revenues in that year.
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Thick Film Hydrogen Sensor. The Thick Film Hydrogen Sensor technology was
--------------------------
invented and patented (under U.S. patent numbers 5,367,283 and 5,451,920) by the
U.S. Department of Energy at Oak Ridge National Laboratory in Oak Ridge,
Tennessee ("ORNL"). The sensor, developed by Barbara Hoffheins and Robert Lauf
of ORNL, relies on the fact that palladium absorbs and then discharges
hydrogen.
DCH commenced the development of the Thick Film Hydrogen Sensor technology
from Lockheed Martin Energy Research ("LMER"), an ORNL contractor, in September
1996, pursuant to a Cooperative Research and Development Agreement ("CRADA")
(the "ORNL CRADA"). Under the ORNL CRADA, DCH has provided a business plan and
product definition for commercialization of the technology, while LMER continues
development efforts for certain products based on the technology. The ORNL
CRADA, which expires in September 2001, anticipates an aggregate expenditure, in
cash and in-kind, of $1,170,000.
Concurrently with entering into the CRADA, DCH and LMER entered into a
license agreement. The LMER license grants DCH the sole commercial right and
license to manufacture, use, sell or offer for sale the products based on the
thick film hydrogen sensor technology in the following fields of use: (i)
production, storage and transportation of hydrogen for use in the generation of
power; (ii) use of hydrogen in fuel cells and high yield energy storage; and
(iii) safety applications in the chemical and petroleum industries.
The license has an initial term of five years, with renegotiation for
renewal every five years thereafter. It provides for an initial license fee
(paid by DCH in September 1996) and royalties on sales of products incorporating
the thick film hydrogen sensor technology. To date, no revenues have been
generated from such sales; based on the progress of research and development
efforts to date, management of DCH anticipates that production of products will
commence in approximately 12 to 18 months.
The sensor is fabricated with conventional thick film materials and methods
(primarily because of significant cost advantages). The design consists of
several electronic compositions that are separately screen-printed and fired
onto an alumna substrate. The key sensor composition is primarily composed of
palladium metal because of its documented affinity for hydrogen. Changes in
hydrogen concentration in the palladium correspond to changes in the electrical
resistance of the palladium and can be easily measured.
Universal Gas Detector. A patent application was filed for the Universal
----------------------
Gas Detector technology on March 27, 1998 (priority claimed by United States
Provisional Application 60/041,653). DCH licensed the invention from Simon
Fraser University in Burnaby, British Columbia, Canada on July 28, 1998. The
technology is intended to selectively detect any reducing gas or oxidizing gas
and/or their vapors, and involves a detecting system that can be designed to use
any commercially available sensor head.
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The license grants DCH the exclusive right and license, for any use, to
make, have made, use, maintain, execute, copy, market, lease and sell products
based on the technology.
The license term is from July 28, 1998 until the end of the term for which
patent rights are granted. It provides for an initial license fee (paid by DCH
in April 1998) and royalties on sales of products incorporating the universal
gas detector technology. To date, no revenues have been generated from such
sales; based on research and development efforts to date, management of DCH
anticipates that production of products will commence in approximately 18 to 24
months.
The technology consists of software and electronics, which can be set to
selectively detect any reducing gas or oxidizing gas (and/or their vapors) to
which it is exposed. This involves a detecting system that can be designed to
use any commercially available sensor head.
Fiber Optic Hydrogen Sensor The Fiber Optic Hydrogen Sensor technology
---------------------------
was invented by the U.S. Department of Energy at the National Renewable Energy
Laboratory ("NREL") in Golden, Colorado. DCH, through Amerisen, a joint-venture
with Midwest Research Technology, Inc. ("MRT"), commenced development of the
Fiber Optic Hydrogen Sensor technology in May 1996 pursuant to a CRADA with
NREL. The NREL CRADA required NREL to have primary responsibility for design and
development of a prototype sensor, while Amerisen would develop and manufacture
a hydrogen detector test station and demonstrate the sensor to potential
customers. Each party would contribute in-kind support, valued at an aggregate
of $1,700,000. The NREL CRADA expires in September 2000. The parties are
currently negotiating a license for the Fiber Optic Hydrogen Sensor technology.
There can be no assurance that such a license can be negotiated on terms
acceptable to DCH.
Fuel Cells
----------
The fuel cell was invented by William Robert Grove in 1839. A fuel cell is
a device that uses a fuel (usually hydrogen) to create electricity. The method
it uses to create the electricity is fairly simple: Hydrogen is introduced to
one side of the fuel cell (known as the anode). The hydrogen atom is stripped of
its electron as it progresses through the cell. The electron goes through a
conductor to create an electrical current. At the other end, the hydrogen joins
up with oxygen and forms water.
When a fuel cell is used it creates clean power (electricity) with pure
water as the only byproduct. The amount of power that can be created is
significant. ONSI Corporation, one of DCH's competitors, has manufactured a fuel
cell delivering 200kW of power. Ballard Power Systems, another competitor of
DCH, makes fuel cells used in buses in the U.S. and Canada which generate 205 kW
(275 HP). Fuel cells are being considered for use to power electric vehicles by
many of the major automobile manufacturers.
The fuel cell industry is generally considered to be in its infancy (even
though the basic technology is almost 160 years old), because fuel cells
historically have been large and extremely expensive to manufacture. However,
with the interest and financing from government labs (like Los Alamos National
Lab) and private entities (like Daimler Benz), the fuel cell is quickly becoming
economically viable and physically practical.
PEM Fuel Cell. Several fuel cell manufacturers have indicated that in
-------------
addition to the transportation sector, fuel cells might be used in markets such
as emergency power supplies, medical
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applications, and portable low-power sources. DCH is working with Los Alamos
National Laboratory in Los Alamos, New Mexico ("LANL") to commercialize its
Proton-Exchange-Membrane ("PEM") fuel cell -- a small, stackable device (each
unit is a little smaller than a baseball cap) that will deliver low power (less
than 50 to 500 watts) reliably and cleanly. The current configuration of the PEM
fuel cell is not powerful enough to operate an automobile, but it can provide
enough power for people in third world countries or in an emergency situation or
other venue where no power is present to operate such items as small medical
equipment, communication devices and camping equipment.
The PEM fuel cell technology, relating to annular feed air breathing fuel
cell stacks, was invented and patented (under U.S. patent numbers 5,514,486 and
5,595,834) by the U.S. DOE at LANL. The fuel cell is designed to provide clean,
economic low power (from less than 50W to 5kW).
DCH commenced development of the PEM fuel cell technology with LANL in
March 1999, pursuant to a CRADA (the "LANL CRADA"). Under the LANL CRADA, DCH
has provided a business plan and product definition for commercialization of the
technology, while LANL continues development efforts for 50W and 300W fuel cells
based on the technology. The LANL CRADA for the PEM fuel cell technology expires
in October 2000 and contemplates aggregate development expenditures (in cash and
in-kind) of $1,200,000.
In connection with the LANL CRADA, DCH received two licenses for the PEM
fuel cell technology. The first license grants DCH the exclusive license to
make, have made, use, import, sell and offer to sell the products based on the
patented technology (with sublicense rights) in the fields of use of
power generation for marine, aerospace, military, portable and remote-area
applications. This exclusive license commenced in March 1999 and continues
until the expiration of the last patent on the technology.
The exclusive license agreement provides for an up-front fee (paid by DCH
in March 1999) and annual license fees due on January 31st of each year of the
term of the exclusive license; these fees will be credited against royalties on
net sales of the fuel cells and other payments (such as sublicense fees).
The second license grants DCH the non-exclusive license to make, have made,
use, import, sell and offer to sell the products based on the patented
technology (with sublicense rights) in the all fields of use except power
generation for marine, aerospace, military, portable and remote-area
applications. The nonexclusive license commenced in March 1999 and continues
until the expiration of the last patent on the technology.
The nonexclusive license agreement provides for an up-front fee (paid by
DCH in March 1999) and annual license fees due on January 31st of each year of
the term of the nonexclusive license; these fees will be credited against
royalties on net sales of the fuel cells and other payments (such as sublicense
fees).
To date, no revenues have been generated from sales of fuel cells pursuant
to either the exclusive or nonexclusive licenses; management of DCH anticipates
that based on the progress of DCH research and development efforts, production
of products will commence in approximately 12 to 18 months.
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Marketing and Sales
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Hydrogen Sensors. DCH has devised a marketing strategy for its hydrogen
-----------------
sensors, and is currently in the process of implementing this strategy. DCH's
strategy involves three components: establishing DCH in the "hydrogen
community", comprised of trade groups such as the National Hydrogen Association,
the California Hydrogen Business Council and the Congressional Hydrogen
Technical Advisory Panel; establishing a coalition with the insurance industry
to require use of hydrogen detection systems; and using commissioned independent
sales representatives specializing in particular industries to sell the
Company's products.
The strategy differs in each of DCH's target markets: for example, in the
government/aerospace industries, DCH has utilized contacts with NASA to test its
sensors on certain aircraft engines. Its continuing strategy includes
additional testing on engines, and installation of the sensors at various NASA
sites. In the energy industry, DCH intends to participate in the creation and
refinement of the various codes and standards governing sensor systems as well
as to persuade insurance companies to promote the use of hydrogen sensors as
safety devices. To date, DCH has participated in the associations listed above
and has contracted with companies including Westinghouse to provide hydrogen
sensors. DCH's marketing strategy in the petrochemical industry involves the
introduction of sensors on a test basis to oil refineries through DCH's
pipe corrosion detection feature, a relatively new field of use. DCH also
believes that refineries will recognize the value of its hydrogen sensors as a
cost-saving safety device.
As part of its overall business plan, DCH has entered into strategic
partnerships with several organizations. DCH believes that strategic
partnerships are a key to future growth, especially in the hydrogen gas
detection and measurement business. DCH has identified 34 industries where
hydrogen sensors are used. By creating alliances with value added resellers and
distributors, DCH anticipates that it will be able to penetrate multiple markets
and realize higher sales volumes.
In addition, DCH has made alliances with multiple transformer gas analysis
companies, which are testing DCH equipment for use in transformer cooling oil.
These companies may become VARs of DCH equipment based upon qualification of DCH
sensors in test procedures.
DCH has also formed a strategic relationship with one of its customers,
Hydrogen Burner Technology, Inc. ("HBT"). HBT has purchased hydrogen sensors
from DCH, and also owns certain proprietary technology that DCH may seek to
utilize for its fuel cell business. In October 1998, DCH advanced the sum of
$100,000 to HBT in anticipation of future services. The advance was to be repaid
on or before September 30, 1999. On September 30, 1999, HBT and DCH agreed upon
the services to be performed; HBT also agreed to issue 13,000 shares of its
common stock to DCH in repayment of the advance.
On January 21, 1999, DCH announced the signing of a distribution
agreement with Horiba, Ltd., an international gas analyzer company. The
distribution agreement permits Horiba to distribute and sell products in Japan
based on the Robust Hydrogen
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Sensor technology, utilizing both the DCH Hand Held Unit design and integrating
DCH electronics into a Horiba gas analyzer. The Horiba distribution agreement
has a term of one year, but will be automatically renewed for a five-year term
if Horiba sells 50 of such products during such year.
DCH plans to use distributors to market its products overseas and
currently has agreements with ten distributors worldwide for the Robust Hydrogen
Sensor product line.
DCH also has increased its visibility by providing presentations at
national and international conferences advocating the use of hydrogen sensors.
DCH has also participated in the formation of a coalition to provide
insurance industry risk assessments.
Fuel Cells. DCH has developed a marketing plan for its fuel cell----------
product line, targeting certain domestic and international markets. The plan has
not been fully implemented, however, because the product is still in
development. Based on independent marketing analysis, Management believes that
the single largest barrier to market acceptance of its fuel cells will be the
lack of market knowledge about the benefits of fuel cells. With this in mind,
DCH has embarked on a market education program. DCH has manufactured several
prototype demonstration units of its fuel cells and has successfully operated
hardware at trade shows and conferences. In addition, DCH personnel have spoken
at conferences about the fuel cell product. As DCH nears the commercial
introduction of its fuel cells, these educational activities will continue to
increase.
Research and Development
- ------------------------
Management of DCH believes that continuing research and development of its
licensed technology is critical to penetrating existing markets through superior
product features, opening new markets and obtaining a competitive advantage.
Due to its limited resources, DCH currently conducts its research and
development activities with strategic partners: sensor development in
connection with federal research laboratories such as ORNL; applications
development in conjunction with DCH's field representatives; and advanced
systems designs for specialized industries with customers.
To date, a significant portion of DCH's research and development has
occurred through CRADAs with the U.S. Department of Energy: the ORNL CRADA, the
LANL CRADA and the NREL CRADA. See "Business - General/Products".
During the years ended December 31, 1997 and 1998, and the six months ended
June 30, 1999, DCH expended $59,484, $1,810,185 and $319,498
respectively, on research and development. None of these expenses were funded by
DCH's customers.
Manufacturing
- -------------
At the present time, DCH's Robust Hydrogen Sensor product line constitutes
the only products of DCH in production. DCH subcontracts specialty processes
relating to the Robust Hydrogen Sensor product line to several major
manufacturers. Semiconductor wafer production for DCH's hydrogen sensor element
occurs at Allied Signal's Microelectronics and Technology Center in
Columbia.
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Maryland. Electronic circuit boards are fabricated by International Circuits and
Components, Inc. in Anaheim, California. Housings and other hardware are
fabricated by various small manufacturers. DCH conducts final assembly,
calibration and finished product testing of the sensors. The production cycle
for DCH's Robust Hydrogen Sensor currently averages approximately eight weeks.
To date, DCH has not experienced any interruption in the manufacture of its
products, and anticipates that sources for each of its subcontracting activities
will be readily available. DCH is currently in the initial production
phase and anticipates going into full production within a year.
Backlog
- -------
The commercial order backlog for DCH's products at September 30, 1999 was
$536,699, compared with $283,048 at September 30, 1998. Since DCH generally
ships its products within the same quarter that it receives a purchase order
from the customer for such products, DCH believes that its backlog at any
particular time is generally not indicative of the level of future sales.
Competition
- -----------
DCH competes in both the hydrogen sensor and fuel cell markets. The
hydrogen sensor market is extremely competitive, with several manufacturers
competing for acceptance. Most of DCH's competitors have far greater financial,
marketing and manufacturing resources than DCH by virtue of their being long
established in the field. The attributes upon which competition is based are
primarily reliability, ease of use, product support, response speed, accuracy
and price. Management of DCH believes that its hydrogen sensor products offer
several advantages, including a faster reaction time of less than two seconds
near the Lower Explosive Limit (current detectors may take as long as two
minutes to return a reading) and extended sensor life. In addition, DCH's
sensors are hydrogen-specific and therefore not prone to false readings, and
operate in hostile environments such as radioactive areas. Finally, the sensors
indicate a complete range of hydrogen presence, similar to that offered by mass
spectrometers but at a much lower cost.
Competition in the fuel cell industry is comprised primarily of companies
that do research and testing but have no foreseeable path to commercialization.
DCH believes its simple, passive technology will provide significant economic,
utilization and performance advantages. Management believes DCH's fuel cell has
significant advantages over existing low power fuel cells in development at
other companies. These advantages include a smaller size and weight, no moving
parts (it is a completely passive device), low cost and simplicity of design.
Government Regulation
- ---------------------
DCH is permitted to export its hydrogen sensors without restriction, as the
U.S. Department of Commerce, Bureau of Export Control has designated the sensor
as an unrestricted export item.
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DCH's production of hydrogen fuel cells will be subject to various federal,
state and local laws and regulations relating to, among other things, land use,
safe working conditions, handling and disposal of hazardous and potentially
hazardous substances and emissions of pollutants into the atmosphere. To date,
DCH believes that it has obtained all necessary government permits and has been
in substantial compliance with all of these applicable laws and regulations.
Employees
- ---------
As of September 30, 1999, DCH employed 17 people on a full-time basis,
consisting of 10 people in engineering/development/manufacturing, 4 in
administration and 3 in sales/customer service. DCH's employees are not
represented by a labor union, and it has experienced no work stoppages. DCH
believes that its employee relations are good. The loss of key employees could
cause delays in completing contracted work and research and development and
commercialization activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
- -------
DCH seeks out patented technologies, secures those patented technologies
through licensing agreements with the patent holders and converts the
technologies into viable products which DCH then produces and sells. DCH focuses
on technologies related to the use of hydrogen, primarily hydrogen gas sensors
and fuel cells. DCH currently obtains its funding from private placements of
equity securities and product sales. DCH commenced initial production of its
first product line, the Robust Hydrogen Sensor product line, in November 1998.
As production activity increases, the production facilities are more fully
utilized and DCH fully implements its marketing strategies, management expects
revenues from sales of product to increase in proportion to funding from
continued equity placements.
Results of Operations
- ---------------------
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
- ---------------------------------------------------------------------------
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For the six months ended June 30, 1999, DCH had sales of $216,773
compared to sales of $24,000 for the six months ended June 30, 1998. The
increased sales in 1999 were due primarily to DCH's introduction of its
Robust Hydrogen Sensor product line in November 1998. In accordance with the
growth in sales, the cost of products sold increased to $142,878 for the six
months ended June 30, 1999 compared to $5,720 for the comparable period in 1998.
Gross profit was $73,895 for the six months ended June 30, 1999 compared to
$18,280 for the six months ended June 30, 1998, also reflecting the increased
sales.
Selling, general and administrative expenses were $1,033,784 for the six months
ended June 30, 1999, compared to $1,281,448 for the comparable period in 1998.
Substantially all of the selling, general and administrative expenses in the
first two quarters of 1999 were derived from the ramp up required to
commercialize and introduce the Robust Hydrogen Sensor product line, while the
1998 expenses primarily reflected stock-based awards issued by DCH to
employees and non-employees in consideration of services or goods provided.
Depreciation and amortization increased to $24,014 for the six months ended
June 30, 1999, compared to $7,518 for the six months ended June 30, 1998, due to
purchases by DCH of equipment for its operations.
DCH expended $319,498 on research and development during the six months
ended June 30, 1999 compared to expenditures of $610,294 for the comparable
period in 1998. The decrease was due to the movement of the Robust Hydrogen
Sensor product line from the research and development phase to initial
production.
As a result of the foregoing factors, DCH's net loss decreased to
$1,303,357 for the six months ended June 30, 1999, from $1,879,072 for the six
months ended June 30, 1998. Due to an increase in the number of shares
outstanding during the period, the net loss per share decreased to $.10 for the
six months ended June 30, 1999 from $.22 for the comparable period in 1998.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
- -----------------------------------------------------------------------
For the year ended December 31, 1998, DCH reported sales of $207,580,
compared to sales of $89,751 in the prior year. Sales in both years consisted
primarily of research projects performed by DCH for the benefit of third
parties. The increase in sales was due primarily to an increase in the number of
projects undertaken by DCH, but also reflected the introduction of DCH's Robust
Hydrogen Sensor product line in November 1998. Cost of sales for the year ended
December 31, 1998 equaled $66,480; DCH did not incur costs of sales for the
prior year, as sales in 1998 consisted solely of research projects with no
hardware deliverables.
Selling, general and administrative expenses were $2,880,897 for the year
ended December 31, 1998, as compared to $208,026 for the year ended December 31,
1997. The substantial increase was composed of several factors reflecting DCH's
ramp
14
<PAGE>
up of operations: stock-based awards issued by DCH during fiscal 1998 to
employees and non-employees in consideration of services or goods provided prior
to or during that year, an increase in the number of employees, DCH's
move to larger facilities and the commencement of manufacturing operations.
DCH incurred depreciation and amortization expenses of $31,857 in
the year ended December 31, 1998 compared to $8,304 in the prior year, due to
purchases by DCH of equipment for its operations.
Research and development expenditures in the year ended December 31, 1998
were $1,810,185, compared to $ 59,484 in 1997. The increase in 1998 was
primarily due to the ramp up in the development of several systems for the
Robust Hydrogen Sensor product line and the research and development of DCH's
thick film hydrogen sensor, universal gas detector and fuel cell products.
Due to the factors set forth above, DCH incurred a net loss of
$4,577,656 in 1998 compared with $185,157 in 1997. The net loss per share
increased to $.48 for the year ended December 31, 1998 compared to $.04 for the
year ended December 31, 1997.
Liquidity and Capital Resources
- -------------------------------
To date, DCH has funded its operations primarily through private
placements of equity securities and secondarily through product sales and loans
from officers and major shareholders. Such placements generated net proceeds of
$900,356 during the six months ended June 30, 1999, $1,310,729 for the year
ended December 31, 1998 and $81,500 during the year ended December 31, 1997. At
June 30, 1999, DCH had a working capital deficit of $164,885, including
$38,531 cash, compared to a working capital deficit of $656,891, including
$344,417 cash at June 30, 1998.
DCH's cash increased by $662 during the year ended December 31,
1998. The increase was due primarily to financing activities, which provided
$1,478,021 to DCH in 1998. Operating activities in 1998 utilized
$1,228,371 of cash, and investing activities utilized $248,988 during the same
period. In October 1998, DCH advanced the sum of $100,000 to HBT, one of its
customers, in anticipation of future services. The advance was to be repaid on
or before September 30, 1999. On September 30, 1999, HBT and DCH agreed upon the
services to be performed; HBT also agreed to issue 13,000 shares of its common
stock to DCH in repayment of the advance.
DCH remains dependent upon its ability to obtain outside financing
through the issuance of additional securities until it achieves sustained
profitability through increased sales. Management believes that DCH
will require significant resources in 1999, principally to fund DCH's
working capital needs to support the commercialization of DCH's hydrogen
sensor and fuel cell products and continuing research and development efforts.
At the present time, management estimates that DCH will require approximately
$15,300,000 to fund its operations (including the commercialization of its
products and ongoing research and development) through the year 2001. Of this
amount, DCH anticipates that it will require approximately $2,300,000 to fund
its operations for 1999. DCH expects to generate the necessary resources
for its 1999 business plan through a combination of the contribution from sales
of its products and additional private placements of equity securities. No
assurances can be given, however, that DCH will be able to obtain such
additional resources.
15
<PAGE>
DCH anticipates that its capital requirements of approximately $13,000,000
for the balance of the period ending December 31, 2001 will be met through
cash generated from operations and from equity investments. There can be no
assurance, however, that DCH will be able to generate capital sufficient to meet
these long-term needs.
If DCH is unsuccessful in generating anticipated resources from one or more
of the anticipated sources and is unable to replace any shortfall with funding
from another source, DCH may be able to extend the period for which available
resources would prove adequate by deferring the satisfaction of various
commitments or otherwise scaling back operations. If DCH were unable to generate
the required resources, its ability to meet its obligations and to continue its
operations would be adversely affected. DCH's financial statements have been
prepared under the assumption of a going concern. Failure to generate required
resources and to achieve sustained profitability would have an adverse effect on
the financial position, results of operations, cash flows and prospects of DCH
and ultimately on its ability to continue as a going concern.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 ("Y2K") issue refers to the potential for failure of computer
systems that use two digits rather than four digits to identify the applicable
year. Many computers and other equipment with embedded chips or microprocessors
may not be able to appropriately interpret dates after December 31, 1999,
because such systems use only two digits to indicate a year in the date field
rather than four digits. If not corrected, many computers and computer
applications could fail or create miscalculations, causing disruptions to DCH's
operations. In addition, the failure of customer and supplier computer systems
could result in interruption of sales and deliveries of key supplies or
utilities. Because of the complexity of the issues and the number of parties
involved, DCH cannot reasonable predict with certainty the nature of likelihood
of such impacts.
DCH is actively addressing this situation and anticipates that it will not
experience a material adverse impact to its operations, liquidity or financial
condition related to systems under control. DCH is addressing the Year 2000
issue in four overlapping phases: (i) identification and assessment of all
critical software systems and equipment requiring modification or replacement
prior to 2000; (ii) assessment of critical business relationships requiring
modification prior 2000; (iii) corrective action and testing of critical
systems; (iv) development of contingency and business continuation plans to
mitigate any disruption to DCH's operations arising from the Year 2000
issue.
DCH is in the process of implementing a plan to obtain information from its
external service providers, significant suppliers and customer, and financial
institutions to confirm their plans and readiness to become Year 2000 compliant,
in order to better understand and evaluate how their Year 2000 issues may affect
DCH's operations. DCH currently is not in a position to assess this aspect of
the Year 2000 issues; however, DCH plans to take the necessary steps to provide
itself with reasonable assurance that its service providers, customers and
financial institutions are Year 2000 compliant.
In 1998, DCH contracted with a Y2K consultant who, in concert with Company
personnel and one of DCH's aerospace customers, conducted a comprehensive
evaluation of all its systems, including the internal network, local micro-
computers, test equipment, financial systems and software imbedded in its
products. Based on this testing, DCH was found to be Y2K compliant in all of its
product and internal systems. DCH has also received assurances from the
suppliers of the software it employs that such software is Y2K compliant, and
intends to obtain assurances that any computer software and hardware purchased
in 1999 is Y2K compliant. DCH does not believe that its insistence upon Y2K
compliant hardware or software will materially increase the cost thereof.
DCH sells its products for integration in other systems developed by its
customers. While management believes those systems to either be Y2K compliant or
committed to be Y2K compliant by January 1, 2000 (based on DCH's survey of those
customers), DCH has no control over the ability and internal commitment
16
<PAGE>
of such customers to meet this goal. Therefore, the possibility remains that
some DCH products may be integrated with other companies' non-Y2K compliant
equipment.
The costs associated with monitoring Y2K compliance by suppliers and
customers and dealing with any non-compliance has not been material to date. The
failure of DCH or any of its principal customers or suppliers to become Y2K
compliant in a timely manner could have a material adverse effect on DCH's
business, financial condition, results of operations and cash flow.
ITEM 3. PROPERTIES.
DCH's principal executive, administrative, and engineering operations are
located in two leased facilities totaling 6,700 square feet in Valencia,
California. The main office is occupied under a lease expiring on May 31, 2001.
The production facility is in a separate building nearby (approximately 150
yards from the main office) occupied under a lease expiring on April 30, 2002.
DCH leases approximately 3,300 square feet in Madison, Wisconsin where it
conducts research and development on the fuel cell product and where it plans to
expand into limited production. This lease expires on April 30, 2002. DCH also
occupies a small sales office (approximately 150 square feet) in Washington, DC
under a month-to-month lease. Management considers that the current facilities
are adequate for the present level of operations and that additional office and
factory space is available in the immediate vicinity.
17
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Principal Stockholders
----------------------
The following table sets forth certain information regarding the beneficial
ownership of DCH's Common Stock as of September 30, 1999 (i) by each director of
DCH; (ii) by each person known by DCH to own beneficially more than five percent
of DCH's Common Stock; (iii) by the executive officers named in the Summary
Compensation Table set forth in "Item 6-Executive Compensation"; and (iv) by all
directors and executive officers of DCH as a group.
Name and Address(1) Number of Shares(2) Percent
------------------- ------------------- -------
David A. Walker 2,327,751 (3) 13.2% (3)
David P. Haberman 2,218,000 (4) 12.6% (4)
Randall S. Firestone 1,163,170 (5) 6.6% (5)
Dr. William L. Firestone 1,898,854 (6) 10.8% (6)
Daniel Teran 80,000 (7) *
Robert S. Walker 0 *
Raymond Winkel 180,040 (8) 1.0% (8)
All executive officers and
Directors as a group (seven
Persons) 7,867,815 (9) 44.7% (9)
_____________________________
(*) Less than one percent.
(1) The address of all persons listed above is c/o DCH Technology, Inc., 27811
Avenue Hopkins, #6, Valencia, California 91355.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting or investment power
and also any shares which the individual has the right to acquire within 60
days after September 30, 1999. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person named in the table has sole voting and investment
power (or shares such power with his or her spouse) with respect to all
shares of Common Stock listed as owned by such person.
18
<PAGE>
(3) Includes 1,350,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(4) Includes 1,400,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(5) Includes 50,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(6) Includes 675,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(7) Includes 50,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(8) Includes 100,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
(9) Includes 3,625,000 shares of Common Stock issuable pursuant to options
exercisable on or within 60 days of September 30, 1999.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS.
Management
----------
The following table sets forth certain information, as of September 30,
1999, concerning DCH's executive officers and directors.
Name and Age Office(s) Held
- ------------ --------------
David P. Haberman, 38 Chairman of the Board of Directors and
Vice President, Technology &
Planning
David A. Walker, 41 President, Vice President of Business
Operations and Director
Randall S. Firestone, 44 Director
19
<PAGE>
Dr. William L. Firestone, 78 Director
Daniel Teran, CPA, 46 Director
Robert S. Walker, 56 Director
Raymond N. Winkel, 70 Director
David P. Haberman is the Chairman of DCH's Board of Directors and has served in
that capacity and as Vice President, Technology and Planning since co-founding
DCH with David A. Walker in November 1994. Mr. Haberman served as an engineering
consultant at CBOL Corporation between 1993 and 1994 and served in various
technical capacities at the Astronautics Corporation of America from 1983 to
1993. He is an experienced applications engineer and has a background in the
design and development of hardware. In addition, Mr. Haberman was elected to the
Board of Directors of the National Hydrogen Association in April 1999 and
previously served on that Board between 1996 and 1998. Since October 1998, Mr.
Haberman has also served as a member of the Hydrogen Technical Advisory Panel,
which reports to Congress on hydrogen-related issues. Mr. Haberman also serves
as an American delegate to the International Standards Organization (ISO) on
hydrogen safety.
David A. Walker was appointed President of DCH upon the retirement of Dr.
William L. Firestone in April 1999. Prior to that, he served as Vice President,
Operations of DCH since co-founding DCH with David P. Haberman in November 1994.
In addition, he served on the Board of Directors from the inception of DCH
through May 1997, and has served on the current Board since January 1999. Mr.
Walker also worked as an independent management consultant for the Management
Resource Group and the George S. May International Company between January 1990
and November 1994. Between 1981 and 1990, he served in various management
capacities for Rockwell International. He is a member of the American Society
for Quality, the American Management Association, a Certified Quality Auditor
and Certified Management Consultant. Mr. Walker holds a B.S. degree in Business
Administration from California Baptist College and a M.S. degree in Human
Resource Management from Chapman University. Mr. Walker is no relation to Board
Member Robert S. Walker.
Randall S. Firestone has served as a member of DCH's Board of Directors since
December 1997. Mr. Firestone is a licensed California attorney and has operated
his own practice in Hermosa Beach, California, specializing in civil litigation,
since 1984. Mr. Firestone has done extensive lecturing and volunteer work and
served on the Speaker's Bureau of the Anti-Defamation League from 1979 through
1986. Mr. Firestone is the son of Dr. William L. Firestone, a member of DCH's
Board of Directors.
20
<PAGE>
Dr. William L. Firestone has served as a member of DCH's Board of Directors
since May 1997. He served as President of DCH Technology between May 1997 and
April 1999. Dr. Firestone had been in retirement before joining DCH. He served
as General Manager at Rogerson Kratos Co. from 1991 to 1993. From 1988 to 1991
he was an independent management consultant. Between 1983 and 1988, he served as
President of Jerrold Electronics and Teloc, Inc. Prior to this, he served as a
Vice President and General Manager of Texscan Corporation, RCA, Hallicrafters
Corp. and Whittaker Corp. between 1965 and 1983. Between 1955 and 1965, he
served in various capacities at Motorola. Dr. Firestone holds a B.S. in
Electrical Engineering from the University of Colorado, an M.S. in Electrical
Engineering from the Illinois Institute of Technology, and a Ph.D. in Electrical
Engineering from Northwestern University. Dr. Firestone is the father of Randall
Firestone, a member of DCH's Board of Directors.
Daniel Teran has served as a member of DCH's Board of Directors since
December 1997. Mr. Teran is a Certified Public Accountant licensed in the state
of California and has had his own practice in the city of Los Alamitos in Orange
County since July 1989. He offers services in accounting, systems setup and
design and taxation. He also provides tax planning and tax return preparation
for individuals and businesses, and represents clients in audits with the
Internal Revenue Service and the California Franchise Tax Board. Prior to July
1989, he worked as Chief Financial Officer for the Stephen Hopkins Development
Company (a shopping center developer) and as Controller for NRC Construction
Company. He also served as an auditor for Seidman and Seidman (a large national
public accounting firm). He is an active member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants, and has served on various committees within these professional
organizations. He received a Bachelor of Science degree in Accounting from
California State University at Long Beach.
Robert S. Walker has served as a member of DCH's Board of Directors
since January 1999. Mr. Walker has served as President of the Wexler Group, a
Washington D.C.-based lobbying firm, since his retirement from Congress in 1997
where he had served as a representative from Pennsylvania since 1977. During
his tenure in the House, he authored the Hydrogen Future Act of 1996 and served
as Chairman of the House Science Committee. Also, he served as Vice Chairman of
the Budget Committee, Chairman of the Republican Leadership, Chief Deputy
Minority Whip, and a member of Speaker Newt Gingrich's six person Advisory
Group. For many years, he was an active and influential member of the Republican
majority in Congress. Mr. Walker also serves on the Board of Trustees of the
Aerospace Corporation, the United States Space Science Foundation, and the
Susquehana Center for Public Policy. He is also a member of the Advisory Board
for the Imax Corporation. He is a fellow at Millersville University and Franklin
and Marshall College, and serves as a regular academic lecturer. In addition, he
continues to be a frequent guest on CNBC's "Hardball," PBS's "The Lehrer
Newshour," and other C-SPAN, CNN, FOX and MSNBC programs. Mr. Walker began his
career as a high school teacher and congressional aide. He received a B.S.
degree in Education from Millersville University, a M.A. degree in Political
Science from the University of
21
<PAGE>
Delaware and an Honorary Doctor of Laws from Franklin and Marshall College. Mr.
Walker is no relation to DCH President and Board member David A. Walker.
Raymond N. Winkel, a retired US Navy Rear Admiral, has served as a member of
DCH's Board of Directors since December 1996. He served as Vice President of
Programs for Astronautics Corporation of America in Milwaukee, Wisconsin from
1984 until his retirement in 1995. Prior to this, he was Vice President of the
Telephonics Corporation between 1980 to 1983. However, the majority of his
career was spent in the United States Navy, working his was up as one of the few
enlisted men to ever reach flag Rank. Admiral Winkel joined the Navy in 1947,
flew the four engine P4Y2 Privateer Anti-Submarine Warfare Aircraft during the
Korean War and later served in several important capacities until joining the
Naval Air Systems Command in Washington in 1971. Admiral Winkel has been awarded
the Air Medal, the Naval Aviator's Gold Wings, the Legion of Merit, the
Presidential Meritorious Service Medal, the Secretary of the Navy Commendation
Medal, the Good Conduct Medal, the National Defense Service Medal (with the
Bronze Star), the China Service Medal, the Korean Presidential Unit Citation
Ribbon and a number of other medals and citations. Adm. Winkel earned a BS
degree at Naval Post Graduate School in Monterey, California, a MS degree from
Villanova University, and graduated from the Advanced Management Program at
Harvard University.
All officers of DCH serve at the discretion of the Board of Directors.
Directors serve until the next annual meeting of DCH's shareholders, or
until their successors have been duly elected and qualified.
Committees of the Board of Directors
- ------------------------------------
The Board of Directors of DCH currently has a Compensation Committee, an
Audit Committee, a Legal Committee, a Public Policy Committee and a Technical
Committee. The functions of each of these committees are described and the
members of each are listed below.
The Compensation Committee is chaired by David A. Walker. Dr. William L.
Firestone, Daniel Teran and Robert S. Walker serve as the other Committee
members. The Compensation Committee renders advice with respect to compensation
matters and administers DCH's equity and incentive compensation plans.
The Audit Committee is comprised of Daniel Teran (who serves as Chairman),
Randall S. Firestone and Robert S. Walker. The Audit Committee is responsible
for supervising DCH's auditors and reviewing the financial condition of
DCH.
Randall S. Firestone serves as the sole member of the Legal Committee. The
Legal Committee is responsible for monitoring changes in the law which may be
applicable to DCH, and for supervising the activities of DCH's outside legal
counsel.
22
<PAGE>
The Public Policy Committee is chaired by Robert S. Walker; David P.
Haberman and Raymond N. Winkel serve as the other members of the Committee. The
Public Policy Committee is responsible for monitoring and reporting on activity
occurring in government relating to hydrogen and other matters that could affect
DCH, its products and/or its marketing strategies.
The Technical Committee is chaired by Raymond N. Winkel; it also consists
of David P. Haberman and Dr. William L. Firestone. Dr. John Barclay (President
of CryoFuel Systems, Inc.) is an outside adviser to this Committee. The
Technical Committee examines new and existing technologies and renders advice to
DCH regarding potential products based on those technologies.
Director Compensation
- ---------------------
Members of the Board of Directors did not receive cash compensation in 1998
for their services to DCH in such capacity. However, in 1998 each Director
received 30,000 shares of DCH's restricted Common Stock for their service as
Board members. In addition, each Board member was granted in 1998 options to
purchase 50,000 shares of DCH's Common Stock, at an exercise price of $0.25 per
share, expiring in 2008. The options vested immediately upon the date of grant.
Effective in 1999, compensation for members of the Board of Directors
(regardless of whether such members are employees of DCH) will be as
follows:
For serving on the Board of Directors, $10,000 per year;
For each Board meeting, $2,000;
For chairing a committee, $2,000;
For serving on a committee, $2,000; and
For each working committee meeting, $2,000
At the option of DCH, the above compensation, payable at the end of the
year, may be paid in cash or in shares of DCH's Common Stock.
In addition, each non-employee director receives reimbursement for the
expenses that he incurs in travelling to meetings of the Board of Directors or
any of its committees.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation Table
- --------------------------
The following table provides compensation information for the periods
indicated with respect to the person who served as DCH's Chief Executive Officer
(the "Named Executive Officer") for the three fiscal years ended December 31,
1998. No
23
<PAGE>
other executive officer of DCH received total salary and bonus in excess
of $100,000 during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation Securities
Name and Fiscal ----------------------- Underlying
Principal Position Year Salary Bonus Options(#)
- ------------------ -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Dr. William Firestone, 1998 $0 $0 393,525
President 1997(1) $0 $0 281,475
</TABLE>
- -----------------------
(1) Dr. Firestone became the President of DCH in May 1997.
Employment Agreements
- ---------------------
DCH currently has employment agreements with each of David P.
Haberman and David A. Walker, its Vice President, Technology and Planning, and
President, respectively. Each employment agreement commenced on January 1, 1995
and terminates on December 31, 2000, and provides for an annual salary currently
set at $100,000. Neither of the employment agreements provides for additional
payments upon a change in control. Messrs. Haberman and Walker have declined
any cash compensation due under their respective employment agreements since
the inception of the contracts.
Fiscal Year Option Grants
- -------------------------
Option grants for the year ended December 31, 1998 for the Named Executive
Officer are shown in the table below:
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Granted Employees in Price Expiration
Name (#) Fiscal Year ($/sh) Date
- ---------------------- --------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
William L. Firestone 675,000 (1) 18.6% $0.25 12/31/2008
</TABLE>
________________________
(1) Includes options to purchase 281,475 shares of Common Stock granted in
fiscal 1998 for service in fiscal 1997.
24
<PAGE>
Fiscal Year Option Exercises and Fiscal Year-End Option Values
- --------------------------------------------------------------
Shown below is information regarding exercises of options by the Named
Executive Officer during the year ended December 31, 1998 and unexercised stock
options held by the Named Executive Officer at December 31, 1998.
<TABLE>
<CAPTION>
Number of
Unexercised
Options at Value of Unexercised
Fiscal In-the-money
Shares Year-End Options at Fiscal Year End($)
Acquired on Value (Exercisable/ (Exercisable/Unexercisable)(1)
Name Exercise (#) Realized ($) Unexercisable)(1) 5% 10%
- -------------------- ------------- -------------- ------------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
William L. Firestone 0 $0.00 675,000/ $924,750/ $1,471,500/
675,000 $924,750 $1,471,500
</TABLE>
(1) The assumed 5% and 10% compound rates of annual stock appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent DCH's estimate or projection of future Common Stock prices.
Assuming a ten year term of the option, the total calculated compounded amount
of stock appreciation is 63% (assuming 5% per year) and 159% (assuming 10% per
year).
25
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
DCH has received loans from officers and directors amounting to $128,725 as
of June 30, 1999. These loans bear interest at the prime rate (currently 7.75%
per annum) and are payable on demand after January 1, 2001.
In the year ended December 31, 1998, certain officers and directors of DCH
were granted options to purchase shares of DCH's Common Stock as consideration
for past services performed, including services performed during prior fiscal
years. All of these options have an exercise price of $0.25 per share, expire on
December 31, 2008 and were fully vested on the date of grant. The following
table sets forth such option grants:
<TABLE>
<CAPTION>
Number of Shares For Service
Name Underlying Options During Fiscal Year
- ----------------------- ------------------ ------------------
<S> <C> <C>
Randall S. Firestone 50,000 1998
William L. Firestone 393,525 1998
281,475 1997
David P. Haberman 364,000 1998
364,000 1997
364,000 1996
308,000 1995
Daniel Teran 50,000 1998
David A. Walker 363,000 1998
342,200 1997
326,600 1996
318,200 1995
Raymond N. Winkel 100,000 1998
</TABLE>
On October 30, 1998, David P. Haberman, DCH's Chairman of the Board of
Directors and Vice President, Technology and Planning, exercised options to
purchase 80,000 shares of DCH's Common Stock at an exercise price of $0.25 per
share. No other officers or directors of DCH exercised options in fiscal 1998.
ITEM 8. DESCRIPTION OF SECURITIES.
DCH is authorized to issue 50,000,000 shares of Common Stock, 13,977,503
shares of which were outstanding at June 30, 1999, and 5,000,000 shares of
Preferred Stock, none of which were outstanding at June 30, 1999. All
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable.
26
<PAGE>
Common Stock
- ------------
The holders of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have cumulative voting rights in the election of directors. Holders of Common
Stock are entitled to dividends when, if and as may be declared by the Board of
Directors out of funds legally available therefor. Under the Colorado
Corporations Code, DCH may declare and pay dividends only out of its surplus, or
if there shall be no such surplus, out of its net profits for the fiscal year in
which the dividend is declared or the preceding year. In the event of the
liquidation, dissolution or winding up of DCH, holders of shares of Common Stock
are entitled to share ratably in the assets, if any, available for distribution
after payment of all creditors and the liquidation preferences on any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive rights to subscribe for any additional securities of any class which
DCH may issue, nor any conversion, redemption or sinking fund rights. The rights
and privileges of holders of Common Stock are subject to the preferences of any
shares of Preferred Stock that DCH may issue in the future.
Preferred Stock
- ---------------
DCH may issue shares of Preferred Stock in one or more classes or series
within a class as may be determined by DCH's Board of Directors, who may
establish, from time to time, the number of shares to be included in each class
or series, may fix the designation, powers, preferences and rights of the shares
of each such class or series and any qualifications, limitations or restrictions
thereof, and may increase or decrease the number of shares of any such class or
series without any further vote or action by the shareholders. Any Preferred
Stock so issued by the Board of Directors may rank senior to the Common Stock
with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up of DCH, or both. In addition, any such shares of
Preferred Stock may have class or series voting rights. Moreover, under certain
circumstances, the issuance of Preferred Stock or the existence of the unissued
Preferred Stock may tend to discourage or render more difficult a merger or
other change in control of DCH.
Transfer Agent and Registrar
- ----------------------------
The Transfer Agent and Registrar for DCH's Common Stock is Holladay Stock
Transfer, Inc., in Scottsdale, Arizona.
27
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
Since May 16, 1997, DCH's Common Stock has been traded on the OTC Bulletin
Board under the symbol "DCHT". The following table sets forth, for the periods
indicated, the high and low bid prices for the Common Stock as reported by the
OTC Bulletin Board. The following quotations should not be construed to imply
that an established trading market exists for the Common Stock; trading to date
has been sporadic.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
1999
- ----
3rd Quarter 0.88 0.47
2nd Quarter 1.38 0.72
1st Quarter 2.06 0.78
1998
- ----
4th Quarter 1.59 0.56
3rd Quarter 4.75 1.50
2nd Quarter 8.12 0.44
1st Quarter 0.62 0.19
1997
- ----
4th Quarter 1.25 0.03
3rd Quarter 3.00 0.62
2nd Quarter 3.00 0.25
</TABLE>
The market price for DCH's Common Stock has historically been volatile.
Significant volatility in the market price of shares of DCH's Common Stock may
arise in the future due to factors such as DCH's developing business, historic
losses and relatively low price per share. In addition, future announcements
concerning DCH or its competitors may have a significant impact on the market
price of the Common Stock. Such announcements might include financial results,
the results of testing, technological innovations, new commercial products,
changes to government regulations, developments concerning proprietary rights,
or litigation. As long as there is only a limited public market for the Common
Stock, the sale of a significant number of shares of Common Stock at any
particular time could be difficult to achieve at the market prices prevailing
immediately before such shares are offered, and the offering of a significant
number of shares of Common Stock at one time could cause a severe decline in the
price of the Common Stock.
28
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
To the best knowledge of DCH's management, there is no legal proceeding
pending to which DCH is a party or to which DCH's property is subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
DCH has conducted private placements of equity securities in the past three
years pursuant to exemptions from registration provided by the Securities Act of
1933.
On October 1, 1997, DCH closed a private placement of 163,000 shares of its
Common Stock. An aggregate of $81,500 was raised in this placement. The issuance
and sale of these shares was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering. All of the purchasers represented to DCH that
they were acquiring the shares for their own accounts and not for the account or
benefit of another person; that the Shares were being acquired for investment
and not with a view to the distribution thereof; and that the purchasers did not
intend to sell or otherwise dispose of all or any part of the shares at the time
of purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with the transfer agent.
On December 31, 1997, DCH issued an aggregate of 492,320 shares of Common
Stock to 10 investors for services previously rendered to DCH. The issuance of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Rule 701 thereof. At the time of the issuance, DCH was not subject
to the reporting requirements of the Securities Exchange Act of 1934, and the
value of the securities issued did not exceed $1,000,000 (at the date of
issuance, the shares had an aggregate value of $244,859). The shares were issued
for bona fide services previously provided to DCH, and were not in connection
with a capital-raising transaction.
On January 7, 1998, DCH closed a private placement of 65,000 shares of its
Common Stock, raising an aggregate of $32,000. The issuance and sale of these
shares was exempt from the registration requirements of the Securities Act
pursuant to section 4(2) thereof as a transaction by an issuer not involving a
public offerings. All of the purchasers represented to DCH that they were
acquiring the shares for their own accounts and not for the account or benefit
of another person; that the shares were being acquired for investment and not
with a view to the distribution thereof; and that the purchasers did not intend
to sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the Shares and placed "stop transfer" instructions with its transfer agent.
On April 11, 1998, DCH closed a private placement of 236,401 shares of its
common stock, raising an aggregate of $107,977. The issuance and sale of these
shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
29
<PAGE>
On April 30, 1998, DCH consummated an offering of 1,293,586 shares of its
common stock pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). An aggregate of
$707,627 was raised in this placement; all purchasers represented to DCH that
they were "accredited investors" as defined in the Securities Act.
On May 18, 1998, DCH closed a private placement of 217,029 shares of its
Common Stock, raising aggregate proceeds of $325,126. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
On July 31, 1998, DCH issued an aggregate of 60,000 shares of Common Stock
to two limited liability companies, in consideration of an equity interest in
each of the limited liability companies. The issuance and sale of these shares
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof as a transaction by an issuer not involving a public
offering. All of the purchasers represented to DCH that they were acquiring the
shares for their own accord and not for the account or benefit of another
person; that the shares were being acquired for investment and not with a view
to the distribution thereof; and that the purchasers did not intend to sell or
otherwise dispose of all or any part of the shares at the time of purchase or
upon the occurrence or nonoccurrence of any predetermined event. Each purchaser
also agreed that he or she would offer or resell shares only if the shares were
registered under the Securities Act or an exemption from such registration was
available. No advertising or public solicitation was used in the placement. DCH
placed a restrictive legend on the certificates representing the shares and
placed "stop transfer" instructions with its agent.
On September 9, 1998, DCH closed a private placement of 19,210 shares of
its common stock, raising aggregate proceeds of $25,000. The issuance and sale
of these shares was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof as a transaction by an issuer not involving
a public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
On October 6, 1998, DCH closed a private placement of 147,220 shares of
Common stock, raising aggregate proceeds of $93,000. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
30
<PAGE>
On December 31, 1998, DCH closed a private placement of 1,539,658 shares of
Common Stock for services previously rendered to DCH. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
On December 31, 1998, DCH issued an aggregate of 1,335,224 shares of Common
Stock to 26 investors for services previously rendered to DCH. The issuance of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Rule 701 thereof. At the time of issuance, DCH was not subject to
the registration requirements of the Securities Exchange Act of 1934, and the
value of the securities issued did not exceed $1,000,000 (at the date of
issuance, the shares had an aggregate value of $619,627). The shares were issued
to investors for bona fide services previously provided to DCH, and were not in
connection with a capital-raising transaction.
On February 2, 1999, DCH issued an aggregate of 100,000 shares of Common
Stock to 1 investor for services previously rendered to DCH. The issuance of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Rule 701 thereof. At the time of the issuance, DCH was not subject
to the registration requirements of the Securities Exchange Act of 1934, and the
value of the securities issued did not exceed $1,000,000 (at the date of
issuance, the shares had an aggregate value of $75,000). The shares were issued
to an investor for bona fide services previously provided to DCH, and were not
in connection with a capital-raising transaction.
On March 31, 1999, DCH closed a private placement of 184,667 shares of
Common Stock, raising aggregate proceeds of $114,667. The issuance and sale of
these shares was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof as a transaction by an issuer not involving a
public offering. All of the purchasers represented to DCH that they were
acquiring the shares for their own accord and not for the account or benefit of
another person; that the shares were being acquired for investment and not with
a view to the distribution thereof; and that the purchasers did not intend to
sell or otherwise dispose of all or any part of the shares at the time of
purchase or upon the occurrence or nonoccurrence of any predetermined event.
Each purchaser also agreed that he or she would offer or resell shares only if
the shares were registered under the Securities Act or an exemption from such
registration was available. No advertising or public solicitation was used in
the placement. DCH placed a restrictive legend on the certificates representing
the shares and placed "stop transfer" instructions with its transfer agent.
31
<PAGE>
On May 6, 1999, DCH issued an aggregate of 102,000 shares of Common Stock
to 2 investors for services previously rendered to DCH. The issuance of these
shares was exempt from the registration requirements of the Securities Act
pursuant to Rule 701 thereof. At the time of the issuance, DCH was not subject
to the registration requirements of the Securities Exchange Act of 1934, and the
value of the securities issued did not exceed $1,000,000 (at the date of
issuance, the shares had an aggregate value of $61,549). The shares were issued
to investors for bona fide services previously provided to DCH, and were not in
connection with a capital-raising transaction.
On May 11, 1999, DCH closed a private placement of 635,195 shares of Common
Stock, raising an aggregate of $410,137. The issuance and sale of these shares
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof as a transaction by an issuer not involving a public
offerings. All of the purchasers represented to DCH that they were acquiring the
shares for their own accounts and not for the account or benefit of another
person; that the shares were being acquired for investment and not with a view
to the distribution thereof; and that the purchasers did not intend to sell or
otherwise dispose of all or any part of the shares at the time of purchase or
upon the occurrence or nonoccurrence of any predetermined event. Each purchaser
also agreed that he or she would offer or resell shares only if the shares were
registered under the Securities Act or an exemption from such registration was
available. No advertising or public solicitation was used in the placement. DCH
placed a restrictive legend on the certificates representing the shares and
placed "stop transfer" instructions with its transfer agent.
On June 23, 1999, DCH consummated an offering of 637,582 shares of its
common stock pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). An aggregate of
$475,552 was raised in this placement; all purchasers represented to DCH that
they were "accredited investors" as defined in the Securities Act.
32
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of DCH's Bylaws require DCH to indemnify, to the fullest extent
allowed by the Colorado Business Corporation Act (the "CBCA"), any person who
serves or who has served at any time as a director or an officer of DCH, and any
director or officer who, at the request of DCH, serves or at any time has served
as a director, officer, partner, trustee, employee, or agent of any other
foreign or domestic corporation or of any partnership, joint venture, trust,
other enterprise or employee benefit plan, against any and all liabilities and
reasonable expenses incurred in connection with any claim, action, suit, or
proceeding to which such director or officer is made a party, or which may be
asserted against him, because he is or was a director or an officer. This
Article also provides that directors of DCH shall not be liable to DCH or any of
its shareholders for monetary damages caused by a breach of fiduciary duty as a
director.
Sections 7-109-102 and 103 of the CBCA authorize the indemnification of
directors and officers against liability incurred by reason of being a director
or officer and against expenses (including attorney's fees) judgments, fines and
amounts paid in settlement and reasonably incurred in connection with any action
seeking to establish such liability, in the case of third-party claims, if the
officer or director acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and in the
case of actions by or in the right of the corporation, if the officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the corporation and if such officer or
director shall not have been adjudged liable to the corporation, unless a court
otherwise determines. Indemnification is also authorized with respect to any
criminal action or proceeding where the officer or director had no reasonable
cause to believe his conduct was unlawful.
The above discussion of DCH's Bylaws and the CBCA is only a summary and is
qualified in its entirety by the full text of each of the foregoing.
Directors and officers of DCH and its subsidiaries are covered by an
insurance policy that insures them against certain losses, liabilities and
expenses. The annual aggregate liability limit under the policy is $2,000,000.
The policy contains numerous exclusions, including exclusions for personal
profit, libel and slander and certain environmental liabilities.
33
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit No. Description
- ----------- -----------
2.1 Articles of Incorporation of Connection Sports
International, Inc., as amended. (*)
2.2 Bylaws of DCH Technology, Inc. (*)
3.1 Agreement and Plan of Reorganization, dated
May 28, 1997, by and among Connection Sports
International, Inc., DCH Technology, Inc.,
a California corporation, and its shareholders. (*)
3.2 Specimen certificate for the Registrant's
Common Stock. (*)
6.1 License Agreement, dated April 24, 1996, by
and between Registrant and Sandia Corporation. (*)(1)
6.2 Limited Exclusive Field of Use Patent License
Agreement, dated March 15, 1999, by and between
Registrant and The Regents of the University
of California. (*)(1)
6.3 Nonexclusive Field of Use Patent License
Agreement, dated March 15, 1999, by and between
Registrant and The Regents of the University
of California. (*)(1)
6.4 LANL Modular CRADA Stevenson-Wydler Cooperative
Research and Development Agreement No. LA98C10384,
dated October 30, 1998, by and between Registrant
and The Regents of the University of California. (1)
6.5 Stevenson-Wydler Cooperative Research and Development
Agreement No. ORNL 96-0454, dated September 26, 1996,
as amended, by and between Registrant and Lockheed
Martin Energy Research Corporation. (*)(1)
6.5(a) Amendment B to Cooperative Research and Development
Agreement No. ORNL 96-0454. (1)
6.6 Sole Commercial Patent License Agreement, dated
September 26, 1996, by and between Registrant and
Lockheed Martin Energy Research Corporation. (1)
6.7 Exclusive License Agreement, effective as of
May 15, 1998, by and between Registrant and Simon
Fraser University. (1)
35
<PAGE>
6.8 Stevenson-Wydler Cooperative Research and Development
Agreement, dated May 6, 1996, as amended, by and
between Amerisen and Midwest Research Institute. (1)
6.8(a) Modification Number 3 to Cooperative Research and Development
Agreement No. CRD-96-046.
6.9 Agency Agreement, dated January 18, 1999, by and
between Registrant and Horiba, Ltd. (*)
6.10 Employment Agreement, dated December 31, 1994, by
and between Registrant and David A. Walker. (*)
6.11 Employment Agreement, dated December 31, 1994, by
and between Registrant and David P. Haberman. (*)
6.12 Limited Liability Company Operating Agreement, dated
July 31, 1998, of Renewable Energies Group LLC. (*)
6.13 Operating Agreement of Infrasol LLC, dated July 31,
1998. (*)
6.14 Standard Industrial/Commercial Multi-Tenant Lease-
Gross, dated April 28, 1998, by and between Registrant
and Bradmore Realty Investment Company, Ltd. (*)
6.15 Standard Industrial/Commercial Multi-Tenant Lease-
Gross, dated April 2, 1999, by and between Registrant
and Valencia Gardens. (*)
6.16 Lease Agreement, dated as of April 22, 1999, by and
between Registrant and Welton Family Limited Partnership. (*)
23.1 Consent of Lucas, Horsfall, Murphy & Pindroh, LLP
27.1* Financial Data Schedule
(*) Previously filed.
(1) Portions omitted pursuant to a request for confidentiality filed with the
Commission.
ITEM 2. DESCRIPTION OF EXHIBITS.
See Item 1 above.
36
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment No.1 to registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
DCH TECHNOLOGY, INC.
A Colorado corporation
Date: October 7, 1999 By: /s/ DAVID A. WALKER
___________________
David A. Walker
President
37
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
---------------
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors of
DCH Technology, Inc.
We have audited the accompanying consolidated balance sheet of DCH Technology,
Inc. and Subsidiary as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1998 and 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of DCH Technology, Inc. and Subsidiary
at December 31, 1998 and the results of its operations and its cash flows for
the years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred significant losses since inception, and has an
accumulated deficit. These conditions raise substantial doubt about its ability
to continue as a going concern. Management plans regarding those matters are
described in Note 12. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ LUCAS, HORSFALL, MURPHY & PINDROH, LLP
- ------------------------------------------
Pasadena, California
February 22, 1999, except for Note 13 to the financial statements
which is as of April 30, 1999.
F-2
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
INFORMATION AS TO THE PERIOD ENDED JUNE 30, 1999 IS UNAUDITED
ASSETS
DECEMBER 31, JUNE 30,
1998 1999
------------ -------------
CURRENT ASSETS (UNAUDITED)
Cash $ 1,802 $ 38,531
Accounts receivable 58,829 165,582
Inventory 143,714 39,848
Prepaid expenses - 71,179
Advance to customer 100,000 100,000
------------ -------------
TOTAL CURRENT ASSETS 304,345 415,140
PROPERTY AND EQUIPMENT - NET 108,659 111,484
OTHER ASSETS
Licensed patents, net of
amortization 29,025 48,865
Investment in partnerships 99,000 99,000
------------ -------------
TOTAL OTHER ASSETS 128,025 147,865
------------ -------------
$ 541,029 $ 674,489
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 3,212 $ -
Accounts payable 174,418 177,694
Accrued expenses 40,799 365,281
Deferred revenue 28,800 37,050
------------ -------------
TOTAL CURRENT LIABILITIES 247,229 580,025
LONG TERM LIABILITIES
Advances from stockholders 180,359 128,725
------------ -------------
TOTAL LIABILITIES 427,588 708,750
COMMITMENTS AND CONTINGENCIES
(Notes 11 and 12)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.10 par value
5,000,000 shares authorized,
- 0 - shares issued and
outstanding - -
Common stock, $0.01 par value,
50,000,000 shares authorized,
12,273,059 and 13,977,503
issued and outstanding,
respectively 122,730 139,774
Additional paid-in-capital 5,021,642 6,160,253
Common stock subscribed, 160,000
shares outstanding at December 31, 1998 100,000 0
------------ -------------
5,244,372 6,300,027
Less: common stock
subscriptions receivable (100,000) 0
------------ -------------
5,144,372 6,300,027
Accumulated deficit (5,030,931) (6,334,288)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 113,441 (34,261)
------------ -------------
$ 541,029 $ 674,489
============ =============
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
--------------- --------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 89,751 $ 207,580 $ 24,000 $ 216,773
Cost of products sold - 66,480 5,720 142,878
--------------- -------------- -------------- ---------------
Gross profit 89,751 141,100 18,280 73,895
Operating expenses:
Selling, general and administrative
expenses 208,026 2,880,897 1,281,448 1,033,784
Depreciation and amortization 8,304 31,857 7,518 24,014
Research & development 59,484 1,810,185 610,294 319,498
--------------- -------------- -------------- ---------------
275,814 4,722,939 1,899,260 1,377,296
--------------- -------------- -------------- ---------------
Loss from operations (186,063) (4,581,839) (1,880,980) (1,303,401)
Interest income 106 4,183 1,908 44
--------------- -------------- -------------- ---------------
Net loss $ (185,957) $ (4,577,656) $ (1,879,072) $ (1,303,357)
=============== ============== ============== ===============
Weighted average common shares
outstanding 4,211,936 9,579,059 8,561,276 13,166,244
=============== ============== ============== ===============
Net loss per common share
Basic $ (0.04) $ (0.48) $ (0.22) $ (0.10)
=============== ============== ============== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 IS UNAUDITED
<TABLE>
<CAPTION>
Common Stock
------------------------------------------- Additional
No. of Paid-in- Subscription
Shares Amount Subscribed Capital Receivable
---------- -------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 22,000 $ 32,077 $ - $ - $ -
Effect of acquisition 6,602,411 34,167 - - -
Issuance of common
stock for services 492,320 4,923 - 239,936 -
Issuance of common
stock for cash 163,000 1,630 - 79,870 -
Net loss - - -
---------- -------- --------------- ----------- ---------------
Balances at December 31, 1997 7,279,731 72,797 - 319,806 -
Issuance of common stock
and warrants for services 2,874,882 28,749 2,118,938 -
Issuance of common stock
options for services - - - 1,194,353 -
Issuance of common stock
and warrants for cash 1,978,446 19,784 - 1,270,945 -
Issuance of common stock
to acquire interest in
Infrasoll LLC and
Renewable Energies, LLC 60,000 600 - 98,400 -
Issuance of common stock
pursuant to exercise of
stock options 80,000 800 - 19,200 -
Common stock subscription - - 100,000 - (100,000)
Net loss - - - - -
---------- -------- --------------- ----------- ---------------
Balances at December 31, 1998 12,273,059 122,730 100,000 5,021,642 (100,000)
Unaudited:
Issuance of common stock
for services 202,000 2,020 - 134,529 -
Issuance of common stock
and warrants for cash 1,457,444 14,574 - 985,782 -
Issuance of common stock
pursuant to exercise of
warrants 45,000 450 18,300
Common stock subscriptions - - (100,000) - 100,000
Net loss (unaudited) - - - - -
---------- -------- --------------- ----------- ---------------
Balances at June 30, 1999 (unaudited) $ 13,977,503 $139,774 $ - $ 6,160,253 $ -
========== ======== =============== =========== ===============
<CAPTION>
Total
Accumulated Stockholders'
Deficit Equity (Deficit)
----------------- -----------------------
<S> <C> <C>
Balances at December 31, 1996 $ (267,318) $ (235,241)
Effect of acquisition - 34,167
Issuance of common
stock for services - 244,859
Issuance of common
stock for cash - 81,500
Net loss (185,957) (185,957)
----------------- -----------------------
Balances at December 31, 1997 (453,275) (60,672)
Issuance of common stock
and warrants for services - 2,147,687
Issuance of common stock
options for services - 1,194,353
Issuance of common stock
and warrants for cash - 1,290,729
Issuance of common stock
to acquire interest in
Infrasoll LLC and
Renewable Energies, LLC - 99,000
Issuance of common stock
pursuant to exercise of
stock options - 20,000
Common stock subscription - -
Net loss (4,577,656) (4,577,656)
----------------- -----------------------
Balances at December 31, 1998 (5,030,931) 113,441
Unaudited:
Issuance of common stock
for services - 136,549
Issuance of common stock
and warrants for cash - 1,000,356
Issuance of common stock
pursuant to exercise of
warrants - 18,750
Common stock subscriptions - -
Net loss (1,303,357) (1,303,357)
----------------- -----------------------
Balances at June 30, 1999(unaudited) $ (6,334,288) $ (34,261)
================= =======================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
DCH Technology, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998 1999
---------------- ---------------- ----------------- ---------------
(UNAUDITED) (UNAUDITED)
<C> <C> <C> <C>
<S>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss $ (185,957) $ (4,577,656) $ (1,879,072) $ (1,303,357)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization 8,304 31,857 7,518 24,014
Issuance of stock, warrants and options
for services 244,859 3,342,040 487,744 136,549
Change in:
Accounts receivable (11,730) (47,099) 2,730 (106,753)
Inventory - (143,714) (4,561) 103,866
Prepaid expenses (1,500) 1,500 1,500 (79,178)
Bank overdraft - 3,212 - (3,212)
Accounts payable 36,309 121,890 (13,478) 3,276
Accrued expenses - 40,799 975,820 324,480
Deferred revenue 30,000 (1,200) 100,152 8,250
---------------- ---------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 120,285 (1,228,371) (321,647) (884,065)
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Advances to stockholders (278,967) - (9,590) (51,634)
Advance to customer - (100,000) - -
Purchase of licenses - (30,000) (16,000) (25,000)
Purchase of equipment (12,638) (118,988) (81,297) (21,678)
---------------- --------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (291,605) (248,988) (106,887) (98,312)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants 81,500 1,310,729 763,159 900,356
Advances from stockholders 56,793 167,292 8,652 0
Proceeds from exercise of warrants - - - 18,750
Proceeds from common stock subscriptions
receivable - - - 100,000
---------------- ---------------- ----------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 138,293 1,478,021 771,811 1,019,106
---------------- ---------------- ----------------- ---------------
NET INCREASE (DECREASE) IN CASH (33,027) 662 343,277 36,729
CASH, BEGINNING OF PERIOD 34,167 1,140 1,140 1,802
---------------- ---------------- ----------------- ---------------
CASH, END OF PERIOD $ 1,140 $ 1,802 $ 344,417 $ 38,531
================ ================ ================= ===============
Supplemental disclosure of cash flow
information is as follows:
Cash paid for
Interest - - - -
Income taxes $ 800 $ 1,600 $ 1,600 $ 1,600
</TABLE>
Non-cash transactions
During the year ended December 31, 1998, $99,000 of common stock was
issued in connection with the Company's acquisition of interests in
Infrasoll, LLC and Renewable Energies, LLC.
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and business
-------------------------
DCH Technology, Inc. (the Company), formerly Connection Sports
International, Inc., a Colorado corporation, was incorporated on February
23, 1996. The Company seeks out patented technologies, secures those
patented technologies through licensing agreements with the patent holders
and converts the technologies into viable products which DCH then produces
and sells. DCH focuses on technologies related to the use of hydrogen,
primarily hydrogen gas sensors and fuel cells.
Business Recapitalization and Restatement
-----------------------------------------
On May 28, 1997, all of the outstanding capital stock of DCH Technology,
Inc. was acquired by Connection Sports International, Inc. (CSI). In
connection with this transaction, all of the shares of DCH Technology,
Inc., were exchanged for 6,000,000 shares of CSI with CSI as the surviving
corporation, which changed its name to DCH Technology, Inc. This stock
exchange transaction is treated as an acquisition by the Company of the net
tangible book value of the assets of CSI, at the date of the acquisition.
Operating results of CSI for all periods prior to the date of its
acquisition were not included in the operating results of the Company since
such reverse merger is not treated as a pooling of interest for accounting
purposes. DCH Technology, Inc. was engaged in the business of specializing
in licensing and converting new ideas and technology into state-of-the art
products.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of DCH
Technology, Inc. and its wholly owned subsidiary. Significant intercompany
accounts have been eliminated.
Revenue Recognition
-------------------
Revenue from product sales is recognized at the time the product
is shipped to its customer. Provision is made at the time the related
revenue is recognized for estimated product returns. The Company provides
for the estimated cost of post-sale support and product warranties upon
shipment. When other significant obligations remain after products are
delivered, revenue is recognized only after such obligations are fulfilled.
Service revenue is recognized ratably over the contractual period or as
services are performed.
Product Warranty
----------------
The Company has calculated a reserve for the estimated cost of fulfilling
its warranty obligation for products sold. The amount of such warranty
obligation has been calculated based upon the expected returns for the
various products lines and average estimated repair cost. Management does
not deem the reserve to be significant to the accompanying financial
statements, and therefore, a reserve has not been recorded at December 31,
1998 and June 30, 1999.
F-7
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Allowance for Doubtful Accounts
-------------------------------
No allowance for doubtful accounts has been provided, as it is the
management's belief that receivables are fully collectible at December 31,
1998 and June 30, 1999.
Recently Issued Accounting Pronouncements
-----------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statements
No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company's adoption
of these statements had no material impact on the accompanying financial
statements.
Year 2000 Issues
----------------
Many computers and other equipment with embedded chips or microprocessors
may not be able to appropriately interpret dates after December 31, 1999,
because such systems use only two digits to indicate a year in the date
field rather than four digits. If not corrected, many computers and
computer applications could fail or create miscalculations, causing
disruptions to the Company's operations. In addition, the failure of
customer and supplier computer systems could result in interruption of
sales and deliveries of key supplies or utilities. Because of the
complexity of the issues and the number of parties involved, the Company
cannot reasonable predict with certainty the nature of likelihood of such
impacts.
The Company is actively addressing this situation and anticipates that it
will not experience a material adverse impact to its operations, liquidity
or financial condition related to systems under control. The Company is
addressing the Year 2000 issue in four overlapping phases: (i)
identification and assessment of all critical software systems and
equipment requiring modification or replacement prior to 2000; (ii)
assessment of critical business relationships requiring modification prior
2000; (iii) corrective action and testing of critical systems; (iv)
development of contingency and business continuation plans to mitigate any
disruption to the Company's operations arising from the Year 2000 issue.
The Company is in the process of implementing a plan to obtain information
from its external service providers, significant suppliers and customer,
and financial institutions to confirm their plans and readiness to become
Year 2000 compliant, in order to better understand and evaluate how their
Year 2000 issues may affect the Company's operations. The Company currently
is not in a position to assess this aspect of the Year 2000 issues;
however, the Company plans to take the necessary steps to provide itself
with reasonable assurance that its service providers, customers and
financial institutions are Year 2000 compliant.
The Company is developing contingency plans to identify and mitigate
potential problems and disruptions to the Company's operations arising from
the Year 2000 issue. The total cost to achieve Year 2000 compliance is not
expected to be material. Amounts spent to date have not been material.
F-8
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
While the Company believes that its own internal assessment and planning
efforts with respect to its external service providers, suppliers,
customers and financial institutions are and will be adequate to address
its Year 2000 concerns, there can be no assurance that these efforts will
be successful or will not have a material adverse effect on the Company's
operations.
Inventories
-----------
Inventories are stated at the lower of cost or market using the first-in,
first-out method (FIFO). Inventories consist of parts and assemblies that
are included in the final product.
Research and Development
------------------------
Research and development expenditures are charged to operations as
incurred.
Property and Equipment
----------------------
Property and equipment is stated at cost. The assets are being depreciated
using the straight-line method over their estimated useful life of five to
seven years.
It is the policy of the Company to capitalize significant improvements and
to expense repairs and maintenance.
Deferred Revenue
----------------
On January 15, 1997, the Company entered into an agreement with a
California company for sale of a certain number of various hydrogen
sensors. The sales agreement includes a provision of an initial payment of
$30,000 when the first order is placed. As of December 31, 1998 and June
30, 1999, the remainder of the initial payment was $28,800 and has been
reflected as deferred revenue on the consolidated balance sheet at December
31, 1998. On June 24, 1999 the Company received a pre-payment on a purchase
order of $8,250. The total, $37,050, is reflected as deferred revenue on
the consolidated balance sheet at June 30, 1999.
Stock Based Compensation
------------------------
The Company accounts for stock-based compensation as prescribed by
Statement of Financial Accounting Standard (SFAS) Number 123, and has
adopted its disclosure provisions. SFAS 123 requires pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting for stock based compensation had been applied.
Loss Per Share
--------------
Loss per share of common stock is computed using the weighted average
number of common shares outstanding during the period shown. Common stock
equivalents are not included in the determination of the weighted average
number of shares outstanding, as they would be antidilutive.
F-9
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
Statement of Cash Flows
-----------------------
For the purpose of the statement of cash flows, cash includes amounts "on-
hand" and amounts deposited with financial institutions.
Private Placement
-----------------
Private placements raised $1,290,729 in cash in 1998; and $1,000,356 in the
period from January 1, 1999 through June 30, 1999.
Impairment of Long Lived Assets
--------------------------------
The Company evaluates its long lived assets by measuring the carrying
amount of the asset against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values. No adjustment to the carrying value of the assets have been
made.
Use of Estimates in Preparation of Consolidated Financial Statements
--------------------------------------------------------------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue, expenses and
disclosure of contingent assets and liabilities to prepare these financial
statements in accordance with generally accepted accounting principles.
Accordingly, actual results may differ from those estimates.
Reclassification of Financial Statement Presentation
----------------------------------------------------
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 financial statement presentation.
Unaudited Interim Financial Statements
--------------------------------------
In the opinion of management, the unaudited interim financial statements
for the six months periods ending June 30, 1999 and 1998 are presented on a
basis consistent with the audited financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for
fair presentation of the results of such periods.
2. RELATED PARTY TRANSACTIONS
Various advances from stockholders and advances from the Company to
stockholders, occurred during the year ended December 31, 1998. As of
December 31, 1998, the Company has a payable to stockholders in the amount
of $180,359 and as of June 30, 1999, has a payable to stockholders in the
amount of $128,725. Interest is accruing at a rate equal to the prime rate
as published in the Wall Street Journal on the last day of the month. The
rate at December 31, 1998 and June 30, 1999 was 7.75%. The advances are
payable on demand after January 1, 2001.
F-10
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------------- -------------------
(UNAUDITED)
<S> <C> <C>
Automobiles $ 37,949 $ 37,949
Equipment 76,968 95,530
Furniture and fixtures 11,449 12,686
Leasehold improvements 18,460 20,340
Tools 2,900 2,900
------------------ -------------------
Total 147,726 169,405
Less accumulated depreciation (39,067) (57,921)
------------------ -------------------
Net $ 108,659 $ 111,484
================== ===================
</TABLE>
Depreciation expense was $26,082 and $6,904 for the years ended December
31, 1998 and 1997, respectively and $18,845 and $5,574, for the periods
ended June 30, 1999 and 1998, respectively.
4. INVESTMENT IN PARTNERSHIPS
During the year ended December 31, 1998, the Company invested in two
partnerships. The investments are accounted for in accordance with the
provisions of Accounting Principles Board (APB) Opinion Number 18, Equity
Method of Accounting for Investments in Common Stock. As the Corporation's
ownership interest in all of the limited partnerships in the investment
portfolio is more than 20% and less than or equal to 50%, the investment in
the limited partnerships is accounted for using the equity method. Under
this method, the investor adjusts the carrying amount of an investment for
its share of the earnings or losses of the investee and reports the
recognized earnings and losses in income.
Dividends received from an investee reduce the carrying amount of the
investment. The cost of the investments in limited partnerships at December
31, 1998 and June 30, 1999, is as follows:
Infrasoll LLC $ 66,000
Renewable Energies Group LLC 33,000
---------------
$ 99,000
===============
No activity has occured in these partnerships since the initial investment.
F-11
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
5. ADVANCE TO CUSTOMER
In 1998, the Company made an advance to a customer in the amount of
$100,000. The advance is due on or before September 30, 1999. If the
customer becomes a public company through an Initial Public Offering (IPO)
prior to repayment of the advance, the customer will provide shares to the
Company as repayment of this advance at an equivalent of $10.00 per share
or 33% discount to the IPO price, whichever is less.
6. WARRANTS
The Company has issued to consultants and others warrants to purchase the
Company's common stock.
The warrants issued in the year ended December 31, 1998 were issued for
consulting services related to nuclear engineering.
Following is a summary of warrant activity for the year ended December 31,
1998 and the period ended June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Price per Exercise
Warrants Share Price
--------------- -------------- ------------
<S> <C> <C> <C>
Balance at December 31, 1997 - - -
Granted 380,634 $0.75 - 2.00 $1.47
Exercised - - -
Forfeited - - -
--------------- -------------- ------------
Balance at December 31, 1998 380,634 $0.75 - 2.00 $1.47
Unaudited:
Granted 673,337 0.50 - 0.75 0.53
Exercised (45,000) 0.25 - 0.50 0.42
Forfeited - - -
--------------- -------------- ------------
Balance at June 30, 1999 1,008,971 $0.25 - 2.00 0.93
=============== ============== ============
</TABLE>
Under APB 25 the Company has recognized compensation expense of $1,844 for the
year ended December 31, 1998.
F-12
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
7. INCOME TAXES
Income taxes are provided pursuant to SFAS No. 109 Accounting for Income
Taxes. The statement requires the use of an asset and liability approach
for financial reporting for income taxes. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized. Accordingly, as the realization and use
of the net operating loss carryforward is not probable at December 31, 1998
and June 30, 1999, the tax benefit of the loss carryforward has been
offset by a valuation allowance of the same amount.
The composition of deferred tax assets is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Total deferred tax assets $ 1,226,000 1,564,000
Total valuation allowance (1,226,000) (1,564,000)
---------------- ----------------
Total deferred tax assets $ - $ -
================ ================
</TABLE>
The tax effects of temporary differences and carryforwards that give rise
to deferred assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,226,000 $ 1,564,000
---------------- ----------------
Gross deferred tax assets 1,226,000 1,564,000
Valuation allowance (1,226,000) (1,564,000)
---------------- ----------------
Net deferred tax assets $ - -
================ ================
</TABLE>
No provision for income taxes has been recorded for the periods ended
December 31, 1998 and 1997 and for the periods ended June 30, 1999 and
1998 as the Company has incurred losses during these periods.
The Company has approximately $5,300,000 of federal and state loss
carryforwards available to reduce future federal and state tax liability
through the year 2018 and 2003, respectively.
8. STOCK OPTIONS
During the year ended December 31, 1998, the Board of Directors awarded
3,625,000 stock options, to certain officers and Board members, to purchase
shares of the Company's restricted common stock at an exercise price of
$0.25 per share. The options vest immediately and expire on December 31,
2008.
F-13
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
8. STOCK OPTIONS (Continued)
The following table summarizes information about stock option transactions
for the year ended December 31, 1998 and period ended June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------------- -----------
<S> <C> <C>
Outstanding at beginning
of year - 0 -
Awards:
Granted in the year ended December 31, 1998 3,625,000 $ 0.25
Exercised in the year ended December 31, 1998 (80,000) 0.25
-------------
Outstanding at December 31, 1998 and
June 30, 1999 3,545,000 $ 0.25
=============
Exercisable at December 31, 1998 and
June 30, 1999 3,545,000 $ 0.25
=============
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998 and at June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Number of Years of Average Number of Average
options Contractual Exercise Options Exercise
Exercise prices outstanding Life Price Exercisable Price
----------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.25 3,545,000 10 $ 0.25 3,545,000 $ 0.25
</TABLE>
During the fiscal 1997 year, the Company adopted SFAS 123 and under the
provisions of the new standard has elected to continue using the intrinsic-
value method of accounting for stock-based awards granted to employees or
to acquire goods or services from non-employees in accordance with APB 25.
Under APB 25 the Company has recognized compensation expense of $1,194,353
for the year ended December 31, 1998, for its stock-based awards to
employees.
The following table reflects pro forma net loss and earnings per share had
the Company elected to adopt the fair value approach of SFAS 123 for the
year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss:
As reported $ (4,577,656)
Pro forma $ (5,069,203)
Loss per share:
As reported $ (0.48)
Pro forma $ (0.53)
</TABLE>
F-14
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
8. STOCK OPTIONS (Continued)
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has used market information for similar instruments and applied
judgment to estimate fair values of financial instruments. At December 31,
1998, and June 30, 1999, the fair values of cash, accounts receivable,
advance to customers and accounts payable approximated carrying values
based the short maturity of these items. The fair value of advances from
stockholders approximated carrying value as the interest rate charged is
the current market rate.
10. CONCENTRATION OF CREDIT RISK
The Company had accounts receivable that comprised more than 50% of the
total accounts receivable from the following entities:
<TABLE>
<CAPTION>
December 31, June 30,
Entity 1998 1999
------ --------------- -----------
(Unaudited)
<S> <C> <C>
Customer A $ - $ 131,467
Individual accounts receivable
Comprising less than 50% of
total Accounts receivable 58,829 34,115
--------------- -----------
$ 58,829 $ 165,582
=============== ===========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Leases
--------
The Company leases its main facilities under a noncancellable operating
lease agreement expiring May 31, 2001, with an option to extend the lease
for two additional 36-month periods. The lease agreement includes
provisions for cost of living adjustments (COLA) and market rental value
adjustments to the base rent for the option periods.
F-15
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
11. COMMITMENTS AND CONTINGENCIES (Continued)
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Fiscal year
Ending
----------------
<S> <C>
1999 $ 24,600
2000 24,600
2001 10,250
---------------
$ 59,450
===============
</TABLE>
Rent expense for the year ended December 31, 1998 was $30,245 and for the
period ended June 30, 1999 was $24,960.
License Agreements
------------------
On April 24, 1996, the Company negotiated and executed a license agreement
with Sandia Corporation (manager and operator of a federally-owned facility
known as Sandia National Laboratories for the United States Department of
Energy (DOE)), the owner of the rights to U.S. Patent 5,279,795 (a
sensitive detector for hydrogen). Under the terms of the agreement, in
exchange for a license fee, the Company was granted a limited nonexclusive
right to make, have made or sell products under one or more claims of
Sandia patent rights. The license fee is being amortized on a straight-line
basis over the remaining life of the license agreement. In addition to the
annual payments for the license, the Company has agreed to pay royalties,
which is the larger of a minimum amount or a percentage of sales and to
meet certain production and sales milestones during the term of the
contract. The license expires on January 1, 2015.
The Company entered into an agreement with Lockheed Martin Energy Research
Corporation (manager of Oak Ridge National Laboratory for the U.S.
Department of Energy) for a license fee the Company was granted the license
for U.S. Patent 5,451,920 (Thick Film Hydrogen Sensor") and U.S. Patent
Application S/N 08/445,325 ("Improved Thick Film Hydrogen Sensor"), on
September 30, 1996. Under the terms of the agreement, the Company will be
the sole licensee to manufacture, use, sell or offer for sale the products
for a period of five years. The license fee is being amortized on a
straight-line basis over the 5 year life of the contract. The contract also
includes a provision for royalty payments which is the larger of a minimum
amount or a percentage of net sales.
Additionally, the Company entered into an agreement with Simon Fraser
University on May 15, 1998, owner of the provisional patent rights to an
invention called "Universal Gas Sensor", to be the exclusive licensee to
make, have made, execute, copy, market, lease and sell licensed products
during the term of the agreement. Under the terms of the agreement, in
exchange for a license fee, the Company was granted the license for the
patent to the "Universal Gas Sensor". The license fee is amortized on a
straight-line basis over a 5 year life. The contract also includes a
provision for royalty payments which is the larger of a minimum amount or a
percentage of net sales.
The total amortization expense related to the license agreements was $5,775
and $1,400 for the years ended December 31, 1998 and 1997, respectively and
$5,169 and $1,944 for the periods ended June 30, 1999 and 1998,
respectively.
F-16
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
11. COMMITMENTS AND CONTINGENCIES (Continued)
Royalties
---------
The Company has entered into certain license agreements which requires
minimum royalty payments as follows:
<TABLE>
<CAPTION>
Fiscal year
Ending
----------------
<S> <C>
1999 $ 41,000
2000 64,000
2001 62,000
2002 52,000
2003 52,000
Thereafter 626,000
---------------
$ 897,000
===============
</TABLE>
The future minimum royalty payments may be reduced as licenses are
cancelled as the technology becomes obsolete.
Royalty expense for the year ended December 31, 1998, and 1997 was $18,773
and $11,000, respectively, and for the period ended June 30, 1999, and
1998, was $20,500 and $9,000, respectively.
Employment Agreements
---------------------
The Company currently has employment agreements with each of David P.
Haberman and David A. Walker, its Vice President, Technology and Planning,
and President, respectively. Each employment agreement commenced on January
1, 1995 and terminates on December 31, 2000, and provides for an annual
salary currently set at $100,000. Neither of the employment agreements
provides for additional payments upon a change in control.
12. GOING CONCERN
The Company has not had significant revenues and has experienced operating
losses since inception primarily caused by its continued development and
marketing costs. As shown in the accompanying financial statements, the
Company incurred a net loss of $4,577,656 and $185,957 for the years ended
December 31, 1998 and 1997, respectively and as of December 31, 1998 has an
accumulated deficit of $5,030,931. Those factors create an uncertainty and
raise substantial doubt about the Company's ability to continue as a going
concern. Management of the Company intends to pursue various means of
obtaining additional capital. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as
a going concern. Continuation of the Company as a going concern is
dependent on the Company continuing to raise capital, developing
significant revenues and ultimately attaining profitable operations.
Management anticipates the total expenses for the twelve-month period
ending December 31, 1999 to be approximately $2,300,000: $1,550,000 for
operational needs and $750,000 for research and development. Management
expects approximately $550,000 of total requirement to be fulfilled from
sales revenue and approximately $1,750,000 from additional capital infusion
from investors.
F-17
<PAGE>
DCH Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED
13. SUBSEQUENT EVENTS
In April 1999, the Company entered into two facility lease agreements for
facilities in California and Wisconsin. The California lease is a three-
year lease commencing on June 1, 1999 with monthly payments of $1,913. The
lease includes annual increases in base rent as provided for in the lease
agreement. The Wisconsin lease is also a three-year lease commencing on
April 22, 1999, with beginning monthly payments of $1,400, with annual
increases of 3% of previous year's rent. The leases include provisions for
two, three-year options to extend the lease.
F-18
<PAGE>
Exhibit 6.4
Last Revision Date: June 18, 1998
LANL MODULAR CRADA STEVENSON-WYDLER (15 USC 3710) COOPERATIVE RESEARCH AND
DEVELOPMENT AGREEMENT (hereinafter "CRADA") NO. LA98CIO384
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA under its U.S. Department of Energy
Contract
No. W@-7405-ENG-36 (hereinafter "University") and DCH Technology, Inc.,
(hereinafter "Participant") both being hereinafter jointly referred to as the
"Parties"
ARTICLE 1: DEFINITIONS
A. "Government" means the United States of America and agencies thereof.
B. "DOE" means the Department of Energy, an agency of the United States of
America.
C. "Contracting Officer" means the DOE employee administering the University's
DOE contract.
D. "Generated Information" means information produced in the performance of
this CRADA.
E. "Proprietary Information" means information which embodies (1) trade
secrets or (ii) commercial or financial information which is privileged or
confidential under the Freedom of-Information Act (5 USC 552 (b)(4)), either of
which is developed at private expense outside of this CRADA and which is marked
as Proprietary Information.
F. "Protected CRADA Information" means Generated Information which is marked
as being Protected CRADA Information by a Party, to this CRADA and which would
have been Proprietary Information had it been obtained from a non-federal
entity.
G. "Subject Invention" means any invention of the University or Participant
conceived or first actually reduced to practice in the performance of work under
this CRADA.
H. "Intellectual Property" means patents, trademarks, copyrights mask works,
and other forms of comparable property rights protected by Federal Law and other
foreign counterparts.
I. "Trademark" means a distinctive mark, symbol, or emblem used in commerce by
a producer or manufacturer to identify and distinguish its goods or services
from those of others.
J. "Service Mark" means a distinctive word, slogan, design, picture, symbol or
any combination thereof, used in commerce by a person to identify and
distinguish its services from those of others.
K. "Mask Work" means a series of related images, however fixed or encoded,
having or representing the predetermined three-dimensional pattern of metallic,
<PAGE>
insulating or semiconductor material present or removed from the layers of a
semiconductor chip product, and in which series the relation of the images to
one another is that each image has the pattern of the surface Of one form of the
semiconductor chip product.
L. "RD&D" means research, development, and demonstration performed by the
University and the Participant under this CRADA, including works performed by
consultants or other contractors and subcontractors under this CRADA.
M. "Background Intellectual Property" means the Intellectual Property rights
in the items identified by the Parties in Appendix C, Background Intellectual
Property, which were in existence prior to or are first produced outside of this
CRADA, except that in the case of inventions in those identified items, the
inventions must have been conceived outside of this CRADA and not first actually
reduced to practice under this CRADA to qualify as Background Intellectual
Property. Licensing of Background Intellectual Property, if agreed to by the
Parties, shall be the subject of separate licensing agreements between the
Parties. Background Intellectual Properties are not Subject Inventions.
N. "Agent" means any consultant, subcontractor, affiliate, or other
individual, with respect to whom a Participant is entitled to assert or acquire
ownership of Intellectual Property generated by such individual and for whom the
Participant warrants compliance with the terms of this CRADA.
ARTICLE II: STATEMENT OF WORK
Appendix A, Statement 'of Work, is hereby incorporated into this CRADA by
reference.
ARTICLE III: TERM, FUNDING AND COSTS
A. The effective date of this CRADA shall be the latter date of (1) the date
on which it is signed by the last of the Parties hereto or, (2) the date on
which it is approved by DOE. The work to be performed under this CRADA shall be
completed within 24 months from the effective date. The term of this CRADA may
be extended by mutual, written agreement of the Parties. A copy of this time-
only extension, signed by both Parties, shall be provided to DOE by the
University.
B. The Participant's estimated total contribution is [*]. The Government's
estimated total contribution, which is provided through the University's
contract with DOE, is [*], and includes [*] for the University, subject to
available funding. The total value of this CRADA is estimated to be $1,200K.
C. Neither Party shall have an obligation to continue or complete performance
of its work at a contribution in excess of its estimated contribution as
contained in Article III B above, including any subsequent amendment.
D. Each Party agrees to provide at least thirty (30) days notice to the other
Party if the actual cost to complete performance will exceed its estimated cost.
ARTICLE IV: PERSONAL PROPERTY
All tangible personal property Produced or acquired under this CRADA shall
become the property of the Participant or the Government depending upon whose
funds were used to obtain it. Such property is identified in Appendix A,
Statement of Work. Personal Property shall be disposed of as directed by the
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
owner at the owner's expense. All jointly funded property shall be owned by the
Government.
ARTICLE V: DISCLAIMER
THE GOVERNMENT, THE PARTICIPANT, AND THE"UNIVERSITY MAKE NO EXPRESS OR IMPLIED
WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY,
GENERATED INFORMATION, OR PRODUCT MADE, OR DEVELOPED UNDER THIS CRADA, OR THE
OWNERSHIP, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH
OR RESULTING PRODUCT. NEITHER THE GOVERNMENT THE PARTICIPANT, NOR THE UNIVERSITY
SHALL BE LIABLE FOR SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ATTRIBUTED TO
SUCH RESEARCH OR RESULTING PRODUCT INTELLECTUAL PROPERTY, GENERATED INFORMATION,
OR PRODUCT MADE OR DEVELOPED UNDER THIS CRADA.
ARTICLE VI: PRODUCT LIABILITY
Except for liability resulting from any negligent acts or omissions of the
University, Participant indemnities the Government and the University for all
damages, costs and expenses, including attorney's fees, arising from personal
injury or property damage occurring as a result of the making, using or selling
of a product, process or service by or on behalf of the Participant, its
assignees or licensees, which was derived from the work performed under this
CRADA. In respect to this Article, neither the Government nor the University
shall be considered assignees or licensees of the Participant, as a result of
reserved Government and University rights. The indemnity set forth in this
paragraph shall apply only if Participant shall have been informed as soon and
as completely as practical by the University and/or the Government of the action
alleging such claim and shall have been given an opportunity, to the maximum
extent afforded by applicable laws, rules, or regulations, to participate in and
control its defense, and the University and/or Government shall have provided
all reasonably available information and reasonable assistance requested by
Participant. No settlement for which Participant would be responsible shall be
made without Participant's consent unless required by final decree of a court of
competent jurisdiction.
ARTICLE VII: OBLIGATIONS AS TO PROPRIETARY INFORMATION
A. If Proprietary Information is orally disclosed to a Party, it shall be
identified as such, orally, at the time of disclosure and confirmed in a written
summary thereof, appropriately marked by the disclosing Party, within thirty
(30) days as being Proprietary Information.
B. Each Party agrees to not disclose Proprietary information provided by
another Party to anyone other than the CRADA Participant and University without
written approval of the providing Party, except to Government employees who are
subject to the statutory provisions against disclosure of confidential
information set forth in the Trade Secrets Act (18 USC 1905).
C. All Proprietary Information shall be returned to the provider thereof at
the conclusion of this CRADA at the provider's expense.
D. All Proprietary Information shall be protected for a period of five (5)
years, unless and until such Proprietary Information becomes publicly known
without the fault of the recipient, comes into recipient's possession without
breach of any of the obligations set forth herein by the recipient, or is
independently developed by recipient's employees who did not have access to such
Proprietary Information.
<PAGE>
ARTICLE VIII: OBLIGATIONS AS TO PROTECTED CRADA INFORMATION
A. Each Party may designate as Protected CRADA Information, as defined in
Article 1, any Generated Information produced by its employees and, with the
written agreement of the other Party, designate any Generated Information
produced by the other Party's employees. All such designated Protected CRADA
Information shall be appropriately marked.
B. For a period of five (5) years from the date Protected CRADA Information is
produced, Parties agree not to further disclose such Information except:
(1) as necessary to perform this CRADA;
(2) as provided in Article XI [REPORTS AND ABSTRACTS];
(3) as requested by the DOE Contracting Officer to be provided to other DOE
facilities for use only at those DOE facilities with the same protection in
place;
(4) to existing or potential licensees, affiliates, customers or suppliers of
the, Parties in support of commercialization of the technology with the same
protection in place. Disclosure of Protected CRADA Information under this
subparagraph shall only be done with both Parties' consent; or
(5) as mutually agreed by the Parties in advance.
C. The obligations of (B) above shall end sooner for any Protected CRADA
Information which shall become publicly known without fault of either Party,
shall come into a Party's possession without breach by that Party of the
obligations of (B) above, or shall be independently developed by a Party's
employees who did not have access to the Protected CRADA Information.
ARTICLE IX: RIGHTS IN GENERATED INFORMATION
The Parties agree that they shall have no obligations of non-disclosure or
limitations on their use of, and the Government shall have unlimited rights in,
all Generated Information, all Protected CRADA Information after the expiration
of the period set forth in Article VIII (B) above and information provided to
the Government or University under this CRADA which is not marked as being
copyrighted (subject to Article XIII) or as Protected CRADA Information (subject
to Article VIII B) or Proprietary information (subject to Article VII B), or
which is an invention disclosure which may later be the subject of a U.S. or
foreign patent application.
ARTICLE X: EXPORT CONTROL
THE PARTIES UNDERSTAND THAT MATERIALS AND INFORMATION RESULTING FROM THE
PERFORMANCE OF THIS CRADA MAY BE SUBJECT TO EXPORT CONTROL LAWS AND THAT EACH
PARTY IS RESPONSIBLE FOR ITS OWN COMPLIANCE WITH SUCH LAWS.
ARTICLE XI: REPORTS AND ABSTRACTS
A. The Parties agree to produce the following deliverables:
(1) an initial abstract suitable for public release at the time the CRADA is
approved by DOE (see Appendix A);
(2) other abstracts (final when work is complete, and others as substantial
changes in scope and dollars occur);
(3) a final report, upon completion or termination of this CRADA, to include a
list of Subject Inventions;
(4) other topical/periodic reports where the nature of research and magnitude
of dollars justify; and
<PAGE>
(5) computer software in source and executable object code format as defined
within the Statement of Work or elsewhere within the CRADA documentation.
B. It is understood that the University has the responsibility to provide the
above information at the time of its completion to the DOE Office of Scientific
and Technical Information.
C. Participant agrees to provide the above information to the University to
enable full compliance with paragraph B of this Article.
D. It is understood that the University and the Department of Energy have a
need to document the long-term economic benefit of the cooperative research
being done under this agreement. Therefore, the Participant acknowledges a
responsibility to respond to reasonable requests, during the term of this CRADA
and for a period of three (3) years thereafter, from the University for
information relating to such economic benefit.
ARTICLE XII: PRE-PUBLICATION REVIEW
A. The Parties agree to secure pre-publication approval from each other which
shall not be unreasonably withheld or denied beyond thirty (30) days. The
proposed publication shall be deemed not objectionable, unless the proposed
publication contains Proprietary Information, Protected CRADA Information, or
material that would create potential statutory bars to filing United States or
corresponding foreign patent applications, in which case express written
permission shall be required for publication.
B. The Parties agree that neither will use the name of the other Party or its
employees in any promotional activity, such as advertisements, with reference to
any product or service resulting from this CRADA, without prior written approval
of the other Party.
ARTICLE XIII: COPYRIGHTS
A. The Parties may assert copyright in any of their Generated Information.
Assertion of copyright generally means to enforce or give any indication of an
intent or right to enforce such as by marking or securing Federal registration.
B. Each Party shall own title to copyrights in works as determined by U.S,
Copyright Law, 17 USC 101 et seq. Copyrights in jointly created works shall be
jointly owned. If either Party decides not to retain ownership of copyright in a
work created by its employee(s), that Party agrees to assign such copyright to
the other Party, at the other Party's request. Participant agrees to notify the
University if it decides not to retain ownership of copyright in any work
created by its employee(s); the University agrees to notify DOE if neither the
Participant nor the University decides to retain ownership of copyright in any
work created by their employee(s). The Parties agree to assign to the DOE, upon
request, copyrights not retained by either Party.
C. For Generated Information, the Parties acknowledge that the Government has
for itself and others acting on its behalf, a royalty-free, non-transferable,
non-exclusive, irrevocable worldwide copyright license to reproduce, prepare
derivative works, distribute copies to the public, and perform publicly and
display publicly, by or on behalf of the Government, all copyrightable works
produced in the performance of this CRADA, subject to the restrictions this
CRADA places on publication of Proprietary Information and Protected CRADA
Information.
<PAGE>
D. For all copyrighted computer software produced in the performance of this
CRADA, the Party owning the copyright will provide the source code, an expanded
abstract as described in Appendix B, the executable object code and the minimum
support documentation needed by a competent user to understand and use the
software to DOE's Energy Science and Technology Software Center, P.O. Box 1020,
Oak Ridge, TN 37831.
The expanded abstract will be treated in the same manner as Generated
Information in paragraph C of this Article.
E. The University and the Participant agree that, with respect to any
copyrighted computer software produced in the performance of this CRADA, DOE has
the right, at the end of the period set forth in paragraph B of Article VIII
hereof and at the end of each two-year interval thereafter, to request the
University and the Participant and any assignee or exclusive licensee of the
copyrighted software to grant a non-exclusive, partially exclusive, or exclusive
license to a responsible applicant upon terms that are reasonable under the
circumstances, provided such grant does not cause a termination of any
licensee's right to use the copyrighted computer software. If the University or
the Participant or any assignee or exclusive licensee refuses such request, the
University and the Participant agree that DOE has the right to grant the license
if DOE determines that the University, the Participant, assignee, or licensee
has not made a satisfactory demonstration that it is actively pursuing
commercialization of the copyrighted computer software.
Before requiring licensing under this paragraph E, DOE shall furnish the
University/Participant written notice of its intentions to require the
University/Participant to grant the stated license, and the
University/Participant shall be allowed thirty (30) days (or such longer period
as may be authorized by the cognizant DOE Contracting Officer for good cause
shown in writing by the University/Participant) after such notice to show cause
why the license should not be required to be granted.
The University/Participant shall have the right to appeal the decision by the
DOE to the grant of the stated license to the Invention Licensing Appeal Board
as set forth in paragraphs (b)-(g) of 10 CFR 781.65, "Appeals."
F. The Parties agree to place Copyright and other notices, as appropriate for
the protection of Copyright, in human readable form onto all physical media, and
in digitally encoded form in the header of machine readable information recorded
on such media such that the notice will appear in human readable form when the
digital data are off loaded or the data are accessed for display or printout.
ARTICLE XIV: REPORTING SUBJECT INVENTIONS
A. The Parties agree to disclose to each other each and every Subject
Invention, which may be patentable or otherwise protectable under the Patent
Act. The Parties acknowledge that the University and Participant will disclose
their respective Subject Invention to the DOE within two (2) months after the
inventor first discloses the Subject Invention in writing to the person(s)
responsible for patent matters of the disclosing Party.
B. These disclosures should be in sufficiently complete technical detail to
convey a clear understanding, to the extent known at the time of the disclosure,
of the nature, purpose and operation of the Subject Invention. The disclosure
shall also identify any known actual or potential statutory bars, i.e., printed
<PAGE>
publications describing the Subject Invention or the public use or on sale of
the Subject Invention in this country. The Parties further agree to disclose to
each other any subsequent known actual or potential statutory bar that occurs
for a Subject Invention disclosed but for which a patent application has not
been filed. All Subject Invention disclosures shall be marked as confidential
under 35 USC 205.
ARTICLE XV: TITLE TO INVENTIONS
Whereas the Participant and the University have been granted the right to elect
to retain title to Subject Inventions:
A. Each Party shall own title to any Subject Invention made solely by its
employees or Agents. Title to jointly made Subject Inventions shall be jointly
owned. If either Party elects not to retain its interest in the title to a
Subject Invention, the other Party shall have the first option to acquire by
assignment the exclusive title to such invention. The DOE may obtain title to
any Subject Invention that is not retained by any Party.
B. The Parties acknowledge that the DOE may obtain title to each Subject
Invention reported under Article XIV for which a patent application or
applications are not filed pursuant to Article XVI and for which any issued
patents are not maintained by any Party to this CRADA.
C. The Parties acknowledge that the Government retains a non-exclusive, non-
transferable, irrevocable, paid-up license to practice or to have practiced for
or on behalf of the United States every Subject Invention under this CRADA
throughout the world.
ARTICLE XV.I: SPECIAL LICENSE TERMS AND CONDITIONS
The Parties agree to enter into a separate Option Agreement in which the
Participant is granted an option to obtain an exclusive license in a specified
field of use and upon mutually agreed terms and conditions to Intellectual
Property generated by University employees under this CRADA. The Parties
understand that rights in Intellectual Property generated under subcontracts for
tasks under this CRADA are treated in accordance with the terms of the
subcontracts. Accordingly, neither Party will enter into any subcontract for
tasks under this CRADA without the prior written approval of the other Party.
ARTICLE XVI: FILING PATENT APPLICATIONS
A. The Parties agree that the Party initially indicated as having an ownership
interest in any Subject Inventions (Inventing Party) shall have the first
opportunity to file U.S. and foreign patent applications. If the Participant
does not file such applications within one year after election, or if the
University does not file such applications within the filing time specified in
its prime contract, then the other Party to this CRADA exercising an option
pursuant to Article XV may file patent applications on such Subject Inventions.
If a patent application is filed by the other Party (Filing Party), the
Inventing Party shall reasonably cooperate and assist the Filing Party, at the
Filing Party's expense, in executing a written assignment of the Subject
Invention to the Filing Party and in otherwise perfecting the patent
application, and the Filing Party shall have the right to control the
prosecution of the patent application. The Parties shall agree between
themselves as to who will file patent applications on any joint Subject
Invention.
<PAGE>
B. The Parties agree that DOE has the right to file patent applications in any
country if neither Party desires to file a patent application for any Subject
Invention. Notification of such negative intent shall be made in writing to the
DOE Contracting Officer within three (3) months of the decision of the non-
inventing party to not file a patent application for the Subject Invention
pursuant to Article XV, or not later than 60 days prior to the time when any
statutory bar might foreclose filing of a U.S. patent application.
ARTICLE XVII: TTRADEMARKS
'Me Parties may seek to obtain Trademark/Service Mark protection on products or
services generated under this agreement in the United States or foreign
countries. Each Party shall own title -to Trademarks/Service Marks developed
solely by its employees or Agents. Jointly developed Trademarks/Service Marks
shall be jointly owned. The Parties hereby acknowledge that the Government shall
have the right to indicate on any similar goods or services produced by or for
the Government that such goods or services were derived from and are a DOE
version of the goods or services protected by such Trademark/Service Mark with
the Trademark and the owner thereof being specifically identified. In addition,
the Government shall have the right to use such Trademark/Service Mark in print
or communications media.
ARTICLE XVIII: MASK WORKS
The Parties may seek to obtain legal protection for Mask Works fixed in
semiconductor products generated under this agreement as provided by Chapter 9
of Title 17 of the United States Code. Each Party shall own title to Mask Works
developed solely by its employees or Agents. Jointly developed Mask Works shall
be jointly owned. The Parties hereby acknowledge that the Government or others
acting on its behalf shall retain a non-exclusive, paid-up, worldwide,
irrevocable, Nontransferable license to reproduce, import, or distribute the
covered semiconductor product by or on behalf of the Government, and to
reproduce and use the Mask Work by or on behalf of the Government.
ARTICLE XIX: COST OF INTELLECTUAL PRO PERT VPR LTFCTI@ @ON
Each Party shall be responsible for payment of all costs relating to Copyright,
Trademark and Mask Work filing, U.S. and foreign patent application filing and
prosecution, and all costs relating to maintenance fees for U.S. and foreign
patents hereunder which are filed or registered by that Party. Government/DOE
laboratory funds contributed as DOE's cost share to a CRADA cannot be given to
Participant for payment of Participant's costs of filing and maintaining patents
or filing for Copyrights, Trademarks, and Mask Works.
ARTICLE XX: REPORTS OF INTELLECTUAL PROPERTY USE
Participant agrees to submit for a period of three (3) years, upon request of
DOE, a non-proprietary report no more frequently than annually on efforts to
utilize any Intellectual Property arising under the CRADA.
ARTICLE XXI: DOE MARCH-IN RIGHTS
The Parties acknowledge that the DOE has certain march-in rights to any Subject
Inventions in accordance with 48 CFR 27.304-1(g) and 15 USC 3710a(b)(1)(B) and
(C).
<PAGE>
ARTICLE XXII: U.S. COMPETITIVENESS
The Parties agree that a purpose of this CRADA is to provide substantial benefit
to the U.S. economy.
A. In exchange for the benefits received under this CRA-DA, the Participant
therefore agrees to the following:
(1) Products embodying Intellectual Property developed under this CRADA shall
be substantially manufactured in the United States; and
(2) Processes, services, and improvements thereof which are covered by
Intellectual Property developed under this CRADA shall be incorporated into the
Participant's manufacturing facilities in the United States either prior to or
simultaneously with implementation outside the United States. Such processes,
services, and improvements, when implemented outside the United States, shall
not result in reduction of the use of the same processes, services, or
improvements in the United States.
A. The University agrees to a U.S. Industrial Competitiveness clause in
accordance with its prime contract with respect to any licensing and assignments
of its Intellectual Property arising from this CRADA, except that any licensing
or assignment of its Intellectual Property rights to the Participant shall be in
accordance with the terms of Paragraphs A. (1) and A. (2) of this Article.
ARTICLE XXIII: ASSIGNMENT OF PERSONNEL,
A. It is contemplated that each Party may assign personnel to the other
Party's facility as part of this CRADA to participate in or observe the research
to be performed under this CRADA. Such personnel assigned by the assigning Party
shall not during the period of such assignments be considered employees of the
receiving Party for any purposes.
B The receiving Party shall have the right to exercise routine administrative
and technical supervisory control of the occupational activities of such
personnel during the assignment period and shall have the right to approve the
assignment of such personnel and/or to later request their removal by the
assigning Party.
C. The assigning Party shall bear any and all costs and expenses with regard
to its personnel assigned to the receiving Party's facilities under this CRADA.
The receiving Party shall bear facility costs of such assignments.
ARTICLE XXIV: FORCE MAJEURE
No failure or omission by the University or Participant in the performance of
any obligation under this CRADA shall be deemed a breach of this CRADA or create
any liability if the same shall arise from any cause or causes beyond the
control of the University or Participant, including but not limited to the
following, which, for the purpose of this CRADA, shall be regarded as beyond the
control of the Party in question: Acts of God, acts or omissions of any
government or agency thereof, compliance with requirements, rules, regulations,
or orders of any governmental authority or any office, department, agency, or
instrumentality thereof, fire, storm, flood, earthquake, accident, acts of the
public enemy, war, rebellion, insurrection, riot, sabotage, invasion,
quarantine, restriction, transportation embargoes, or failures or delays in
transportation.
ARTICLE XXV: ADMINISTRATIO OF THE CRADA
<PAGE>
It is understood and agreed that this CRADA is entered into by the University
under the authority of its prime contract with DOE. The University is authorized
to and will administer this CRADA in all respects unless otherwise specifically
provided for herein. Administration of this CRADA may be transferred from the
University to DOE or its designee with notice of such transfer to the
Participant, and the University shall have no further responsibilities except
for the confidentiality, use and/or non- disclosure obligations of this CRADA.
ARTICLE XXVI: RECORDS AND ACCOUNTING FOR GOVERNMENT PROPERTY
The Participant shall maintain records of receipts, expenditures, and the
disposition of all Government property in its custody related to the CRADA.
ARTICLE XXVII: NOTICES
A. Any communications required by this CRADA, if given by postage prepaid
first class U.S. Mail or other verifiable means addressed to the Party to
receive the communication, shall be deemed made as of the day of receipt of such
communication by the addressee, or on the date given if by verified facsimile.
Address changes shall be given in accordance with this Article and shall be
effective thereafter. All such communications, to be considered effective, shall
include the number of this CRADA.
B. The addresses, telephone numbers and facsimile numbers for the Parties are
as follows:
1. For the University:
a. FORMAL NOTICES AND COMMUNICATIONS
Russell N. Miller
Telephone: (505) 665-3089
Facsimile: (505)665-6127
For Fed. Ex., UPS, Freight:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
2237 Trinity Drive
Mail Stop C334
Los Alamos Business Park
Los Alamos, NM 87544
For U.S. Mail Only:
Los Alamos National Laboratory
Civilian and Industrial Technology Program Office
P.O. Box 1663
Mail Stop C334
Los Alamos, NM 87545
b. TECHNICAL CONTACT, REPORTS, AND COPIES, OF FORMAL NOTICES AND
COMMUNICATIONS
Mahlon S. Wilson
Telephone: (505)667-9178
Facsimile: (505)665-4292
For Fed. Ex., UPS, Freight:
<PAGE>
Los Alamos National Laboratory
MST- I 1, Mail Stop D429
TA-3 Bldg. SM-43, Room No. D37
Los Alamos, NM 87545
For U.S. Mail Only:
Los Alamos National Laboratory
P.O. Box 1663
MST- I 1, Mail Stop D429
Los Alamos, NM 87545
2. For DCH Technology, Inc.
a. FORMAL NOTICES AND COMMUNICATIONS
David A. Walker
Telephone: (818) 385-0400
Facsimile: (818) 385-0849
For Fed. Ex., UPS, Freight: DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
For U.S. Mail Only:
DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
b. TECHICAL CONTACT, REPORTS, AND COPIES OF FORMAL NOTICES AND COMMUNICATIONS
Dr. Mark A. Daugherty
Telephone: (608) 831-6675
Facsimile: (Phone Number)
For Fed Ex., UPS, Freight: DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
For U.S. Mail Only:
DCH Technology, Inc.
14241 Ventura Boulevard, Suite 208
Sherman Oaks, CA 91423
ARTICLE XXVIII: DISPUTES
The Parties shall attempt to jointly resolve all disputes arising from this
CRADA. If the Parties are unable to jointly resolve a dispute within a
reasonable period of time, they agree to have the dispute decided by the DOE
Contracting Officer, who shall reduce his decision to writing within sixty (60)
days of receiving in writing the request for a decision by either Party to this
CRADA. The DOE Contracting Officer shall mail or otherwise furnish a copy of the
decision to the Parties. The decision of the DOE Contracting Officer is final
unless, within one hundred twenty (120) days, the Participant brings an action
for adjudication in a court of competent jurisdiction. To the extent that there
<PAGE>
is no applicable U.S Federal law, this CRADA and performance thereunder shall be
governed by the law of the State of New Mexico.
ARTICLE XXIX: ENTIRE CRADA AND MODIFICATIONS
A. It is expressly understood and agreed that this CRADA with its Appendices
contains the entire agreement between the Parties with respect to the subject
matter hereof and that all prior representations or agreements relating hereto
have been merged into this document and are thus superseded in totality by this
CRADA.
B. Any agreement to materially change any terms or conditions of this CRADA or
the Appendices shall be valid only if the change is made in writing, executed by
the Parties hereto, and approved by DOE.
ARTICLE XXX: TERMINATION
This CRADA may be terminated by either Party upon thirty (30) days written
notice to the other Party. This CRADA may also be terminated by the University
in the event of failure by the Participant to provide the necessary advance
funding, as agreed in Article III.
In the event of termination by either Party, each Party shall be responsible for
its share of the costs incurred through the effective date of termination, as
well as its share of the costs incurred after the effective date of termination,
and which are related to the termination. The confidentiality, use, and/or non-
disclosure obligations of this CRADA shall survive any termination of this
CRADA.
I hereby represent that I have the requisite authority to sign, this instrument
on behalf of-
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Signature: /s/ JOHN C. BROWNE
Name: John C. Browne
Title: Director
Date: 10/14/98
PARTICIPANT:
Signature: /s/ DAVID A. WALKER
Name: David A. Walker
Title: Vice President Business Operaitons
Date: 10/30/98
APPENDIX A - STATEMENT OF WORK
A. PURPOSE [*]
[*] One and one-half pages omitted pursuant to request for confidentiality filed
with the Securities and Exchange Commission.
<PAGE>
C. SCOPE OF WORK
[*]
[*] Three pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
D. PROPERTY
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
D. [SIC] NON-PROPRIETARY PROJECT ABSTRACT
[*]
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
E. FUNDING PROFILE
[*]
[*] Two pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
APPENDIX B - DESCRIPTION OF EXPANDED ABSTRACT OF COPYRIGHTED COMPUTER SOFTWARE
[*]
[*] Three pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
APPENDIX C - BACKGROUND INTELLECTUAL PROPERTY
[*]
[*] One page omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 6.5(a)
Amendment B to 9/13/99/FVD
CRADA No. ORNL96-0454
AMENDMENT B
To
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
(hereinafter "CRADA") No. ORNL96-0454
By and Between
Lockheed Martin Energy Research Corporation, (hereinafter "Contractor")
And
DCH Technology, Inc. (hereinafter "Participant")
This Amendment B to CRADA No. ORNL96-0454 effective on September 26, 1996, as
amended on October 31, 1997, by and between the Contractor and the Participant
is made effective upon approval by the DOE. The Contractor and the Participant
being hereinafter jointly referred to as the "Parties."
WITNESS:
A) The Parties hereby desire to amend said CRADA to continue this research
effort as described in the previously approved Appendix A, Statement of
Work, dated August 28, 1996. The funding associated with this CRADA has not
flowed in the manner originally anticipated.
B) The Parties desire to increase the duration from thirty-six (36) months to
sixty (60) months.
C) The Parties desire to change the Principal Investigators responsible for
this research effort.
THEREFORE, the Parties hereto agree to be bound as follows:
In ARTICLE III: FUNDING AND COSTS, delete the last sentence of paragraph D.
-------------------------------
"The work to be performed under this CRADA shall be completed within
thirty-six (36) months.
And insert the following sentence in its place.
"The work to be performed under this CRADA shall be completed within sixty
(60) months from the effective date.
1
<PAGE>
Amendment B to 9/13/99/FVD
CRADA No. ORNL96-0454
On page A-2, of Appendix A, Statement of Work, Scope of Work, revise the
Milestone completion dates for Tasks 3 and 4 as follows:
[*]
On page A-3, of Appendix A, Statement of Work, Estimated Cost and Source of
Support, delete the table in its entirety and replace with the following.
[*]
On page A-3, of Appendix A, Statement of Work, Schedule, delete the following
sentence.
"The duration of this project is thirty-six (36) months after the effective
date.
And insert the following sentence in its place.
"The duration of this project is sixty (60) months, expiring on September
25, 2001, unless sooner terminated."
On page A-4 of Appendix A, Statement of Work, the paragraph entitled "Program
Management" is revised as follows:
The principal investigators for this CRADA are Dr. Robert J. Lauf (Contractor),
and C. Salter (Participant).
[*] Omitted pursuant to a request for confidentiality filed with the Securities
and Exchange Commission.
2
<PAGE>
Amendment B to 9/13/99/FVD
CRADA No. ORNL96-0454
IN WITNESS WHEREOF, the Parties hereto have caused this amendment to be duly
executed in their respective names by their duly authorized representatives.
FOR CONTRACTOR:
By: /s/ ALVIN W. TRIVELPIECE
--------------------------------------
Name: Alvin W. Trivelpiece
Title: President Lockheed Martin Energy
Research Corporation, and Director,
Oak Ridge Laboratory
Date: 9/17/99
FOR PARTICIPANT:
By: /s/ DAVID HUBERMAN
--------------------------------------
Name: David Huberman
Title: Vice President
Date: 9/24/99
3
<PAGE>
EXHIBIT 6.6
9/9/96 AC
SOLE COMMERCIAL PATENT LICENSE AGREEMENT
THIS AGREEMENT, by and between LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
(hereinafter "LMER"), a corporation organized and existing under the laws of the
State of Delaware and whose address for notices is Post Office Box 2009, Oak
Ridge, Tennessee 37831-8242, and DCH Technology, Inc., (hereinafter "Licensee"),
a corporation organized and existing under the laws of the State of California
and whose address for notices is 14241 Ventura Boulevard, Suite 208, Sherman
Oaks, California, 91423, made effective on the 30th day of September, 1996,
subject to the execution of Cooperative Research and Development Agreement No.
ORNL96-0454 by DCH Technology, Inc.
W I T N E S S:
A. LMER, pursuant to Contract No. DE-AC05-96OR22464 (hereinafter "Prime
Contract") with the United States Government as represented by the Department of
Energy (hereinafter "DOE") has developed and/or obtained rights to Proprietary
Rights relating to Products subject to the DOE nonexclusive, nontransferable,
irrevocable, paid-up license for the United States Government and certain march-
in rights and any other conditions of waivers granted by the DOE; and
B. Licensee desires to obtain rights under LMER Proprietary Rights.
THEREFORE, in consideration of the foregoing premises, covenants and agreements
contained herein, the parties hereto agree to be bound as follows:
1 . Definitions
1.1 "Proprietary Rights" shall mean LMER's U.S. patents and patent
applications listed in Exhibit A attached hereto and hereby incorporated into
this Agreement by reference and all the United States patents issuing from such
United States patent applications including all continuations, continuations-in-
part, divisions, reissues, reexaminations and temporal extensions of any of the
foregoing.
1.2 "Products" shall mean any and all products manufactured, used, sold or
transferred by Licensee covered by one or more claims of the Proprietary Rights
licensed hereunder.
1.3 "Net Sales" shall mean the total amounts invoiced to purchasers during
the accounting period in question for Products sold by Licensee, less allowances
for returns of Products, discounts, commissions, freight, and excise or other
taxes on Products. Net Sales in the case of Products used or transferred by
Licensee shall mean the fair market value of Products as if they were sold to an
unrelated third party in similar quantities.
1.4 "Licensed Field" shall mean the use of sensors and systems in:
(a) Production, storage and transportation of hydrogen for use in the generation
of power
<PAGE>
(b) Use of hydrogen in fuel cells and high-yield energy storage not including
commercial batteries (c) Safety applications in the chemical industry where
hydrogen is a by-product of a chemical manufacturing process
(d) Safety applications in the petroleum industry.
2 . Grants
2.1 Subject to the terms and conditions of this Agreement, LMER hereby
grants to Licensee the sole commercial right and license to manufacture, use,
sell or offer for sale the Products in the Licensed Field.
2.2 LMER hereby agrees not to grant to any other party right and license
to Proprietary Rights in accordance with the grant hereinabove as long as
Licensee abides by the terms and conditions of this Agreement, unless required
to so grant such right and license in accordance with Federal Statutory or
Regulatory enactments conditioning the waiver of rights to LMER by the DOE,
particularly as set forth in 41 CFR 9-9.109-(6)i; 10 CFR Part 781; or 37 CFR
Part 404.
2.3 Licensee agrees that any Products for use or sale in the United States
shall be manufactured substantially in the United States.
2.4 Should Licensee fail to meet the required commercial use provisions,
LMER shall have the option, to be exercised on thirty (30) days written notice
anytime during the next succeeding calendar year, to convert this license grant
to a nonexclusive license. Such nonexclusive license shall have the same field
of use restrictions, if any, and the same royalty rates and minimum royalties as
this license.
2.5 Licensee agrees to affix appropriate markings of the applicable LMER
proprietary rights (and the fact that LNER was the source of these rights) upon
or in association with Licensee's Products or licensed services and Licensee
agrees to use its best efforts to follow any guidance from LMER concerning such
markings.
3 . Royalties And Commercialization Plan
3.1 In consideration of the right and license granted herein, Licensee
agrees to the provisions of Exhibit B and Exhibit C attached hereto and hereby
incorporated herein by reference.
3.2 No royalties shall be owing on any Products produced for or under any
Federal governmental agency contract pursuant to the DOE nonexclusive license
for Federal governmental purposes but only to the extent that Licensee can show
that the Federal government received a discount on Product sales which discount
is equivalent to or greater than the amount of any such royalty that would
otherwise be due. Any sales for Federal governmental purposes shall be reported
under the Records and Reports Section hereinbelow by providing: (a) a Federal
government contract number; (b) identification of the Federal government agency;
and (c) a description as to how the benefit of the royalty free sale was passed
onto the Federal government.
3.3 'Me royalty provisions of Exhibit B shall be offset by any advances
made by Licensee in the Infringement by Third Parties Section hereinbelow.
<PAGE>
3.4 Upon termination of this Agreement for any reason whatsoever, any
royalties that remain unpaid shall be properly reported and paid to LMER within
thirty (30) days of any such termination.
4 . Records and Reports
4.1 Licensee agrees to keep adequate records in sufficient detail to
enable royalties payable hereunder to be determined and to provide such records
for inspection by authorized representatives of LUER at any time during regular
business hours of Licensee. Licensee agrees that any additional records of
Licensee, as LMER may reasonably determine are necessary to verify the above
records, shall also be provided to LMER for inspection.
4.2 Within thirty (30) calendar days after the close of each calendar
half-year during the term of this Agreement (i.e., January 31 and July 31),
Licensee will furnish LMER a written report providing: (a) all domestic Net
Sales in U.S. Dollars during the preceding calendar half-year period including
any Federal governmental agency under section 3.2 hereinabove and all export Net
Sales, if none so indicate; (b) amount of royalties due in U.S. Dollars for the
preceding calendar half-year period pursuant to the provisions hereof-, and (c)
payment of the royalties due in U.S. Dollars payable to the order of Lockheed
Martin Energy Research Corporation pursuant to the report to be transmitted in
accordance with the Notices Section of this Agreement hereinbelow.
4.3 Should Licensee fail to make any payment to LMER within the time
period prescribed for such payment, then the unpaid amount shall bear interest
at the rate of one and one half percent (1.5%) per month from the date when
payment was due until payment in full, with interest, is made.
5 . Technical Assistance
5.1 LMER agrees, upon the written request of Licensee, to assist Licensee
in obtaining necessary DOE approvals for technical assistance at LMER facilities
under appropriate agreements. The cost of such technical assistance shall be
paid for by the Licensee.
5.2 LMER agrees to permit its employees, within LMER corporate policy
guidelines then in effect and subject to DOE requirements then in effect, to
provide consulting services to Licensee with reference to Licensee's use and
commercial exploitation of the Proprietary Rights as contemplated herein.
Licensee shall make payment directly to the individual consultant(s) for all
such services.
6 Infringement by Third Parties
6.1 Licensee shall give notice of any discovered third party infringement
to LMER. In the event that LNIER does not take appropriate action to stop or
prevent such infringement within ninety (90) days after receiving such notice
and diligently pursue such action, Licensee has the right to take appropriate
action to stop and prevent the infringement, including the right to file suit.
6.2 In the event that Licensee files suit to stop infringement or defends
any action against the validity of the patent, Licensee shall indemnify and hold
LMER harmless against all liability, expense and costs, including attorneys'
fees incurred as a result of any such suit.
<PAGE>
6.3 Licensee may, however, apply all such costs as a reduction of any
royalties due and payable to LMER under the terms of this Agreement at such time
as verified bills of costs actually incurred are reported to LMER in accordance
with the Records and Reports Section hereinabove.
6.4 In the event Licensee secures a judgment against any third party
infringer, after accounting for and paying all of Licensee's costs associated
with prosecution of such action as well as paying LMER for any reduction of
royalties pursuant to this section, Licensee shall pay LMER its royalties as set
forth hereinabove on any balance of proceeds actually received and Licensee
shall retain any such remaining balance of proceeds.
6.5 The parties hereby agree to cooperate with each other in the
prosecution of any such legal actions or settlement actions undertaken under
this section and each will provide to the other all pertinent data in its
possession which may be helpful in the prosecution of such actions; provided,
however, that the party in control of such action shall reimburse the other
party for any and all costs and expenses in providing data and other information
necessary to the conduct of the action.
6.6 The party having filed such action shall be in control of such action
and shall have the right to dispose of such action in whatever reasonable manner
it determines to be the best interest of parties hereto, except that any
settlement which affects or admits issues of patent validity shall require the
advance written approval of LMER.
7. Representations and Warranties
7.1 LMER represents and warrants that Exhibit A contains a complete and
accurate listing of all the Proprietary Rights licensed and that LMER has the
right to grant the rights, licenses, and privileges granted herein.
7.2 LMER represents and warrants that LMER has no knowledge of any claims
of infringement filed against LA4ER for practicing the Exhibit A Proprietary
Rights anywhere in the world.
7.3 Except as set forth hereinabove, LMER makes NO REPRESENTATIONS OR
WARRANTIES, express or implied, with regard to the infringement of proprietary
rights of any third party.
7.4 Licensee acknowledges that the export of any of the Proprietary Rights
from the United States or the disclosure of any of the Proprietary Rights to a
foreign national may require some form of license from the U.S. Government.
Failure to obtain any required export licenses by Licensee may result in
Licensee subjecting itself to criminal liability under U.S. laws.
8 . Disclaimers
8.1 Neither LMER, the DOE, nor persons acting on their behalf will be
responsible for any injury to or death of persons or other living things or
damage to or destruction of property or for any other loss, damage, or injury of
any kind whatsoever resulting from Licensee's manufacture, use, or sale of
materials, information, or Proprietary Rights hereunder.
8.2 EXCEPT AS SET FORTH HEREINABOVE, NEITHER LMER, THE DOE, NOR PERSONS
ACTING ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR MWLIED: (1) WITH RESPECT TO
THE MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES,
<PAGE>
MATERIALS, OR INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH
SERVICES, MATERIALS, OR INFORMATION WILL NOT INFRINGE PRIVATELY OWNED RIGHTS;
(3) THAT THE SERVICES MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT
RESULT IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE; OR (4) THAT THE SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED
RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR
PURPOSE. FURTHERMORE, LMER AND THE DOE HEREBY SPECIFICALLY DISCLAIM ANY AND ALL
WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PRODUCTS MANUFACTURED, USED, OR SOLD BY
LICENSEE. NEITHER LMER NOR THE DOE SHALL BE LIABLE FOR CONSEQUENTIAL OR
INCIDENTAL DAMAGES IN ANY EVENT.
8.3 Licensee agrees to indemnify LMER, the DOE, and persons acting on
their behalf for all damages, costs, and expenses, including attorney's fees,
arising from, but not limited to, Licensee's making, using, selling, or
exporting of any Proprietary Rights, information, or Products, in whatever form
furnished hereunder.
9 . Term of Agreement and Early Termination
9.1 This Agreement shall run for a period of five (5) years from the
effective date of this Agreement subject to early termination as set forth
hereinbelow and the terms and conditions set forth in Exhibit B and Exhibit C
attached hereto and hereby incorporated into this Agreement by reference
thereto. At the end of the first five (5) year period and every five (5) year
period thereafter, LMER shall review Licensee's progress in the Development and
Commercialization plan outlined in Exhibit C and the royalty payments outlined
in Exhibit B. If said review indicates that Licensee has satisfied substantially
all the terms of the Development and Commercialization plan outlined in Exhibit
C and has paid all royalties due until the date of the review and is able to
satisfy the worldwide demand for Products, in the Licensed Field at the time of
the review, LMER shall grant an automatic extension of this Agreement for an
additional five (5) year period until the end of the life of the last-to expire
Proprietary Rights of Exhibit A, or until the time period for prosecution and
appeal on the merits for issue of all U.S. Patents on the Proprietary Rights is
exhausted at which time this Agreement is terminated. If Licensee is not able to
satisfy the Development and Commercialization plan outlined in Exhibit C at the
time of such review, the grant of the Agreement shall convert irrevocably from a
sole commercial grant to a non-exclusive grant in the same Licensed Field
maintaining the same royalty rates and annual minimum royalties as outlined in
Exhibit B of this Agreement and Article 6. Infringement by Third Parties et seq.
shall be replaced by Article 6. Infringement by Third Parties et seq. as set
forth in Exhibit D. attached hereto.
9.2 Either party shall have the right to terminate this Agreement without
judicial resolution upon written notice to the other after a breach of any
provision by the other party has gone uncorrected for sixty (60) days after the
other party has been notified in writing of such breach.
9.3 This Agreement shall terminate automatically upon the extinguishment
of all of the Exhibit A Proprietary Rights, for any reason, but only after the
time for appealing said extinguishment has expired.
9.4 The Parties agree that LMER, at its sole discretion, may immediately
terminate this Agreement upon any attempted transfer of Licensee's interest, in
whole or in part, in this Agreement to any other party, including but not
limited to any receiver, trustee, or creditor; except a transfer to a party
succeeding to substantially all of the assets of Licensee's business which
<PAGE>
relate to the subject matter of this Agreement, upon the written approval of
LMER based on verification of the scope of the transfer.
9.5 Licensee shall provide notice to LMER of its intention to file a
voluntary petition in bankruptcy or of another party's intention to file an
involuntary petition in bankruptcy for Licensee, said notice to be received by
LMER at least thirty (30) days prior to filing such a petition. Licensee's
failure to provide such notice to LMER of such intentions shall be deemed a
material, pre-petition, incurable breach of this Agreement.
9.6 Licensee agrees that this Agreement shall automatically terminate upon
any attempt by Licensee to offer Licensee's rights under this Agreement as
collateral to a third party.
9.7 Licensee may terminate this Agreement upon sixty (60) days notice to LMER
upon paying LMER all royalties due or the succeeding two years of minimum
royalties under Exhibit B which ever is the greatest.
10. Rights of Parties After Termination
10.1 Neither party shall be relieved of any obligation or liability under
this Agreement arising from any act or omission committed prior to the effective
date of such termination.
10.2 From and after any termination of this Agreement, Licensee shall have
the right to sell any Products that Licensee had already manufactured prior to
termination, provided that all royalties and reports required hereinabove shall
be timely submitted to LMER.
10.3 From and after any termination of this Agreement, Licensee shall not
manufacture nor have manufactured any Products pursuant to this Agreement.
10.4 The rights and remedies granted herein, and any other rights or
remedies which the parties may have, either at law or in equity, are cumulative
and not exclusive of others. On any termination, Licensee shall duly account to
LMER and transfer to it all rights to which LMER may be entitled under this
Agreement.
11. Force Majeure
11.1 No failure or omission by LMER or by Licensee in the performance of
any obligation under this Agreement shall be deemed a breach of this Agreement
or create any liability if the same shall arise from acts of God, acts or
omissions of any government or agency thereof, compliance with requests,
recommendations, rules, regulations, or orders of any governmental authority or
any office, department, agency, or instrumentality thereof, fire, storm, flood,
earthquake, accident, acts of the public enemy, war, rebellion, insurrection,
riot, sabotage, invasion, quarantine, restriction, transportation embargoes, or
failures or delays in transportation.
12. Notices
12.1 All notices and reports shall be addressed to the parties hereto as
follows:
If to LMER:
Business Manager, Technology Transfer Telephotocopy No.
<PAGE>
Lockheed Martin Energy Research Corp. (423) 576-9465
Post Office Box 2009 Verify No.
Oak Ridge, Tennessee 37831-8242 (423) 241-2353
If to Licensee:
Mr. David P. Haberman Telephotocopy No.
DCH Technology, Inc. (818) 385-0849
14241 Ventura Boulevard, Suite 208 Verify No.
Sherman Oaks, California 91423 (818) 385-0400
12.2 All minimum and royalty payments due LUER shall be sent to:
Lockheed Martin Energy Research Corp.
Royalty Account
P. 0. Box 888071
Knoxville, Tennessee 37995-8071
12.3 Any notice, report or any other communication required or permitted
to be given by one party to the other party by this Agreement shall be in
writing and either (a) served personally on the other party, (b) sent by
express, registered or certified first-class mail, postage prepaid, addressed to
the other party at its address as indicated above, or to such other address as
the addressee shall have previously furnished to the other party by proper
notice, (c) delivered by commercial courier to the other party, or (d) sent by
facsimile to the other party at its facsimile number indicated above or to such
other facsimile number as the party shall have previously furnished to the other
party by proper notice, with machine confirmation of transmission.
13. Non-Abatement of Royalties
13.1 LMER and Licensee acknowledge that certain of the Proprietary Rights
may expire prior to the conclusion of the term of this Agreement; however, LMER
and Licensee agree that the royalty rates provided for hereinabove shall be
uniform and undiminished except pursuant to this Agreement.
14. Waivers
14.1 The failure of LMER at any time to enforce any provisions of this
Agreement or to exercise any right or remedy shall not be construed to be a
waiver or such provisions or of such rights or remedy or the right of LMER
thereafter to enforce each and every provision, right or remedy.
15. Modifications
15.1 It is expressly understood and agreed by the parties hereto that this
instrument contains the entire agreement between the parties with respect to the
subject matter hereof and that all prior representations, warranties, or
agreements relating hereto have been merged into this document and are thus
superseded in totality by this Agreement. This Agreement may be amended or
modified only by a written instrument signed by the duly authorized
representatives of both of the parties.
16. Headings
16.1 The headings for the sections set forth in this Agreement are
strictly for the convenience of the parties hereto and shall not be used in any
<PAGE>
way to restrict the meaning or interpretation of the substantive language of
this Agreement
17. Law
17.1 This Agreement shall be construed according to the laws of the State
of Tennessee and the United States of America.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in their respective names by their duly authorized representatives.
"LMER"
LOCKHEED MARTIN ENERGY RESEARCH CORPORATION
By: /s/ WILLIAM R. MARTIN
---------------------------------------
Name: William R. Martin
Title: Vice President, Technology Transfer
Date: 9/16/96
"Licensee"
By: /s/ DAVID A. WALKER
------------------------------
Name: David A. Walker
Title: Vice President, Operations
Date: 9/26/96
<PAGE>
EXHIBIT A - PROPRIETARY RIGHTS
[*]
[*] Page omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT B - EXECUTION FEE, ROYALTIES AND MINIMUM
ANNUAL ROYALTIES AMOUNTS
[*]
[*] Page omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT C - DEVELOPMENT AND COMMERCIALIZATION PLAN
[*]
[*] 20 pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT D - Infringement by Third Parties
[*]
[*] Two pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 6.7
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT ("the Agreement") is effective as of the 15th day of May 1998
(the "Effective Date"),
BETWEEN:
SIMON FRASER UNIVERSITY, a university duly continued under the University Act of
British Columbia with its principal offices at 8888 University Drive, Burnaby,
British Columbia, Canada V5A IS6
("Licensor") AND:
DCH TECHNOLOGY, INC., a California (USA) corporation, with its principal office
at 14241 Ventura Blvd., Suite 208, Herman Oaks, California, U.S.A. 91423
("Licensee")
WITNESSETH THAT WHEREAS,
A. Licensor has applied for certain Patent Rights (as later defined herein)
relating to an invention called the "Universal Gas Sensor" created by Dr. Bijan
Miremadi, as further described in Schedule A hereto, and has the right to grant
licenses under said Patent Rights;
B. Licensor desires to have the Patent Rights developed and commercialized to
benefit the public and is willing to grant a license thereunder;
C. Licensor and Licensee have entered into an Option Agreement dated March 31,
1998, under which Licensee paid a fee of [*] for an option to exclusively
license the Patent Rights;
D. Licensee has represented to Licensor, to induce Licensor to enter into this
Agreement, that Licensee shall commit itself to a thorough, vigorous, and
diligent program of exploiting the Patent Rights and exercising good business
judgment, so that public utilization shall result therefrom; and
E. Licensee desires to obtain a license to the Patent Rights on the terms and
conditions hereinafter set forth, and contribute funds to Licensor to support
further research and development pursuant to the Patent Rights.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
SECTION I - DEFINITIONS AND TERMS
For the purposes of this Agreement, the following words and phrases shall have
the following meanings.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
1.1 Agreement Term shall mean the period from the Effective Date hereof, until
the end of the term for which the Patent Rights are granted, unless this
Agreement shall be sooner terminated according to the terms hereof.
1.2 Field of Use shall mean any use.
1.3 Know-How shall mean all present and future technical and other information
and specifications relating to the development, implementation and use of the
technology pursuant to the Patent Rights, whether conveyed orally or in writing,
including without limitation any and all technical data encompassed by the
Patent Rights;
1.4 Licensed Product shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a pending
claim contained in the Patent Rights; or
(b) is manufactured by using a process or is employed to practice a process
which is covered in whole or in part by an issued, unexpired claim or a pending
claim contained in the Patent Rights.
1.5 Net Sales shall mean Licensee's and its sublicensees' billings for
Licensed Products produced hereunder less the sum of the following:
(a) discounts allowed in amounts customary in the trade- .1
(b) sales, tariff duties and/or use taxes directly imposed and with reference
to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether they be
with independent sales agencies or regularly employed by Licensee and on its
payroll, or for cost of collections. Licensed Products shall be considered
"sold" when billed out or invoiced.
1.6 Patent Rights shall mean all of the following Licensor intellectual
property:
(a) the United States provisional and/or non-provisional patent applications
listed in Schedule A;
(b) patents issued from the United States applications listed in Schedule A
and from divisionals and continuations of these applications;
(c) claims of continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically described in the
applications listed in Schedule A;
(d) claims of Canadian or foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described in the
United States patents and/or patent applications described in (a), (b) or (c)
above;
(e) any reissues of United States patents described in (a), (b) or (c) above;
and
1.7 Territory shall be defined as the World.
SECTION 2 - GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee the exclusive right and license in the
Territory for the Field of Use to practice under the Patent Rights and Know-How,
and to the extent not prohibited by other patents, to make, have made, use,
maintain, execute, copy, market, lease and sell Licensed Products during the
Agreement Term.
<PAGE>
2.2 Licensor shall retain ownership of the Patent Rights and all other rights
in and to the Patent Rights and reserves the right to practice under the Patent
Rights for research, educational and other non-commercial purposes.
2.3 Each party and its respective employees shall have the right to publish
material about research relating to the Patent Rights.
2.4 Licensee shall have the right to enter into sublicensing agreements for the
rights, privileges and licenses granted hereunder " provided, however, that
Licensee shall not assign, transfer, sublicense, mortgage, charge, or otherwise
dispose of any of the rights granted to it under this Agreement without the
prior written consent of the Licensor, such consent not to be unreasonably
withheld.
2.5 Licensee agrees that any sublicenses granted by it shall provide that the
obligations to Licensor of Sections 2, 5, 7, 8, 10, 13, 14 and 16 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. Licensee further agrees to attach copies of these Sections to
sublicense agreements.
2.6 Licensee agrees to forward to Licensor a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.7 The license granted hereunder shall not be construed to confer any rights
upon Licensee by implication, estoppel or otherwise as to any technology not
specifically set forth in Schedule A hereof.
SECTION 3 - ROYALTIES I COMPENSATION
3.1 In consideration for the rights, privileges and license granted
hereunder, Licensee shall pay to Licensor royalties in an amount equal to:
(a) [*] of Net Sales of the Licensed Products used, leased or sold by and/or
for Licensee and/or its sublicensees in Territory; and
(b) [*] of any additional payments, including but not limited to, sublicense
issue fees, received from sublicensees in consideration for the sublicense.
3.2 Licensee shall pay to Licensor a development grant of [*] to support the
performance of the work described in Schedule B hereto and the delivery of a
report on the results of the work. The work shall be undertaken by Western
Pacific Research Corporation on behalf of Licensor. The grant shall be paid
according the following schedule:
(a) [*] on or before execution of this Agreement; and (b) [*] on or before
August 15, 1998.
3.3 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by Licensee.
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
3.4 Royalty payments shall be paid in United States dollars to the Licensor
at its address designated at subsection 15.1 of this Agreement, or at such other
place as Licensor may reasonably designate consistent with the laws and
regulations controlling in any foreign country. If any currency conversion shall
be required in connection with the payment of royalties hereunder, such
conversion shall be made by using the exchange rate prevailing at the Bank of
Canada on the last business day of the reporting period to which such royalty
payments relate.
SECTION 4 - DUE DILIGENCE
4.1 Licensee shall use its best efforts and good business judgment to bring
Licensed Products to market through a thorough, vigorous and diligent program
for exploitation of the Patent Rights and to continue active, diligent marketing
efforts for one or more Licensed Products throughout the life of this Agreement.
4.2 Licensee's failure to perform in accordance with Paragraph 4.1 above, over
a period of three (3) years from the Effective Date, shall be grounds for
Licensor to terminate this Agreement pursuant to Paragraph 14.3 hereof, and in
case of such termination the parties shall use their best efforts to negotiate a
new non-exclusive license agreement with similar terms and conditions as are
contained herein.
SECTION 5 - REPORTS AND RECORDS
5.1 Licensee shall keep full, true and accurate books of account containing all
particulars that may be necessary for the purpose of showing the amounts payable
to Licensor hereunder. Said books of account shall be kept at Licensee's
principal place of business or the principal place of business of the
appropriate division of Licensee to which this Agreement relates. Said books and
the supporting data shall be open during normal working hours for five (5) years
following the end of the fiscal year to which they pertain, to the inspection of
Licensor or its agents for the purpose of verifying Licensee's royalty statement
or compliance in other respects with this Agreement. Should such inspection lead
to the discovery of a greater than ten percent (10%) discrepancy in reporting to
Licensor's detriment, Licensee agrees to pay the full cost of such inspection.
5.2 Within sixty (60) days after March 31 of each year, Licensee shall
deliver to Licensor true and accurate reports, giving such particulars of the
business conducted by Licensee and its sublicensees during the preceding twelve-
month period under this Agreement as shall be pertinent to a royalty accounting
hereunder. These reports shall include at least the following:
(a) number of Licensed Products manufactured and sold by Licensee and all
sublicensees in Territory;
(b) total billings for Licensed Products sold by Licensee and all
sublicensees;
(c) deductions applicable as provided in Paragraph 1.5;
(d) royalties due on additional payments from sublicensees under Paragraph
3.1(b);
(e) total royalties due; and
(f) names and addresses of all sublicensees of Licensee.
<PAGE>
5.3 With each such report submitted, Licensee shall pay to Licensor the
royalties due and payable under this Agreement. If no royalties shall be due,
Licensee shall so report.
5.4 The royalty payments set forth in this Agreement and amounts due under
Section 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Bank of Canada on the due
date. The payment of such interest shall not foreclose Licensor from exercising
any other rights it may have as a consequence of the lateness of any payment.
SECTION 6 - PATENT PROSECUTION
6.1 Licensor shall apply for, prosecute and seek prompt issuance of the United
States non-provisional patent application listed in Schedule A.
6.2 The costs of filing, prosecution, and issuance of Patent Rights pursuant to
the United States non-provisional patent application listed in Schedule A shall
be the responsibility of Licensor.
6.3 Payment of all fees and costs relating to the maintenance of Patent Rights
pursuant to the United States non-provisional patent application listed in
Schedule A shall be the responsibility of Licensee.
6.4 Payment of all fees and costs relating to the filing, prosecution,
issuance and maintenance of additional patents which fall under Patent Rights
shall be the responsibility of Licensee.
SECTION 7 - INFRINGEMENT
7.1 Licensee or Licensor shall promptly inform the other in writing of any
patent infringement by a third party and provide available evidence of
infringement.
7.2 During the Agreement Term, Licensor shall have the right, but shall not
be obligated, to prosecute at its own expense all infringements of the Patent
Rights and, in furtherance of such right, Licensee hereby agrees that Licensor
may include Licensee as a party plaintiff in any such suit, without expense to
Licensee. The total cost of any such infringement action commenced or defended
solely by Licensor shall be borne by Licensor and Licensor shall keep any
recovery or damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, Licensor shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought an infringement action, or if
Licensor shall notify Licensee at any time prior thereto of its intention not to
bring suit against any alleged infringer, then, and in those events only,
Licensee shall have the right, but shall not be obligated, to prosecute at its
own expense any infringement of the Patent Rights, and Licensee may.. for such
purposes, use the name of Licensor as party plaintiff; provided 'however, that
such right to bring such an infringement action shall remain in effect only for
so long as the license granted herein remains exclusive. No settlement, consent
judgment or other voluntary final disposition of the suit may be entered into
without the consent of Licensor, which consent
<PAGE>
shall not unreasonably be withheld. Licensee shall indemnify Licensor against
any order for costs that may be made against Licensor in such proceedings.
7.4 Any recovery of damages from any suit shall be retained by the party who
funded and prosecuted at its expense the infringement of the Patent Rights
pursuant to 7.2 or 7.3 herein.
7.5 In the event that a declaratory judgment action alleging invalidity or
non-infringement of any of the Patent Rights shall be brought against Licensee,
Licensor, at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 Licensee, during the period of this Agreement, shall have the sole right
in accordance with the terms and conditions herein to sublicense any alleged
infringer for future use of the Patent Rights. Any up-front fees as part of such
a sublicense shall be shared equally between Licensee and Licensor; other
royalties shall be treated per Section 3.
SECTION 8 - INDEMNIFICATION AND INSURANCE
8.1 Licensee shall at all times during the Agreement Term and thereafter,
indemnify, defend and hold Licensor, its trustees, directors, officers,
employees and affiliates, harmless against all claims, proceedings, demands and
liabilities of any kind whatsoever, including legal expenses and reasonable
attorneys' fees, arising out of the exercise by Licensee of any of its rights
under the license, and/or out of the death of or injury to any person or persons
or out of any damage to property resulting from the production, manufacture,
sale, use, lease, consumption or advertisement of the Licensed Product(s), or
arising from any obligation of Licensee hereunder.
8.2 Prior to execution of the first sublicense agreement or transfer in any way
of all or any part of the Licensed Product, the Licensee will give notice to the
Licensor of the terms and amount of the public liability, infringement and
product liability insurance which the Licensee has placed in respect of the
Licensed Product, which in no case shall be less comprehensive or lesser in
amount than the insurance which a reasonable and prudent business person
carrying on a similar type of business would acquire.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS
AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL
BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY
<PAGE>
LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL
NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT SHALL LICENSOR,
ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER LICENSOR SHALL BE
ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY.
SECTION 9 -FORCE MAJEURE
9.1 Neither party shall be held liable for failure to fulfill its obligations
hereunder due to a natural calamity, act of government, or similar cause beyond
the control of such party.
SECTION 10 - NON-USE OF NAMES
10.1 Licensee shall not use the names or trademarks of Simon Fraser University,
nor any adaptation thereof, nor the names of any of its employees, in any
advertising, promotional or sales literature without prior written consent
obtained from an authorized representative of Licensor, in each case, except
that Licensee may state that it is licensed by Licensor under one or more of the
patents and/or applications comprising the Patent Rights.
SECTION 11 - PUBLICATION AND CONFIDENTIALITY
11.1 For the purpose of this Agreement, each party will have the right to
disclose or publish material about the Patent Rights following the filing of a
United States patent application by Licensor.
11.2 Licensor agrees to maintain in confidence all proprietary and market
information provided by Licensee unless written permission is obtained from
Licensee or such information becomes part of the public domain without breach of
this Agreement.
SECTION 12 - ASSIGNMENT
12.1 This Agreement is not assignable by Licensee and any attempt to do so shall
be void, unless Licensee has obtained the prior written consent of an authorized
representative of Licensor.
12.2 This Agreement may be assigned by Licensor.
SECTION 13 - DISPUTE RESOLUTION
13.1 It is the intention of the parties to settle any dispute relating to this
Agreement among themselves, but if at any time during the term of this
Agreement, or after its termination, any dispute arises between the parties
respecting any matter which they cannot settle among themselves, then the
dispute will be settled by a single arbitrator appointed by agreement between
both parties, under the provisions of the Commercial Arbitration Act (British
Columbia) and the rules of the British Columbia International Commercial
Arbitration Centre, as from time to time
<PAGE>
amended or substituted. If the parties cannot agree on an arbitrator within 10
days after referral of a matter to arbitration, then the single arbitrator shall
be appointed by the British Columbia International Commercial Arbitration
Centre. The decision of the arbitrator will be final and binding on the parties.
The costs of the arbitration will be apportioned between the parties, or against
any one or more of the parties, as the arbitrator may decide.
13.2 Notwithstanding the foregoing, nothing in this Section shall be construed
to waive any rights or timely performance of any obligations existing under this
Agreement.
SECTION 14 - TERMINATION
14.1 Licensee shall immediately notify Licensor if Licensee shall cease to carry
on its business, or goes into or is threatened with bankruptcy. On the
occurrence of any of these events, Licensor shall be entitled to terminate this
Agreement by giving five (5) days written notice to Licensee.
14.2 Should Licensee fail to make any payment whatsoever due and payable to
Licensor hereunder, Licensor shall have the right to terminate this Agreement
effective on thirty (30) days notice, unless Licensee shall make all such
payments to Licensor within said thirty (30) day period.
14.3 Upon any material breach or default of this Agreement by Licensee
(including, but not limited to, breach or default under Paragraph 4.2), other
than those occurrences set out in Paragraphs 14.1 and 14.2 herein above, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 14.3, Licensor shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days notice to Licensee. Such termination shall become
automatically effective unless Licensee shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
14.4 Upon termination of this Agreement for any reason, nothing herein shall be
construed to release either party from any obligation that matured prior to the
effective date of such termination; and Sections 1, 8, 10, 14.5, and 16 shall
survive any such termination. Licensee and any sublicensee thereof may, however,
after the effective date of such termination, sell all Licensed Products, and
complete Licensed Products in the process of manufacture at the time of such
termination and sell the same, provided that Licensee shall make the payments to
Licensor as required by Section 3 of this Agreement and shall submit the reports
required by Section 5 hereof.
14.5 Upon termination of this Agreement for any reason, any sublicensee not then
in default shall have the right to seek a license from Licensor. Licensor agrees
to negotiate such licenses in good faith under reasonable terms and conditions.
SECTION 15 - PAYMENTS. NOTICES AND OTHER COMMUNICATIONS
15.1 Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below, or if sent by fax on the day after the date the communication was sent:
<PAGE>
In the case of Licensor:
Director
University/Industry Liaison Office
2100 North Strand Hall
8888 University Drive
Burnaby, British Columbia, Canada V5A IS6
Fax No. (604) 291-3477
In the case of Licensee:
President
DCH Technology, Inc
27811 Avenue Hopkins, Suite #6
Valencia, CA 91355
Fax No. (818) 385-0849
SECTION 16 - MISCELLANEOUS PROVISIONS
16.1 This Agreement shall be construed, governed, interpreted and applied in
accordance with the laws of the Province of British Columbia, except that
questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the entire
Agreement and understanding of the parties hereto as to the subject matter
hereof, and shall not be subject to any change or modification except by the
execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that any
provisions of this Agreement shall be determined to be invalid or unenforceable
under any controlling body of the law, such invalidity or unenforceability shall
not in any way affect the validity or enforceability of the remaining provisions
hereof.
16.4 The failure of either party to assert a right hereunder or to insist upon
compliance with any term or condition of this Agreement shall not constitute a
waiver of that right or excuse a similar subsequent failure to perform any such
term or condition by the other party.
16.5 Nothing contained herein shall be deemed to create between the parties a
partnership or joint venture. Except as provided specifically herein, neither
party shall have the authority to act on behalf of the other party, or to commit
the other party in any manner or cause whatsoever or to use the other party's
name in any way. Neither party shall be liable for any act, omission,
representation, obligation, or debt of the other party, even if informed of such
act, omission, representation, obligation, or debt.
<PAGE>
16.6 Subject to the limitations expressed herein, this Agreement shall enure to
the benefit and be binding upon the parties and their respective successors.
IN WITNESS WHEREOF the parties have duly executed this Agreement on the day and
year set forth below.
SIMON FRASER UNIVERSITY DCH TECHNOLOGY INC.
By /s/ M. VOUCER By /s/ W. L. FIRESTONE
Name M. Voucer Name William L. Firestone
Title Director, UILO Title President
Date 98 05 27 Date 7/28/98
SCHEDULE A
Universal Gas Sensor: Patent Application Filed
Non-provisional United States patent application entitled A Universal Gas Sensor
for the Selective Detection of Toxic Chemicals and Combustable Gases filed March
27, 1998. Inventor: Bijan Miremadi.
Priority claimed by United States Provisional Application 60/041,653 of the same
title filed March 27,1997.
SCHEDULE B Grant Work Plan
[*]
[*] Four pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
Exhibit 6.8
STEVENSON-WYDLER (15 USC 3710)
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT (hereinafter "CRADA")
NO. _____
BETWEEN
MIDWEST RESEARCH INSTITUTE, Operator of THE NATIONAL RENEWABLE ENERGY
LABORATORY under its U.S. Department of Energy Contract No. DE-AC36-83CH10093,
1617
Cole Blvd., Golden, CO 80401 (hereinafter "Contractor")
AND
AMERISEN 14540 West Greenfield Avenue Brookfield, Wisconsin 53005
(hereinafter "Participant"),
both being hereinafter jointly referred to as the "Parties"
ARTICLE 1: DEFINITIONS
-----------
A., "Government" means the United States of America and agencies thereof.
B. "DOE" means the Department of Energy, an agency of the United States of
America.
C. "Contracting Officer" means the DOE employee administering the Contractor's
DOE contract.
D. "Generated Information" means information produced in the performance of
this CRADA.
E. "Proprietary Information" means information which embodies trade secrets
developed at private expense outside of this Agreement and commercial or
financial information which is privileged or confidential under the Freedom of
Information Act (5 USC 552 (B)(4)); and which is marked as Proprietary
Information.
F. "Protected CRADA Information" means Generated Information which is marked
as being Protected CRADA Information by a Party to this Agreement and which
would have been Proprietary Information had it been obtained from a non-federal
entity.
G. "Subject Invention", as used in this Agreement, means any invention of the
Contractor or Participant conceived or first actually reduced to practice in the
performance of work under this CRADA.
H. "Intellectual Property" means Patents, Trademarks, Copyrights, Mask
Works, Protected CRADA Information and other forms of comparable property rights
protected by Federal Law and other foreign counterparts.
<PAGE>
ARTICLE II: STATEMENT OF WORK
-----------------
Appendix A, "Joint Work Statement", is attached hereto and hereby incorporated
into this CRADA by reference.
ARTICLE III: FUNDING & COSTS
---------------
A. The Participant's estimated contribution is [*]. The Government's estimated
contribution, which is provided through the Contractor's contract with DOE, is
[*] subject to available funding from DOE's Office of Energy Efficiency and
Renewable Energy.
B. Neither Party shall have an obligation to continue or complete
performance of its work at a cost in excess of its estimated cost as contained
in Article III A above, including any subsequent amendment.
C. Each Party agrees to provide at least sixty (60) days advance notice to
the other Party if the actual cost to complete performance will exceed its
estimated cost. If the Parties mutually agree to continue the project, the
estimated cost shall be appropriately amended and the Parties shall agree on the
share of each Party of such increase in estimated cost by duly executed
amendments to this CRADA.
ARTICLE IV: PROPERTY
--------
All tangible personal property produced under this CRADA shall become the
property of the Participant or the Government depending upon whose funds were
used to obtain it. Such property is identified in Appendix B, Property List.
Personal Property shall be disposed of as directed by the owner at the owner's
expense. All jointly funded property shall be owned by the Government.
ARTICLE V: DISCLAIMER
----------
THE GOVERNMENT, THE PARTICIPANT, AND THE CONTRACTOR MAKE NO EXPRESS OR IMPLIED
WARRANTY AS TO THE CONDITIONS OF THE RESEARCH OR ANY INTELLECTUAL PROPERTY OR
PRODUCT MADE OR DEVELOPED UNDER THIS CRADA, OR THE OWNERSHIP, MERCHANTABILITY OR
F=SS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR RESULTING PRODUCT. NEITHER THE
GOVERNMENT, THE PARTICIPANT, NOR THE CONTRACTOR SHALL BE LIABLE FOR LOST
PROFITS, LOST SAVINGS, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR OTHER INDIRECT
DAMAGES, EVEN IF SUCH PARTY IS MADE AWARE OF THE POSSIBILITY THEREOF.
ARTICLE VI: PRODUCT LIABILITY
-----------------
Except for any liability resulting from any negligent or intentional acts or
omissions of Contractor, Participant indemnities the Government and the
Contractor for all damages, costs and expenses, including attorney's fees,
arising from personal injury or property damage occurring as a result of
[*] Omitted pursuant to request for confidentiality filed with the Securities
and Exchange Commission.
<PAGE>
the making, using or selling of a product, process or service by or on behalf of
the Participant, its assignees or licensees, which was derived from the work
performed under this CRADA. With respect to this Article, neither the Government
nor the Contractor shall be considered assignees or licensees of the
Participant, as a result of reserved Government and Contractor rights. The
indemnity set forth in this Paragraph shall apply only if Participant shall have
been informed as soon and as completely as practical by the Contractor and/or
the Government of the action alleging such claim and shall have been given an
opportunity, to the extent afforded by applicable laws, rules, or regulations,
to participate in and control its defense, and the Contractor and/or Government
shall have provided reasonably available information and reasonable assistance
requested by Participant. No settlement for which Participant would be
responsible shall be made without Participant's consent unless required by final
decree of a court of competent jurisdiction.
ARTICLE VII: OBLIGATIONS REGARDING PROPRIETARY INFORMATION
---------------------------------------------
A. If Proprietary Information is orally disclosed to a Party, it shall be
identified as such, orally, at the time of disclosure and confirmed in a written
summary sent to the recipient within ten (10) days of such disclosure, and
marked as being Proprietary Information.
B. The Parties agree to use Proprietary Information only in the performance of
this CRADA and not to further disclose such information to others without the
provider's prior written approval, except that Contractor may disclose such
information to Government employees who are subject to the statutory provisions
against disclosure of confidential information set forth in the Trade Secrets
Act (18 USC 1905).
C. All Proprietary Information shall be returned to the provider thereof at
the conclusion of this CRADA at the provider's expense unless otherwise agreed
in writing.
D. The foregoing provisions do not apply to Proprietary Information which 1)
is or becomes publicly known without recipient's breach of this Agreement, 2)
was known by the recipient prior to its disclosure hereunder, 3) comes into the
recipient's possession, other than from a Party hereto or pursuant to this
CRADA, without recipient's breach of this Agreement, or 4) is independently
developed by any employee, independent consultant, or subcontractor of the
recipient or the Government to which such Proprietary Information was not
disclosed.
ARTICLE VIII: OBLIGATIONS REGARDING PROTECTED CRADA INFORMATION
-------------------------------------------------
A. Each Party may designate as Protected CRADA Information, as defined in
Article 1, any Generated Information produced by its employees, and with the
agreement of the other Party, mark or have marked any Generated Information
produced by the other Party's employees. All such designated Protected CRADA
Information shall be appropriately marked.
B. The Parties and DOE agree not to license or otherwise disclose Protected
CRADA Information to any third party for a period of five (5) years from the
date it was produced (except as provided in Paragraphs C, D and E immediately
below). Such information shall be reduced to writing and marked as Protected
CRADA Information within 10 days of such production, at which point the five-
year period begins.
<PAGE>
C. Further, the Parties shall protect from disclosure to third parties
(excluding DOE) any Protected CRADA Information describing a Subject Invention
for a reasonable period in order to file a U.S. patent application thereon and
to preserve foreign filing rights.
D. The obligations of nondisclosure set forth in Article VIII, Paragraph B
above shall apply except 1) upon request by the DOE Contracting Officer that
such Information be provided to other DOE facilities with the same protections
in place, 2) disclosure of Protected CRADA Information contained in a Subject
Invention is permitted after the patent has issued, or 3) as mutually agreed by
the Parties and DOE in advance. The Contractor may at all times use Protected
CRADA Information internally for its own purposes and those of the Government,
except as specified in Article VIII, Paragraph B above.
E. The foregoing provisions of this Article VIII do not apply to Protected
CRADA Information which 1) is or becomes publicly known without a Party's breach
of this Agreement, 2) was known by a Party prior to its disclosure hereunder, 3)
comes into the receiving Party's possession, other than from another Party
hereto or pursuant to this CRADA, without the receiving Party's breach of this
Agreement, or 4) is independently developed by any employee, independent
consultant, or subcontractor of a Party or the Government to which such
Protected CRADA Information was not disclosed.
ARTICLE IX: RIGHTS IN GENERATED INFORMATION
-------------------------------
The Parties agree that they shall have no obligations of non-disclosure or
limitations on their use of, and the Government shall have unlimited rights in,
all Generated Information or information provided to the Parties or the
Government under this CRADA which is not marked as being copyrighted (in
accordance with Article XIII) or as Protected CRADA Information (in accordance
with Article VIII, Paragraph B) or Proprietary Information (in accordance with
Article VII, Paragraph B), as well as Protected CRADA Information after the
expiration of the five-year period set forth in Article VIII, Paragraph B.
ARTICLE X: EXPORT CONTROL
--------------
THE PARTIES UNDERSTAND THAT MATERIALS AND INFORMATION RESULTING FROM THE
PERFORMANCE OF THIS CRADA MAY BE SUBJECT TO EXPORT CONTROL LAWS AND THAT EACH
PARTY IS RESPONSIBLE FOR ITS OWN COMPLIANCE WITH SUCH LAWS.
ARTICLE XI: REPORTS AND ABSTRACTS
---------------------
A. The Parties agree to produce the following deliverables:
(1) initial abstracts suitable for public release;
(2) other abstracts (final when work is complete, and others as substantial
changes in scope and dollars occur):
(3) a final report to include a list of Subject Inventions;
<PAGE>
(4) other reports as required in Section 4, "Task Descriptions", in Appendix
A, Joint Work Statement.
(5) computer software in source and object code format as defined within the
Statement of Work.
B. It is understood that the Contractor has the responsibility to provide
the above information at the time of its completion to the DOE Office of
Scientific and Technical Information.
ARTICLE XII: PRE-PUBLICATION REVIEW
-----------------------
A. Except for the non-proprietary abstract described in Article XI above, the
Parties agree to secure pre-publication approval from the other Party of any
document, article, press release or other written material relating to the work
performed hereunder, which shall not be unreasonably withheld or delayed beyond
thirty (30) days.
B. The Parties agree that neither will use the name of the other Party or its
employees in any promotional activity, such as advertisements, with reference to
any product or service resulting from this CRADA, without prior written approval
of the other Party.
ARTICLE XIII: COPYRIGHTS
----------
A. The Parties may assert copyright in any of their Generated Information.
B. For Generated Information, the Parties acknowledge that the Government has
for itself and others acting on its behalf, a royalty-free, nonexclusive,
irrevocable worldwide copyright license to reproduce, prepare derivative works,
distribute copies to the public, and perform publicly and display publicly, by
or on behalf of the Government, all copyrightable works produced in the
performance of this CRADA, subject to the restrictions this CRADA places on
publication of Proprietary Information and Protected CRADA Information.
ARTICLE XIV: REPORTING INVENTIONS
--------------------
A. The Parties agree to disclose to each other each and every Subject
Invention and any improvements thereon, whether or not patentable or otherwise
protectable under the Patent Act (Title 35 of the United States Code), within
two (2) months after the inventor discloses it in writing to the personnel
responsible for patent matters of that Party, but in any event no later than
three (3) months after its conception or first actual reduction to practice. The
Contractor shall be responsible for disclosing Participant's Subject Inventions
to DOE within two (2) months of the Participant's disclosure to the Contractor.
B. These disclosures should be in such detail as to be capable of teaching one
skilled in the art how to make and use the invention as required for patent
applications under the Patent Act (35 USC 112). The disclosure shall also
identify any known, actual or potential statutory bars (i.e., printed
publications describing the invention or the public use or on sale of the
invention in this country) affecting the filing or prosecuting of Subject
Inventions in patent applications, and there shall be a continuing obligation on
the Parties to further disclose any impending or actual future statutory bar
promptly following receipt of knowledge thereof. All invention disclosures shall
be
<PAGE>
marked as confidential, and if so marked shall be treated as such by the
Participant and Contractor, and shall not be disclosed by the Government pending
the filing of the patent application as provided in 35 USC 205.
ARTICLE XV: TITLE TO INVENTIONS
-------------------
A. Each Party shall have the first option to elect to retain title to any
invention made by its employees. If a Party elects not to retain title to any
invention of its employees, then the other Party shall have the second option to
elect to retain title to such invention under this CRADA. The DOE shall retain
title to any invention which is not retained by any Party.
B. The Parties acknowledge that the DOE may obtain title to each Subject
Invention reported under Article XIV for which a patent application or
applications are not filed and for which any issued patents are not maintained
by any Party to this CRADA. Participant agrees to notify the Contractor in
writing whether or not it intends to file a patent application on any such
Subject Inventions within twelve (12) months of its disclosure under Article
XIV, Paragraph A above, but in any event not later than sixty (60) days prior to
the time when any statutory bar might foreclose filing of a U.S. patent
application.
C. The Parties acknowledge that, except for Subject Inventions in which the
Government retains title, the Government retains a non-exclusive, non-
transferable, irrevocable, paid- up license to practice or to have practiced for
or on behalf of the United States every Subject Invention under this CRADA
throughout the world.
ARTICLE XVI: FILING PATENT APPLICATIONS
--------------------------
A. The Parties agree that the Party initially indicated as having an ownership
interest in any Subject Inventions shall have the responsibility for filing and
prosecuting any U.S. and foreign patent application(s) thereon.
B. The Parties agree that if neither Party desires to file a patent
application for any invention, notification of such negative intent shall be
made to the DOE within twelve (12) months after the initial disclosure of such
invention, but not later than sixty (60) days prior to the time when any
statutory bar might foreclose filing of a U.S. patent application. The
Participant further agrees to notify the Contractor promptly if it decides not
to continue the prosecution of any application for, to pay the maintenance fees
on, or defend in a re- examination or opposition proceeding on, a patent on a
Subject Invention. The purpose of the foregoing notification is to allow the
Government to file patent applications and/or continue prosecution, maintenance
or defense of a patent in its own name if it so chooses, and each of the Parties
agrees to provide the necessary documents to enable the Government to do so. The
obligation contained in Article VIII, Paragraph B prohibiting licensing shall
extinguish upon a decision by Participant not to file, prosecute, maintain or
defend a patent application hereunder.
ARTICLE XVII: COST OF INTELLECTUAL PROPERTY PROTECTION
<PAGE>
Each Party shall be responsible for payment of all costs relating to copyright,
U.S. and foreign patent application filing and prosecution, and all costs
relating to maintenance fees for U.S. and foreign patents hereunder which are
owned by that Party.
ARTICLE XVIII: REPORTS OF INVENTION USE
------------------------
The Parties agree to submit, upon request of DOE, reports no more frequently
than annually on the efforts to obtain utilization of any Subject Invention in
accordance with DOE patent regulations set forth in 41 CFR 9-9.
ARTICLE XIX: DOE MARCH-IN RIGHTS
-------------------
The Parties acknowledge that the DOE has certain march-in rights to any Subject
Inventions in accordance with 48 CFR 27.304- 1 (G).
ARTICLE XX: U.S. COMPETITIVENESS AND SMALL BUSINESS REPRESENTATION
------------------------------------------------------
The Parties agree that a purpose of this CRADA is to provide substantial benefit
to the U.S. economy.
In exchange for the benefits received under this CRADA, the Parties therefore
agree to the following:
A. Products embodying Intellectual Property developed under this CRADA shall
be substantially manufactured in the United States;
B. Processes, services, and improvements thereof which are covered by
Intellectual Property developed under this CRADA shall be incorporated into the
Participant's manufacturing facilities in the United States either prior to or
simultaneously with implementation outside the United States. Such processes,
services, and improvements, when implemented outside the U.S., shall not result
in reduction of the use of the same processes, services, or improvements in the
United States; and
By execution of this Agreement, the Participant certifies that, as of the
execution date of this Agreement, it is a "small business concern" as defined in
Section 2 of Public Law 85-536 (15 USC 632) and implementing regulations of the
administrator of the Small Business Administration.
ARTICLE XXI: ASSIGNMENT OF PERSONNEL
-----------------------
A. It is contemplated that each Party may assign personnel to the other
Party's facility as part of this CRADA. Such personnel assigned by the assigning
Party, to participate in or observe the research to be performed under this
CRADA shall not during the period of such assignments be considered employees of
the receiving Party for any purposes, including but not limited to any
requirements to provide workers' compensation, liability insurance coverage,
payment of salary or other benefits, or withholding of taxes.
<PAGE>
B. The receiving Party shall have the right to exercise routine administrative
and technical supervisory control of the occupational activities of such
personnel during the assignment period and shall have the right to approve the
assignment of such personnel and/or to later request their removal by the
assigning Party.
C. The assigning Party shall bear any and all costs and expenses with regard
to its personnel assigned to the receiving Party's facilities under this CRADA.
The receiving Party shall bear the costs of providing an appropriate work space,
access to a telephone, use of laboratory, manufacturing or other work areas as
appropriate, and any other utilities and facilities related to such assignments.
D. Each Party agrees to use due care while on the other's premises, to comply
with all posted environmental, safety and health rules and regulations during
the visit, to perform work in a safe manner, and to enter only those areas
previously designated by those in charge of its visit.
E. Each Party agrees to comply with all applicable municipal, state and
federal laws and regulations regarding the safety and health of the personnel
assigned to the receiving Party's facilities under this CRADA.
ARTICLE XXII: FORCE MAJEURE
-------------
No failure or omission by Contractor or Participant in the performance of any
obligation under this CRADA shall be deemed a breach of this CRADA or create any
liability if the same shall arise from any cause or causes beyond the control of
Contractor or Participant, including but not limited to the following, which,
for the purpose of this CRADA, shall be regarded as beyond the control of the
Party in question: Acts of God, acts or emissions of any government or agency
thereof, compliance with requirements, rules, regulations, or orders of any
governmental authority or any office, department, agency, or instrumentality
thereof, fire, storm, flood, earthquake, accident, acts of the public enemy,
war, rebellion, insurrection, riot, sabotage, invasion, quarantine, restriction,
transportation embargoes, or failures or delays in transportation.
ARTICLE XXIII: ADMINISTRATION OF THE CRADA
---------------------------
It is understood and agreed that this CRADA is entered into by the Contractor
under the authority of its prime Contract with DOE. The Contractor is authorized
to and will administer this CRADA in all respects unless otherwise specifically
provided for herein. This CRADA and Contractor's intellectual property rights
contained herein may be transferred from the Contractor to DOE or its designee
(including but not limited to a successor operator of the National Renewable
Energy Laboratory) with notice of such transfer to the Participant, and the
Contractor shall have no further responsibilities except for the confidentiality
obligations of this CRADA.
ARTICLE XXIV: RECORDS AND ACCOUNTING SYSTEM
-----------------------------
The Participant shall maintain records of receipts, expenditures, and the
disposition of all Government property in its custody, related to this CRADA.
The Contractor will maintain records satisfactory to DOE and in accordance with
generally accepted accounting principles, and the
<PAGE>
Participant will maintain its accounting system in accordance with generally
accepted accounting principles, and shall be subject to reasonable inspection
during Participant's business hours.
ARTICLE XXV: NOTICES
-------
A. Any communications required by this CRADA, if given by postage prepaid
first class U.S. Mail addressed to the Party to receive the communication, shall
be deemed made as of the day of receipt of such communication by the addressee,
or on the date given if by verified facsimile. Address changes shall be given in
accordance with this Article and shall be effective thereafter. All such
communications, to be considered effective, shall include this CRADA Number .
B. The addresses, telephone numbers and facsimile numbers for the Parties are
as follows:
Participant:
AMERISEN
14540 West Greenfield Avenue Brookfield, WI 53005 (414) 821-5250
Fax:, (414) 821-5054
Contractor:
National Renewable Energy Laboratory, division of Midwest Research Institute
1617 Cole Boulevard
Golden, CO 80401-3393 (303) 275-4000
Fax: (303) 275-3097
ARTICLE XXVI: DISPUTES
---------
At the request of either Party, after reasonable attempt to settle without
mediation, any controversy or claim arising out of or relating to the CRADA
shall be settled by mediation conducted in the State of Colorado in accordance
with the then current and applicable rules of the American Arbitration
Association.
ARTICLE XXVII: ENTIRE CRADA AND MODIFICATIONS
------------------------------
A. It is expressly understood and agreed that this CRADA with its Appendices
contains the entire agreement between the Parties with respect to the subject
matter hereof and that all prior representations or agreements relating hereto
have been merged into this document and are thus superseded in totality by this
CRADA. This CRADA shall not be effective until approved by DOE.
B. Any agreement to change any terms or conditions of this CRADA or the
Appendices shall be valid only if the change is made in writing, executed by the
Parties hereto, and approved by DOE.
ARTICLE XXVIII: TERM AND TERMINATION
--------------------
A. The term of this CRADA shall be twenty-four (24) months from the effective
date hereof unless extended by mutual agreement of the Parties, with the
approval of DOE, or terminated in accordance with the provisions that follow.
This CRADA may be terminated by either Party if the
<PAGE>
other Party fails to cure a material breach of this CRADA within thirty (30)
days after written notice to the other Party, or may be terminated by mutual
consent. In the event of termination, each Party shall be responsible for its
costs incurred through the effective date of termination, as well as its costs
incurred after the effective date of termination which are related to the
termination.
B. The provisions contained in Articles V, VI, VII, VIII, IX, X, XII, XIII,
XIV, XV, XVI, XVII, XVIII, XIX and XX(A) and (B) shall survive the expiration or
termination of this Agreement.
C. Contractor may terminate this Agreement with thirty (30) days' written
notice if its government funding associated herewith is not available or
sufficient in subsequent fiscal years, or if DOE program management support is
otherwise limited or terminated.
ARTICLE XXIX: ORDER OF PRECEDENCE
--------------------
In the event of a conflict between the provisions of the Appendices and those of
this Agreement, this Agreement shall prevail.
ARTICLE XXX: PERFORMANCE
------------
The Contractor and the Participant agree to exert reasonable efforts to perform
the work under this Agreement in accordance with the schedule as provided in
Appendix A, Joint Work Statement.
ARTICLE XXXI: HEADINGS
---------
The headings for the sections set forth in this Agreement are strictly for the
convenience of the parties hereto and shall not be used in any way to restrict
the meaning or interpretation of the substantive language of this Agreement.
ARTICLE XXXII: WAIVER
-------
The failure of Contractor or Participant at any time to enforce any provisions
of this Agreement or to exercise any right or remedy shall not be construed to
be a waiver of such provisions or of
such right or remedy or of the right of Contractor or Participant thereafter to
enforce each and every provision, right or remedy.
ARTICLE XXXIII: INDEPENDENT CONTRACTORS
-----------------------
Under the terms of this Agreement, the Contractor and the Participant are
independent contractors. Neither Party is an employee, agent, partner or
representative of the other Party. Nothing contained herein shall be deemed to
create a joint venture relationship between the Contractor and the Participant.
Each Party specifically acknowledges that it does not have authority to incur
any obligations or responsibilities on behalf of the other Party.
The Parties have indicated their acceptance of this Agreement by execution below
by an authorized representative. This Agreement is effective this 21st day of
March 1996.
<PAGE>
FOR CONTRACTOR: FOR PARTICIPANT:
/s/ DAWN M. ADAMS
BY BY Dawn M. Adams
TITLE TITLE Director
DATE DATE March 21, 1996
DOE APPROVAL: BY
TITLE
DATE
APPENDIX A
----------
JOINT WORK STATEMENT
[*]
[*] Seven pages omitted pursuant to request for confidentiality filed with the
Securities and Exchange Commission.
<PAGE>
APPENDIX B
-----------
Property List
Property to be Obtained With Participant Funds
- -----------------------------------------------
To be determined
Property to be Obtained with Government Funds
- ----------------------------------------------
To be determined
<PAGE>
EXHIBIT 6.8(a)
Modification Number 3 to Cooperative Research and
Development Agreement No. CRD-96-046
Facility Operator: Midwest Research Institute
National Renewable Energy Laboratory
Participant: DCH Technology
27811 Avenue Hopkins, Suite 6
Valencia, CA 91355
Period of Performance: 05/06/96 THROUGH 09/30/00
Except as stated herein, all terms and conditions of the Cooperative Research
and Development Agreement shall remain in full force and effect without change.
In the event of any conflict between the terms of the subject Agreement and
this Modification, the provisions of this Modification shall take precedence.
1) ARTICLE XXVIII; Term and Termination - is modified to reflect the term of
--------------------
the CRADA shall be forty (52) months.
2) Appendix A; Joint work Statement, section 7 SCHEDULE - the first sentence is
modified as follows:
"The program will continue for forty (52) months after CRADA execution."
The parties have indicated their acceptance of this acceptance of this
Modification no. 3, to Agreement No. CRD-96-046 between DCH Technology and the
National Renewable Energy Laboratory, by signature below. This Modification
shall not be effective until approved by the U.S. Department of Energy.
Accepted: Accepted:
DCH Technology Midwest Research Institute
National Renewable Energy Laboratory Division
By: /S/ ^ILLEGIBLE SIG^ By: /S/ ^ILLEGIBLE SIG^
--------------------- ----------------------------------------
Title: President Title: Director Contracts and Business Services
--------------------- ----------------------------------------
Date: 08 September 1999 Date: 9/9/99
--------------------- ----------------------------------------
Accepted;
DOE Approval
By: /S/ ^ILLEGIBLE SIG^
---------------------
Title: Contracting Officer
---------------------
Date: 9/16/99
---------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report included herein dated February 22, 1999, except for Note 13 to the
financial statements which is as of April 30, 1999, and the reference to our
firm under the caption "Experts" included in or made part of this Form 10-SB.
/s/ LUCAS, HORSFALL, MURPHY & PINDROH, LLP
------------------------------------------
Pasadena, CA
October 6, 1999
