0001158957-01-500036.txt : 20011010 0001158957-01-500036.hdr.sgml : 20011010 ACCESSION NUMBER: 0001158957-01-500036 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20011009 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEMARCO ENERGY SYSTEMS OF AMERICA INC CENTRAL INDEX KEY: 0001093993 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 87092000 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-69876 FILM NUMBER: 1754417 BUSINESS ADDRESS: STREET 1: P.O. BOX 201057 CITY: AUSTIN STATE: TX ZIP: 78729 BUSINESS PHONE: 5123351494 SB-2/A 1 formsb2-a.txt DEMARCO ENERGY SYSTEMS SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 2001 REGISTRATION NO. 333-69876 ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 AMENDMENT NUMBER 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 DEMARCO ENERGY SYSTEMS OF AMERICA, INC. (Exact name of registrant as specified in charter) UTAH 3585 87-0392000 --------------- ----------------- ------------------ (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification No.) incorporation or Classification Code organization) Number) 12885 HWY 183, STE 108-A, AUSTIN, TEXAS 78750 --------------------------------------------- (512) 335-1494 -------------- (Address and telephone number of principal executive offices) 12885 HWY 183, STE 108-A, AUSTIN, TEXAS 78750 --------------------------------------------- (512) 335-1494 -------------- (Address of principal place of business or intended principal place of business) VICTOR DEMARCO, PRESIDENT AND CHIEF EXECUTIVE OFFICER 12885 HWY 183, STE 108-A AUSTIN, TEXAS 78750 (512) 335-1494 (Name, Address and Telephone Number of Agent for Service) Copy to: CURTIS R. ASHMOS LOCKE LIDDELL & SAPP LLP 100 CONGRESS, SUITE 300 AUSTIN, TEXAS 78701 (512) 305-4716 Approximate date of proposed sale to the public: From time to time after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box [ X ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434 check the following box. [ ] CALCULATION OF REGISTRATION FEE -------------------------------------------------------------------------------- Title of Each Proposed Proposed Class of Maximum Maximum Amount of Securities to Amount to be Offering Price Aggregate Registration be Registered Registered Per Share Offering Price Fee -------------------------------------------------------------------------------- Common Stock, 22,826,086 $0.09 (1) $2,054,348 (1) $ 513.59 $.0001 shares par value -------------------------------------------------------------------------------- (1) Estimated in accordance with Rule 457(c) of the Securities Act of 1933 solely for the purpose of calculating the registration fee based upon the last sale reported for the Common Stock on the OTC EBB on October 4, 2001. Pursuant to Rule 457, we hereby request that the fees paid in connection with File 333-49758 be applied toward this filing. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. DEMARCO ENERGY SYSTEMS OF AMERICA, INC. -------------------------------------------------------------------------------- CROSS-REFERENCE SHEET (BETWEEN ITEMS OF FORM SB-2 AND PROSPECTUS) FORM SB-2 ITEM NO. AND CAPTION PROSPECTUS CAPTIONS ------------------------------ ------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus Front Cover Page 2. Inside Front and Outside Back Cover Pages Of Prospectus Inside Front Cover Page 3. Summary Information and Risk Factors Prospectus Summary; The Company; Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Selling Stockholders 8. Plan of Distribution Front Cover Page; Plan of Distribution 9. Legal Proceedings Business 10. Directors, Executive Officers, Promoters Management; Selling and Control Persons Stockholders 11. Security Ownership of Certain Beneficial Security Ownership of Certain Owners and Management Beneficial Owners and Management 12. Description of Securities Description of Capital Stock 13. Interest of Named Experts and Counsel Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Description of Capital Stock 15. Organization Within Last Five Years The Company; Business 16. Description of Business Business 17. Management's Discussion and Analysis or Management's Discussion and Plan of Operation Analysis Results of Operations 18. Description of Property Business 19. Certain Relationships and Related Transactions Certain Transactions 20. Market for Common Equity and Related Front Cover Page; Description Stockholder Matters of CapitalStock; Selling Stockholders 21. Executive Compensation Management 22. Financial Statements Index to Financial Statements 23. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not Applicable 2 PROSPECTUS 22,826,086 Shares DEMARCO ENERGY SYSTEMS OF AMERICA, INC. Common Stock --------------------------------------------- This Prospectus relates to the offering for resale of 22,826,086 shares of Common Stock, par value $.0001 per share (the "Common Stock"), of DeMarco Energy Systems of America, Inc. (the "Company"). All of the Common Stock being registered may be offered and sold from time to time by certain selling stockholders of the Company. See "Selling Stockholders" and "Plan of Distribution". The Company will not receive any proceeds from the sale of the Common Stock by the Selling Stockholders. The Common Stock is traded in the over-the-counter market and quoted on the OTC EBB under the symbol "DMES" and quoted in the pink sheets published by the National Quotations Bureau. On October 4, 2001, the last reported sale price for the Company's Common Stock on the OTC EBB was $0.09 per share. --------------------------------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6. --------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------------------------- The Company has not authorized any person, agent or entity to give any information or make any representation other than those contained in this Prospectus (including material incorporated by reference herein). You should not rely on any such information or representation as having been authorized by the Company. This Prospectus is not an offer to sell the securities and it is not soliciting an offer to buy the securities in any state where offers or sales are not permitted. The issuance of the shares being offered hereby, which are issuable upon conversion of certain debentures, could result in substantial dilution to shareholders of the Company. The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The date of this Prospectus is October 8, 2001. 3 TABLE OF CONTENTS PAGE Prospectus Summary 5 Risk Factors 6 Use of Proceeds 8 Management's Discussion and Analysis of Results of Operations 8 Business 10 Management 17 Security Ownership of Certain Beneficial Owners and Management 18 Selling Stockholders 18 Certain Transactions 20 Description of Capital Stock 20 Market for Common Stock 21 Plan of Distribution 22 Legal Matters 23 Experts 23 Additional Information 23 Index to Financial Statements F-1 4 PROSPECTUS SUMMARY THE COMPANY DeMarco Energy Systems of America, Inc. (or, "DeMarco Energy "), provides energy solutions for commercial and residential applications. We sell a highly efficient heating/cooling system called the "Energy Miser". The Energy Miser is a patented geothermal heat pump system utilizing the municipal water main or any other underground piping loop to heat, cool and provide domestic hot water for buildings. Based on the results from our limited prototype installations and a Department of Energy study, we believe these heat pumps are from 30% to 70% more efficient than other methods for heating and air conditioning (See "Business"). In two of our initial prototype installations in South Dakota, the Energy Miser reduced the annual energy cost to air condition and heat a facility by 36% at one location and 72% at the other site. Since our inception we have installed eleven of our Energy Miser systems in five states (See "Business"). We do not have baseline information from the other installations from which we can measure reductions in energy consumption because they are new installations. We cannot assure you that a specific percentage savings will occur in future installations of our system. We derive our revenue in the form of royalties from sales of the Energy Miser system. We have an exclusive brand name agreement with Florida Heat Pump Manufacturing Inc. ("FHP") located in Florida. FHP manufactures the units, labels them with the DeMarco Energy Miser name and sells them through their existing dealer/distributor network. On February 7, 2001, we signed an amended agreement with FHP which also allows us to purchase the Energy Miser system directly from FHP and sell our product to consumers without going through a FHP representative. Since the origination of this agreement (September 14, 1990) to date there have been a minimal number of units sold. We believe this lack of sales was partially due to distributors and dealers not having adequate engineering instruction manuals in order to demonstrate or promote the system to prospective customers. In August of 2000, we completed the engineering manual and have developed a marketing and promotion program that introduced the manual to FHP's sales representatives and distribution network (See "BUSINESS"). In August 2001, we mailed our engineering manuals to 82 FHP sales representatives in the United States and to 18 FHP sales representatives in foreign countries. We also believe our sales have been hampered by the reluctance of various government agencies to allow us to tap into municipal water mains and our lack of sufficient operating capital (See " BUSINESS" and "Government Regulations"). The mailing address of our principal executive office is P.O. Box 201057, Austin, Texas 78720-1057 and the telephone number is (512) 335-1494. 5 RISK FACTORS An investment in our Common Stock is speculative and involves a substantial degree of risk. Investors should carefully consider, along with other information in this Prospectus, the following considerations and risks in evaluating an investment in our Common Stock. You should not purchase any Common Stock unless you can afford to lose your entire investment. WE HAVE A LIMITED OPERATING HISTORY AND HAVE NEVER BEEN PROFITABLE. Since our inception in 1983 up to the date of this Prospectus our revenues have been almost non-existent. We own a patent for our Energy Miser cooling/heating system and we anticipate generating revenue in the form of royalty fees from the sale of these systems. If future sales do not occur, investors in our common stock will likely lose their entire investment. WE HAVE ACCUMULATED A DEFICIT AND ANTICIPATE FUTURE LOSSES. From inception through June 30, 2001, we had generated immaterial revenues and had an accumulated deficit in the amount of $3,521,964. The products scheduled for manufacturing and distribution will require significant marketing expenditures that, together with projected general and administrative expenses, may cause operating losses for the near future. If operating losses continue, shareholders could lose their entire investment. WE WILL NEED ADDITIONAL FUNDING AND TO DATE WE HAVE NOT BEEN ABLE TO RAISE SIGNIFICANT FUNDS THROUGH TRADITIONAL CAPITAL MARKETS. We are in the process of issuing a series of convertible debentures because we have found it difficult to sell our common stock as a means to raise funds for expansion (See "Liquidity and Capital Resources"). However, we will need to seek additional capital through public or private sales of our securities, including equity or debt securities, in order to fund our activities on a long-term basis. We may not be able to obtain adequate funds, whether through financial markets or collaborative arrangements with strategic partners or from other sources, on acceptable terms when needed. If we are successful in raising additional capital, investors and shareholders could face substantial dilution of their investments. OUR DEBT-HOLDERS HAVE A SECURITY INTEREST IN ALL OF OUR ASSETS. In September 2000 we agreed to issue $1,500,000 in 10% Secured Convertible Debentures. These Debentures are secured by virtually all of the Company's assets and intellectual property. If we default upon the repayment terms of these debentures, our assets would become subject to foreclosure and it would be very difficult to remain a going concern. OUR BUSINESS IS DEPENDENT ON ACCEPTANCE BY GOVERNMENT REGULATORS. A significant obstacle confronted by DeMarco Energy in the marketing of the Energy Miser has been governmental interpretation and regulation. In most instances, we need to be able to interface with public water supplies in order for our customers to receive the benefits of our system. Some government regulators have been resistant in allowing us to tap into public water mains for fear of contamination of the water. If government constraints continue it will limit the markets we can compete in and our shareholders would be adversely affected (See "Government Regulation"). OUR ENERGY MISER SYSTEM PATENT, WHICH IS THE BASIS OF OUR BUSINESS, COULD EXPIRE BEFORE WE COULD GAIN MARKET ACCEPTANCE. We only have approximately four years remaining on our patent for our Energy Miser system. Our patent expires in September 2005. In addition, the technology involved under this patent for the Energy Miser system could become obsolete due to government regulations, manufacturing cost constraints, new innovations created by competitors or any other reason. Should this technology become unmarketable, our operations and financial condition will be adversely affected. WE FACE STRONG COMPETITION THAT WE MAY NOT BE ABLE TO OVERCOME. Our Energy Miser system has many competitors, many of whom are large with well-known brands and manufacture their own systems. Some of our larger competitors include Trane, Carrier, York and Dunn & Bush. These competitors use cooling tower boiler applications that we believe are inferior to our municipal water geothermal applications, but because of the relative financial strength of these competitors, we may not be afforded the opportunity to demonstrate the advantages of our system over competitors' systems and as such, sales will not materialize and shareholder investments could be lost. 6 WE ARE DEPENDENT ON OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER AND NEED TO HIRE ADDITIONAL KEY EMPLOYEES. Our operations are dependent on Victor DeMarco, President, Chief Executive Officer and a significant shareholder. We have no Chief Financial Officer or other executive officers. If Mr. DeMarco were to expire or become incapacitated, there is currently no successor who could execute our business plan. WE DO NOT HAVE ADEQUATE MARKETING AND SALES EXPERIENCE AND OUR FUTURE SUCCESS WILL IN PART BE BASED ON OUR ABILITY TO HIRE EMPLOYEES WITH ADEQUATE BACKGROUNDS IN THESE AREAS. We will need to recruit qualified personnel and representatives for the purpose of marketing our Energy Miser system. If we are unsuccessful in attracting qualified personnel we will not be able to increase sales significantly and we will remain unprofitable. IF OUR PRODUCTS FAIL WE COULD BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, FOR WHICH WE ARE NOT ADEQUATELY INSURED. If we develop and install our products, we may be exposed to product liability claims. We might also be required to indemnify manufacturing affiliates against any product liability claims incurred by them as a result of products developed by us under agreements with these affiliates. We currently do not carry adequate product liability insurance. If we experience an uninsured or inadequately insured product liability claim, our business and financial condition as well as investor value would be materially adversely affected. OUR COMMON STOCK PRICE COULD BE ADVERSELY AFFECTED UPON CONVERSION OF THE CONVERTIBLE DEBENTURES AND COULD RESULT IN A SUBSTANTIAL INCREASE IN THE NUMBER OF OUTSTANDING SHARES AND THE AMOUNT OF DILUTION TO CURRENT SHAREHOLDERS. If our debenture holders elect to convert their debt into shares of our common stock at a substantial discount to the market price at the time of conversion, which they are entitled to do, the market price of our stock could decrease dramatically and adversely affect the value of our current and future shareholders' investments. If due to decreases in our stock price our debenture holders are able to convert their debentures into the number of shares registered pursuant to this registration statement, our outstanding shares would more than double. If our stock price continues to decline, our current shareholders will incur even more substantial dilution upon the conversion of the debentures. The following table illustrates the number of shares of Common Stock that would be issuable if the Selling Stockholders convert their debentures while the Company's Common Stock is trading at various prices: Price Per Share $.10 $.06 $.02 Conversion price $.06 $.036 $.012 (60% of price per share) Number of conversion 25,000,000 41,666,667 125,000,000 shares issued THE SELLING STOCKHOLDERS MAY ENGAGE IN SHORT SALES OF OUR STOCK, WHICH COULD HAVE THE EFFECT OF DRIVING DOWN OUR STOCK PRICE. Short sales are sales of a security not owned by the seller and is a technique used to take advantage of an anticipated decline in the price of a security. Because the Selling Stockholders can convert their debentures into common stock at a price that is less than the then current market price, they will be able to sell our stock short and then convert their debentures and cover their short sales with stock purchased at a price that is lower than their sales price with little or no risk. Repeated short sales could place downward pressure on our stock price and result in a loss to persons who purchase shares from the Selling Stockholders pursuant to this prospectus. In addition, our current stockholders may also engage in short sales of our stock, which could put additional downward pressure on our stock price. FORWARD-LOOKING INFORMATION From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission. Words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project or projected", or similar expressions are intended to identify "forward-looking statements". Such statements are qualified in their entirety by reference to and are accompanied by the above discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements. 7 USE OF PROCEEDS We will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS The financial information set forth in the following discussion should be read in conjunction with, and qualified in its entirety by, the financial statements of DeMarco Energy included elsewhere herein. FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION OVERALL OPERATING RESULTS: Fiscal year ended June 30, 2001 compared to fiscal year ended June 30, 2000: We had net royalty revenues of $5,100 for the fiscal year ended June 30, 2001. Prior year royalty revenues were $22,000. Our total expenses for the current year were $1,092,000 versus $292,600 for last year. The expenses with the largest increases during the current year as compared to the prior year were as follows: o Marketing and advertising was $55,900 versus $39,000 for the prior year period. This increase was part of our plan to increase our product exposure. o Travel expenses were $28,900 as compared to $27,200 as we attended more industry trade shows in each of the last 2 fiscal years to increase our exposure to the market. o Interest expense was $410,800 for the current year as compared to $29,200 for the prior year period. Of these expenses $77,500 was incurred in connection with the convertible debentures we issued throughout calendar year 2000 (See "Liquidity and Capital Resources"). In addition, we incurred $333,300 in non-cash interest charges to reflect the beneficial conversion features associated with the convertible debentures we issued to the Selling Shareholders in September 2000. o Legal and professional fees increased $116,300 to a total of $201,900. These fees were incurred in connection with the current SB-2 filing, our annual audit, legal work performed for the debenture offerings, our quarterly and annual filings with the Securities and Exchange Commission as well as for general corporate matters. o Our payroll for the year was $246,100, which represents an increase of $173,600 over the prior year payroll of $72,500. We also added a vice president of sales in November 2000. We incurred a net loss for the 2001 fiscal year of $1,086,900 as compared to a net loss of $270,700 from continuing operations for the prior fiscal year. We plan to continue to focus our expenditures on marketing efforts for the foreseeable future. These losses were incurred primarily because of the costs and expenses cited above. Our inception to date income statement includes the sales and expenses related to Cyberlink Systems, Inc., a former wholly-owned subsidiary. Cyberlink refurbished and marketed used computer components such as computer monitors and printers (See"BUSINESS" and "FINANCIAL STATEMENTS"). Cyberlink ceased doing business in 1998 and all business activities regarding this subsidiary were dissolved in June 2000. In addition, since inception we had a one-time gain of $66,000, included in extraordinary items, for the forgiveness of debt owed to the former majority shareholder, Louis DeMarco. LIQUIDITY AND CAPITAL RESOURCES: We have recently been financed through a private equity offering that ended during the third quarter of 1999 and a convertible debenture offering that began in the first quarter of 2000, and have been supported in the interim by loans from our President and Chief Executive Officer, Victor DeMarco. On August 25th and August 28th 2000, we issued the last of the series of convertible debentures bearing 8% interest. These two debentures totaled $57,500 and $26,180 respectively, and were part of a total of $229,380 raised from January through August 2000 (see "BUSINESS"). The proceeds were utilized for repayment of accounts payable and operating expenses. 8 On September 26, 2000, we entered into an agreement with AJW Partners, LLC and New Millennium Capital Partners II, LLC (the "Debenture Holders") for the private placement of $1,500,000 of our 10% Secured Convertible Debentures. These debentures are convertible into shares of the Common Stock of DeMarco Energy based on the terms listed below. The funding of the debentures will occur in two phases. The first $500,000 (less legal expenses of $25,000 and consulting fees of $20,000) was received by us on September 27, 2000. The remaining $1,000,000 will be funded within 5 days following the effective registration with the Securities and Exchange Commission of the underlying shares of our common stock. We anticipate utilizing the funds as follows: o Legal fees incurred with the private placement $ 25,000 o Consulting incurred with the private placement 20,000 o Paying outstanding accounts payable 50,000 o New Company video for advertising 19,000 o New Company brochure and logo 10,000 o Updating supplies with new logo 5,000 o New engineering manual 10,000 o Updating the Company website 25,000 o Ongoing attorney's fees 25,000 o 3 months operating expenses 61,000 o Marketing efforts 450,000 o Set aside for potential acquisitions 800,000 ---------- Total $1,500,000 The aforementioned $1,500,000 of convertible debentures is a part of a term sheet agreement with AJW Partners, LLC and New Millennium Capital Partners II, LLC which calls for up to a total of $8,000,000 of convertible debentures to be issued over time as warranted. The term sheet agreement is not binding on either party and additional purchases of our convertible debentures will be based on a mutually agreeable use of proceeds from the sale of these debentures. The primary terms of the September 2000 Convertible Debentures are as follows: - Entire principal amount of the first $500,000 of debentures issued in September 2000 matured on September 26, 2001. The debenture holders do not intend to demand payment for these debentures or exercise their conversion privileges until all the shares associated with this Prospectus are registered. The remaining $1,000,000 of convertible debentures to be issued upon the effective registration of the underlying shares of Common Stock will mature in one year from the date of funding. - Debentures bear 10% interest per annum with interest payments due quarterly. Interest to be paid in cash or shares of Common Stock solely at the option of the Company. - The debenture holders have the option to convert any unpaid principal into shares of our Common Stock at any time after the original issue date (subject to certain limitations). - The conversion price per share in effect on any conversion date shall be the lesser of (1) $0.34 per share or (2) 60% of the average of the lowest three inter-day trading prices during the ten trading days immediately preceding the applicable conversion date. - The debentures bear a mandatory prepayment penalty of 130% of the principal and all accrued interest being prepaid. - The debentures are secured by all unpledged assets of DeMarco Energy, including our current and pending patents. - DeMarco Energy is required to file a SB-2 Registration Statement with the Securities and Exchange registering 200% of the Common Stock underlying the debentures. The Secured Convertible Debenture Purchase Agreement, the DeMarco Energy Systems of America, Inc., 10% Secured Convertible Debenture, the Security Agreement, the Intellectual Property Security Agreement, the Registration Rights Agreement, and the Escrow Agreement were all filed electronically as Exhibits to the Securities and Exchange Commission Form 8-K filed with the Commission on October 11, 2000. We are exploring the possibility of acquiring a company that would be complementary to our current operations. We believe that the acquisition of a small energy design engineer firm would be very beneficial to our operations. We are currently looking for such a company in the Washington, D.C. area which would complement our involvement with the PG&E Energy Services contract (See: "Recent Developments"). Another potential area for acquisitions would be small lighting retrofit organizations. Most projects on which we have bid in the past and plan on bidding in the future usually encompass both lighting retrofit and air conditioning and heating components in order to maximize the reduction in energy consumption. However, at this point we have not identified or contacted any one specific company regarding acquisition possibilities other than the contact with Lighting Management Consultants (See: "Recent Developments"). We had negative working capital of $7,600 at June 30, 2001 as compared to negative working capital of $77,800 at the end of the prior fiscal year end June 30, 2000. This decrease in negative working capital is primarily the result of the funding of the convertible debentures. 9 We had an unrestricted cash balance of $300 at June 30, 2001 as compared to a cash balance of $23,200 at June 30, 2000. We also had $250,000 of cash being held in escrow pending a successful registration of the aforementioned common stock. Subsequent to June 30, 2001, this restricted cash was released to the Company for use in operations. The decrease in unrestricted cash balances was caused by our funding of operations for the current year out of the partial proceeds we received from the convertible debenture offering as well as additional funding in the amount of $250,400 from our current Chairman, President and Chief Executive Officer. We anticipate that with the complete funding of the debentures we will be able to substantially increase our marketing presence for the foreseeable future. We cannot assure you that these efforts will have the desired effect of increasing sales or profitability. Variations in shareholder/insider debt (other than the issuance of the convertible debentures) are attributable to the settlement of the estate of Louis DeMarco, the prior majority shareholder, and the dissolution of Cyberlink Systems, Inc., a former subsidiary of DeMarco Energy (See:"BUSINESS"). Cyberlink ceased doing business in March, 1998 and was officially dissolved in June, 2000. DeMarco Energy continues to honor the outstanding obligations of Cyberlink which consisted of a $100,000 line of credit and 4 leases on various computer equipment. At this point, we have paid off the line of credit but still have approximately $50,000 remaining on the computer equipment leases. We continue to utilize the computer equipment under these leases. There have not been any defaults on these obligations to date. NEW ACCOUNTING PRONOUNCEMENTS We have adopted FASB Statement 128. It is not expected that we will be impacted by other recently issued standards. FASB Statement 128 presents new standards for computing and presenting earnings per share (EPS). The Statement is effective for financial statements for both interim and annual periods ending after December 15, 1997. FASB Statement 131 presents news standards for disclosures about segment reporting. We do not believe that this accounting standard applies to us as all of our operations are integrated for financial reporting and decision-making purposes. INFLATION Our results of operations have not been affected by inflation and we do not expect inflation to have a significant effect on its operations in the future. BUSINESS GENERAL DeMarco Energy Systems, Inc., a Texas corporation, was founded by Mr. Louis DeMarco, father of Victor DeMarco, our current Chairman, President and Chief Executive Officer, and began operations in June 1983. On November 17, 1989 Mr. DeMarco, as an individual, acquired a majority interest in Fountain Head, Inc., a public shell corporation with shareholders but no operations. We completed a reverse merger with this shell on December 1, 1989, thereby becoming a publicly traded corporation, and changed the name of our company to DeMarco Energy Systems of America Inc., a Utah corporation. From 1978 to 1982 (prior to the formation of DeMarco Energy Systems, Inc.) Louis DeMarco designed and sold solar energy panels to the commercial and residential markets. The panels were manufactured by Glasstron Boat Manufacturing. This phase of the business was discontinued and sold to a third party in 1982, prior to the formation of our company, when the Federal Government ceased the tax credits that were allowed for this type of energy conservation. Mr. DeMarco and two engineers, who became employees of DeMarco Energy, then began working on the concept of an energy efficient geothermal heat pump. They received a systems patent on September 3, 1985 that was later assigned to DeMarco Energy Systems, Inc. in December 1989 in exchange for 10,396,790 shares of our common stock. Of these issued shares, Mr. Victor DeMarco, received 4,900,000 shares from his father. The remaining shares were issued to Mr. Louis DeMarco for the rights to the patent. The patent revolves around the interface with a municipal water main and has three basic components. The first is taking water out of the municipal water main and running it through a heat exchanger and returning the water to the municipal water main. Secondly, the water running through a heat exchange device; and third that heat exchange device being an integral part of a geothermal heat pump. Our patent consists of all three of these components connected together in a specific series. The patent is, therefore, primarily an installation technology. This patent will expire on September 3, 2005. From 1986 to 1990, we had an exclusive licensing agreement with an Oklahoma manufacturer that resulted in very few sales. That agreement was terminated in 1990 due to lack of marketing activity from that entity. 10 On September 14, 1990 we entered into an exclusive brand name licensing agreement with FHP. This agreement gives FHP the exclusive rights to manufacture, distribute, market and sell the Energy Miser system with the DeMarco Energy Miser label on the products. This agreement is still in force but can be terminated at any time by either party with 60 days notice. We have had minimal success under this agreement from inception to date. We believe there are at least three (3) reasons for this lack of sales. The primary reason has been the reluctance of various government agencies to allow us to tap into municipal water mains for fear of contamination of the potable water (public drinking water) (See "Government Regulation"). Another has been our lack of sufficient operating capital to properly develop a solid marketing campaign to promote our systems and gain exposure to potential customers. And the last reason has been the need for an adequate engineering manual to assist sales representatives and dealers to understand the intricacies of the system and give them a visual method to promote our products to potential consumers. We now have that manual completed and distributed to FHP sales representatives (See "The Company" and "Recent Developments"). On February 5, 2001, we signed an amended agreement with FHP which will now allow us to also sell the Energy Miser system directly to end users without going through a FHP representative. We have filed a second patent application with the United States Patent office. This patent is for an invention that relates to heat pumps that are automatically thermodynamically balanced to operate at optimum conditions using water, and in this case reuse water systems. This patent, while similar to our current patent, was designed to utilize reuse water from private, public or other types of managed secondary water lines with the DeMarco Energy Miser heating and cooling system. Reuse water is defined as treated sewer water that falls below the standards of drinking water. For many years, reuse water has been used in secondary water systems for watering lawns and charging fire hydrants, as well as other non-potable water applications. It has only been in recent years that the secondary water systems have been given greater consideration due to water shortages. If this patent is granted we believe that government agencies will be much less reluctant to allow us to tap into reuse water mains, although we can give no assurances that they will be receptive. We have received initial comments from the Patent Office and have replied to those comments. We are currently waiting for any further responses from that office regarding this patent application. Over the last two years we have spent approximately $15,000 for research and development costs as it relates to this patent. In July 1996, we founded Cyberlink Systems, Inc. ("Cyberlink"), a wholly-owned subsidiary. Cyberlink was organized to refurbish and market used computer components such as computer monitors and printers. Due to the continued decline in costs of new computer equipment our profit margins eroded and continuing to operate became unfeasible. Cyberlink ceased doing business in 1998. All activities regarding Cyberlink were wound down over the next year and it was dissolved in June 2000. (See "Liquidity and Capital Resources"). We currently compete in the heating and cooling market, and primarily in the geothermal heat pump segment. Within this business segment we market, sell and (1) install heating and cooling systems during construction of new facilities, and (2) install heating and cooling systems in existing facilities replacing less efficient, antiquated, or inoperable systems. We have prepared a marketing presentation of the Energy Miser system, which targets energy service companies. These companies are subsidiaries of large power companies that market their power services to large energy usage clients such as federal buildings. Some of the power companies that have these energy service company subsidiaries include Reliant, Northern States Power, Duke and Southern California Edison. Some other corporations that also have energy service companies include Johnson Controls, Honeywell and Chevron. The creation of these type of companies stemmed from a federal mandate signed in 1993 by President Clinton called the Climate Change Action Plan. It basically mandates that all federally owned facilities save 30% of their total energy consumption by the year 2010. Energy service companies offer performance contracting for projects generally greater than $10 million, most of which require retrofitting heating and cooling systems. They implement systems that provide the greatest percentage of energy reduction to maximize savings benefits and focus on the shortest return on investment cycle. We cannot assure you that the marketing program will produce the desired results of substantially increasing revenues or profitability. From inception to date we have had a total of eleven installations of our Energy Miser system in five states. A summary of these installations follows: o Beaufort Marine Air Station Beaufort, SC 378 Tons Currently under construction This installation was designed by the Corp of Engineers as a DeMarco Energy Miser system. An FHP representative sold the product and we were paid a royalty of 11% of the sales price of the system. 11 o Belle Fouche Area Community Center Belle Fouche, SD 135 Tons Currently under construction and we will receive a royalty of 20% of the sales price of the system. o Winner Elementary School Winner, SD 40 Tons Installed 1997 This installation was designed by a private mechanical engineering firm as a DeMarco Energy Miser System. A FHP representative sold the system and we were paid a royalty of 20%. The expansion was funded through a performance contact by Northern States Power. This was an energy services company project. o Winner Middle School Winner, SD 42 Tons Installed 1997 This installation was designed as a DeMarco Energy Miser System. A FHP representative sold the system and we were paid a royalty of 20%. The expansion was funded through a performance contact by Northern States Power. This was an energy services company project. o Ft. Irwin Army Tank Training Base Barstow, CA 790 Tons Installed 1996 This installation was designed through a grant from Southern California Edison, for $800,000. We donated the patent to this project because of its designation of Show Case Facility. This was also an energy services company project. o Rosebud Electric Gregory, SD 12.5 Tons Installed 1995 This installation was donated and we received no royalty. The local utility installed the DeMarco Energy Miser system in their administrative office as a show case installation. o Winner Clinic Winner, SD 7.5 Tons Installed 1994 This system was installed by a private owner with our assistance. We received no royalty for the installation. o South Dakota Discovery Center and Aquarium Pierre, SD 150 Tons Installed 1992 We donated the patent for this installation. It came about through donations from the state of South Dakota, the city of Pierre, as well as several private groups. We were in return granted the right to showcase this installation. We used this installation in one of our first advertising videos. o Hermiston Movie Theater Hermiston, OR 55 Tons Installed 1987 This system was installed during the time we were under the patent license agreement with Climatemaster. We receive payment through that agreement of a 1% royalty. o Hermiston Library Hermiston, OR 100 Tons Installed 1987 This system was installed under the same terms as the Hermiston Movie theater listed above. o Monroeville Water Authority Monroeville, PA 10 Tons Installed 1984 This was our first municipal water heat pump installation. This system, including the unit was donated by DeMarco Energy. 12 We have faced government agency constraints in the past in allowing us access to public water mains. We have spent an inordinate amount of time and effort over the past years in lobbying state and local government agencies to enact legislation to change water codes and rules to allow access to that market. We believe our product does not impose a health or any other risk on the potable water supply. The United States Department of Energy ("DOE") completed a study of the effects of geothermal water pumps connected to potable water mains and released the results in April 1998. The title of their report is "Municipal Water-Based Heat Pump Heating and/or Cooling Systems". Their findings on the water quality tests included the following: "From the limited number of installations that were sampled in the two states, it appears from the data that such systems have limited detectable impact on water quality, biological growth, metal concentration, and residual chlorine." The DOE study also concluded that geothermal heat pumps were 50% to 70% more energy efficient than other types of systems. Despite our lobbying efforts and the DOE study, to date there has been very little done by government agencies to enact the above described legislation. As a result, we have refocused our marketing efforts toward entities that either own or control their own water systems. Entities and institutions where we are concentrating our efforts include military bases, school systems, state or city owned buildings, federal facilities, and large campus type facilities, such as colleges. These types of facilities utilize large quantities of water and in several instances control their own water system. We have had prior successes, though limited in scope, with military installations. We also believe smaller communities with less stringent government bodies and regulations will be good prospects for our energy saving products. We have had inadequate capital in the past in order to mount a viable marketing plan for our product. Through past sales of our convertible debentures we have been able to produce updated brochures, an engineering manual, and have updated our website. The engineering manual and the brochures have been completed. In August 2001, we mailed the manuals and brochures to 100 FHP sales representatives in the United States and foreign countries (See "Company"). We initially intend to hire internally up to three national sales representatives to call on all members of the FHP sales force to educate them as to the benefits offered by the Energy Miser system. PRODUCTS The DeMarco Energy Miser Heating and Cooling System The Energy Miser is a patented geothermal heat pump system utilizing the municipal water main or any other underground piping loop to heat, cool and provide domestic hot water for buildings. Based on the results from our limited prototype installations and a DOE study, we believe these heat pumps are from 30% to 70% more efficient than other methods for heating and air conditioning (See "Business"). A traditional heat pump system transfers energy to and from outside air. Geothermal heat pumps normally use the heat absorbing, or heat supplying, capacity of large bodies of water such as lakes, ponds, water wells or specially constructed networks of pipe called ground loops. The requirements for a "large body of water" as the external source or the costly excavating required for the heat pump, imposes three constraints on anyone wanting to take advantage of the system. The first is the need to be located near such a body of water if a natural source is going to be used. The second is the added expense of drilling a water-well. The third is the need for enough property to accommodate the underground installation of several hundred feet of plastic pipe. The Energy Miser system is a geothermal heat pump system that uses water to provide the thermal energy needed to heat and cool. Our system is different in that it utilizes municipal water mains, reused water or any other managed water supply. There is no need for ground loops, wells, chillers, cooling towers or boilers. We believe this makes the Energy Miser system much more viable for the consumer market. Although some government regulators and others have expressed concerns about the integrity of the water, we believe the concerns are unfounded because the water simply passes through a double walled plate heat exchanger with no chance of contamination and is returned to the water source with only a slight temperature change. The Energy Miser system has to date (pending the outcome of the second patent application for the utilization of reuse water sources) only utilized potable water systems as demonstrated within several military bases, as well as other commercial and institutional applications nationwide. If the patent for the utilization of reuse water is approved we believe we will have greater success in gaining acceptance from government regulators as their concerns over contamination of the potable water supply will be lessened. These reuse water sources are controlled at the municipal level and we intend to launch marketing efforts in cities using or proposing to implement reuse water systems. Although we anticipate an increase in revenues if the reuse water patent is approved there can be no assurances that such marketing efforts will have their intended effect of increasing revenues or profitability. 13 Energy Efficient Lighting Systems We have not been involved in energy efficient lighting systems in the past, however, we have recognized the need to either acquire an entity that is or joint venture with such an entity. We have found that most projects that we are bidding on for our air conditioning and heating systems also require the installation of energy efficient lighting. We believe that by combining the bidding process for both types of energy saving services we can generate additional sales revenues. However, we cannot assure you that such additional sales will occur. We have signed a Strategic Partnership agreement with Lighting Management Consultants (LMC) in Houston, Texas. The agreement provides for forthcoming lighting projects awarded to DeMarco to be performed by LMC within their geographic business environment. This agreement was signed on December 20, 1999 and will continue in force until terminated by either party with 60 days written notice. All projects that are in place at the time of termination will be completed by LMC. LMC will be responsible for all aspects of the lighting project including performing energy audits, preparing the lighting bids and completing the installation per the terms of the project requirements. We will receive 5% of the revenue generated from all accepted bid contracts. Additionally, we have entered into a Strategic Partnership with SLi, Inc. (NYSE:SLI), which provides for SLi to perform lighting retrofit and energy management services for DeMarco awarded contracts outside the parameters, scope and geography of the LMC partnership. This agreement was signed May 19, 2000 and contains the same termination and responsibility provisions as the LMC agreement. As of the date of this prospectus there have been no sales generated from these agreements. In commercial facilities, lighting typically represents 30 to 40 percent of a commercial facility's energy consumption. By reducing the kilowatts used for lighting, utility costs can be reduced. Efficient lighting systems can reduce consumption by as much as 50 percent, without reducing lumens. The lighting retrofit services may be offered as a combined package with the DeMarco Energy Miser system, creating a marketing/sales program based upon return on investment time parameters. Sub-contractors generally located within the geographic region of the project perform lighting retrofit installations. These sub-contractors are identified, recruited and managed by DeMarco's partners. As of the date of this prospectus, we have not initiated sales efforts for lighting products. On June 27, 2000, we signed a letter of intent to acquire Lighting Management Consultants. Terms of the acquisition included cash and stock for one hundred percent of the equity in LMC. Because of the results of financing and certain conditions arising from the negotiations of the acquisition, both parties to the letter of intent have agreed to cancel this potential acquisition arrangement. MARKETING AND COMPETITION We market and sell our Energy Miser system through a brand name partnership agreement with FHP, of Ft. Lauderdale, Florida, and via exposure through the Geothermal Heat Pump Consortium. The Geothermal Heat Pump Consortium is a consortium of over 80 of the largest utilities in the United States. A majority of the heat pump manufacturers deal with the Environmental Protection Agency ("EPA"). These utilities and manufacturers have formed what is called the Geothermal Heat Pump Consortium or Geo Exchange based in Washington, D.C. This is our industry association. It provides a constant source of leads and technical papers and research materials. DeMarco and FHP focus primarily on the commercial and institutional markets. We display the Energy Miser at trade shows in booths for public exhibition and education. In addition to trade shows, we market the Energy Miser directly to end users, architects, designers and installers of HVAC (Heating, Ventilation and Air Conditioning) equipment. In this business segment, we are in competition with all other producers of HVAC systems, most of which are more firmly established in the marketplaces and have substantially greater financial resources than us. A commercial job will typically start at the AE (Architectural Engineering) design level. They will design a certain type of system requirement for the project. Once this has been accomplished the mechanical engineers will actually do the computer design and draw blueprints. Then the General Contractor will request three (3) different bids on the equipment. If our system technology fits within the requirements of the job, FHP's sales representatives will be contacted and asked to bid the equipment portion of the project. We have a standardized price for the equipment although in certain cases, especially in military projects, it may be necessary to negotiate the price to be competitive. In those instances we will negotiate the royalty fees and cut the cost of the equipment slightly to aid us in getting the project. 14 On October 10, 2000, we retained the services of Marschall Design, a fifteen-year-old corporate image consulting company. Marschall will assist us in our marketing efforts. The new media materials became available for release in February of 2001. Marschall assisted us with brochures, tradeshow display, stationery, web design plus any other areas requiring image design and enhancements. PWG Media of Austin, Texas has been retained by us to build an effective corporate visual program. An eight-minute video describing the Energy Miser system became available in December of 2000. Marschall and PWG have worked together in the past to assist each other and their clients with image design and image conveyance measures. We have budgeted approximately $400,000 for marketing efforts for the next 12 months. The areas we have targeted for these expenses are as follows: o Brochures, letterhead and new logo $10,000 o Media 19,000 o Marketing Vice-President 83,000 o Sales engineer 75,000 o Public relations 65,000 o Trade shows 60,000 o Printing and direct mail 40,000 o Advertising and video 48,000 ------ Total $400,000 GOVERNMENT REGULATION A significant obstacle we have confronted in the marketing of the Energy Miser is local governmental interpretation and regulation. Local water regulations vary from one local government agency to the next but most are centered around concern over contamination of the local potable water supply. The Energy Miser requires a constant flow of water, the volume of which must increase as the amount of space to be air conditioned and or heated increases. For many applications, this requires connecting into the public water supply to gain access to "main" water lines. In some cases public officials in charge of maintaining public water supplies challenge any such tapping into the public potable water supply. We contend that the Energy Miser does not use water - it only uses the thermal properties of the water, meaning that the water removed from the main is returned at a slightly different temperature. We are not aware of any proof to support water quality concerns of public officials (See the DOE report under "Business"). However, we can offer no assurances that we will ever be able to overcome the concerns of public water officials. At the federal level there has been some positive impact from government relations. President Clinton signed the Climate Change Action Plan in 1993. This required all federally owned facilities to save 20% of their total energy consumption by 2005. That act has been revised twice, and, as of 1999, federal facilities were required to save 35% of their total energy consumption by 2010. This is a federal mandate. Most of the military and federal buildings have not met this goal. We believe most of the military and federal facilities are continuing to attempt to find ways to save energy. We further believe our technology has the ability to save the government facility that energy percentage requirement just by changing to our air conditioning and heating system technology. On the negative side, the federal government does not have any regulations (i.e. the EPA or federal plumbing codes). There are no federal codes drawn around the use of municipal water for this purpose, which means we are subject to the varying local laws. According to information obtained from the City of Austin, Texas web site (http://www.ci.austin.tx.us/wri/reusefaq.htm) secondary water systems have become the initiative of approximately 1,900 communities in the United States. Secondary water systems provide water treated to a standard less than that of potable water, and referred to as either reuse, gray, or brown water. This water type is used for applications other than human or animal consumption, such as cooling towers and boiler systems, lawn sprinklers and fire prevention. RECENT DEVELOPMENTS The Counsel of Governments in Washington, D.C. has awarded a contract estimated to be worth over $1 billion over the life of the program to PG&E Energy Services (an energy services company (NYSE:PCG)), whose bid included the DeMarco Energy Miser for geothermal heating and cooling systems for upgrades and retrofits. PG&E Energy Services division was recently acquired by Chevron Energy Solutions division (NYSE:CHV). PG&E Energy Services management confirmed that our contract was conveyed in the sale and we have received an executed master agreement dated February 1, 2001 from Chevron of their acceptance of this conveyance. The billion dollar estimate was calculated from retrofitting 154 public schools, 4000 HUD homes, plus government owned facilities throughout the jurisdiction of the Counsel of Governments. We have estimated that the heating and cooling portion of this contract could represent up to $50,000,000 in sales of our systems for FHP (the manufacturer of the Energy Miser) if our bids are accepted, with our portion of the royalties ranging from $5,000,000 to $10,000,000. On March 19, 2001, we announced that we had received confirmation from Chevron that they want to use our technology at the water treatment facility in Washington D.C. and we made a presentation in the first quarter of calendar year 2001 to the Counsel of Governments to give them a better understanding of the benefits of our Energy Miser system. 15 The Counsel of Governments includes municipalities and local governments surrounding Washington, D.C., which may include the public school systems in several counties and municipalities as well as public housing authorities. Other agencies that may become users of this program, greatly expanding the scope and business potential, include agencies of the Federal Government and other municipalities outside of the immediate Washington, D.C. metropolitan area. DeMarco Energy has also been invited to bid lighting portions of the project from the ESCO. During the eight-month period from January through August 2000, we issued a series of convertible debentures bearing 8% interest. A total of $229,000 was raised from this issuance. The debentures mature in 24 months from the time of issue. Interest payments are calculated quarterly and totaled upon conversion and included in the stock distribution. The debentures carry various conversion rights ranging from $0.10 to $0.45 a share. The holders have the right to convert any or all of the principal into our common stock at any time after the first 12 months from issuance. If all debenture holders elect to convert, we will issue approximately 1.2 million shares of our common stock to the holders and be relieved of the debt. We utilized the proceeds of these convertible debentures to reduce accounts payable and for operating expenses. We are currently finalizing a convertible debt offering of $1,500,000 (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS") that will be directed toward acquisitions, marketing, internal corporate infrastructure development, and/or general administrative expenses. We received the first $500,000 from this debt offering on September 27, 2000. On November 28, 2000, we in conjunction with the O'Connor Company of Rapid City, South Dakota were issued the design-win for the DeMarco Energy Miser heating and cooling system. The system is currently being installed in the Community Center in Belle Fourche, South Dakota. This is a community center that includes an olympic size pool, a basketball court, locker rooms, meeting rooms, and a 200 seat auditorium. The 67,000 square foot facility has an estimated heating and cooling equipment sales price of $106,000, which does not reflect installation costs. We received our standard royalty payment of 20% of the sales price in March 2001. The purchase order for 18 units has been issued and all of the units were delivered by August 18, 2001. FHP manufactured the units. In February 2001, Supermarket Environment Services Company notified us that the Energy Miser system is being considered for an energy savings pilot program for a regional grocery store chain located in the southwestern part of the United States. We cannot assure you that we will be successful in securing this project. LEGAL PROCEEDINGS We are not a party to any material legal proceedings, and no material legal proceedings have been threatened by or, to the best of our knowledge, against us. DESCRIPTION OF PROPERTY We occupy approximately 1,200 square feet of office space at 12885 Hwy 183, Suite 108-A, Austin, Texas 78750. We own no property other than office furniture, equipment, software and the patent for the Energy Miser System. EMPLOYEES We currently employ 3 full time people. It is anticipated that up to 20 additional personnel will be required to meet the demands of the projected market over the next five years. Most of these positions will be added in the areas of sales, marketing and project management as our projected volume increases. We cannot assure you that such volume increases will occur. 16 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information concerning the directors and executive officers of DeMarco Energy and their ages and positions. Each director holds office until the next annual stockholders' meeting and thereafter until the individual's successor is elected and qualified. Officers serve at the pleasure of the board of directors. NAME AGE POSITION ---- --- -------- Victor M. DeMarco 37 Chairman, President and CEO John W. Adams 50 Director, Vice-President of Sales Mary L. DeMarco 36 Director Victor M. DeMarco, President/CEO. Mr. DeMarco served as Executive Vice President of DeMarco Energy Systems from 1990 to 1992. He was appointed President and Chief Executive Officer in 1992. He became Chairman of the Board in 1999 upon the death of the then Chairman Louis DeMarco. He has been employed by DeMarco Energy Systems of America, Inc. for more than 15 years. During that time, Mr. DeMarco has been involved with research of geothermal heat pumps and related technology, resulting in an experienced working knowledge of geothermal heat pump applications ranging from manufacturing and installation to sales and marketing of the Energy Miser systems. Mr. DeMarco has been cited in numerous industry trade publications, television interviews, news papers, as well as serving as an advisor for the Geothermal Heat Pump Consortium. Mr. DeMarco majored in marketing and finance at Texas Technological University in Lubbock, Texas. John W. Adams, Vice President of Sales and a Director. Mr. Adams joined our operation in November 2000 and was appointed to the Board of Directors in April 2001. From 1994 to November 2000 he was Vice President-Lighting for Sempra Energy Solutions where he directed and managed the lighting division. His responsibilities included analyzing and developing strategic plans for lighting energy savings for clients. He directed the business development unit and the engineering and administrative managers. Mr. Adams has experience in technology based sales, marketing, engineering, energy audits and construction as it relates to energy savings performance contracting. He has been in the lighting business since 1985 and has earned a certification for LC (Lighting Certified) by the National Council on Qualifications for the Lighting Professional and a CLMC (Certified Lighting Management Consultant) by the International Association of Lighting Management Companies. He attended the University of Houston in Houston, Texas. Mary L. DeMarco, wife of Victor DeMarco, was appointed to the Board of Directors in April 2001. Ms. DeMarco attended Northwood Institute in Cedar Hill, Texas and received an Associates Degree in Fashion Marketing/Merchandising. Since 1998 Ms. DeMarco has been assisting DeMarco Energy on a part-time basis in various capacities. From 1995 to 1998, Ms. DeMarco was a Merchandiser for Lange Marketing in Springfield, Illinois where she was responsible for maintaining 11 specialty/gourmet markets. Ms. DeMarco was a travel representative for Travel Center in Austin, Texas from 1992 to 1995. From 1985 to 1992 as Vice President of Sales she managed and trained employees for Trophies, Inc., in Dallas, Texas, an awards and incentive business. All officers and directors devote 100% of their professional time to our business operations. During the last five years, no officers or directors have been involved in any legal proceedings, bankruptcy proceedings, criminal proceedings or violated any federal or state securities or commodities laws or engaged in any activity that would limit their involvement in any type of business, securities or banking activities. No person who, at any time during our past fiscal year, was a director, officer, or beneficial owner of more than 10% of any class of equity securities failed to file, on a timely basis, any report required by Section 16(a) of the Exchange Act during the most recent fiscal year. EXECUTIVE COMPENSATION The following table reflects compensation paid to our chief executive officer.
LONG TERM COMPENSATION -------------------------------------------------------- AWARDS ANNUAL COMPENSATION ----------------------- PAYOUTS ----------------------- RESTRICTED SECURITIES ------- STOCK UNDERLYING LTIP ALL OTHER SALARY BONUS OTHER AWARD OPTIONS PAYOUTS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($) ------------------------------------ ------ ------ ----- ----- ---------- ---------- ------- ------------- Victor DeMarco...................... 2001 $175,000 $ 0 $ 0 $ 0 0 0 $ 0 President & Chief Executive Officer 2000 45,600 0 0 0 0 0 0 1999 45,600 0 0 0 0 0 0
No other person makes over $100,000 per year. Of the 2001 salary, approximately $100,000 has been deferred until such time as it can be funded out of future operations. COMPENSATION OF DIRECTORS We do not currently compensate directors in cash for any services provided as a director. 17 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of June 30, 2001, the name and shareholdings, including options to acquire Common Stock, of each person who owns of record, or was known by us to own beneficially, 5% or more of the shares of the Common Stock currently issued and outstanding; the name and shareholdings, including options to acquire the Common Stock, of each director; and the shareholdings of all executive officers and directors as a group.
NAME AND ADDRESS AMOUNT AND NATURE TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Victor DeMarco 7,938,937 Direct/Indirect(3) 22.2% 12885 HWY 183, Ste 108A, Austin, Texas 78750 Common Stock Mary L. DeMarco 7,938,937 Direct/Indirect(3) 22.2% 12885 HWY 183, Ste 108A, Austin, Texas 78750 Common Stock John W. Adams 38,500 Direct 0.1% 12885 HWY 183, Ste 108A, Austin, Texas 78750 Common Stock AJW Partners, LLC 5,434,782 Direct (1) 15.2% 155 First Street, Ste B, Mineola, New York 11501 Common Stock New Millennium Capital Partners II, LLC 5,434,782 Direct (1) 15.2% 155 First Street, Ste B, Mineola, New York 11501 Common Stock Executive Officers and Directors as a Group (3 persons) 7,977,437 Direct/Indirect 22.3% 12885 HWY 183, Ste 108A, Austin, Texas 78750 There are currently no outstanding options or warrants to purchase shares of our stock. (1) Shares issuable upon conversion of 10% Secured Convertible Debentures assuming a conversion price of $0.138 per share. (See "Selling Stockholders"). AJW Partners, LLC is a private investment fund that is owned by all of its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey S. Ribotsky is the fund manager, has voting and investment control over the shares listed above owned by AJW Partners, LLC. New Millennium Capital Partners II, LLC is a private investment fund that is owned by all of its investors and managed by First Street Manager II, LLC. First Street Manager II, LLC, of which Mr. Glenn A. Arbeitman and Mr. Corey S. Ribotsky are the fund managers, have voting and investment control over the shares listed above owned by New Millennium Capital Partners II, LLC. (2) Direct ownership indicates shares held in the name of the listed shareholder. Indirect ownership indicates shares held indirectly (i.e. in a trust, by a spouse, etc.). (3) Victor Demarco personally controls 7,828,937 shares and Mary Demarco, his spouse, controls 110,000 shares.
SELLING STOCKHOLDERS On September 26, 2000, AJW Partners, LLC and New Millennium Capital Partners II, LLC purchased an aggregate of $1,500,000 of 10% Convertible Debentures to purchase, respectively, a total of 5,434,782 and 5,434,782 shares of common stock from us in a private placement transaction. Of the $1,500,000 invested, $1,000,000 will be received upon effectiveness of this registration statement and satisfaction of certain conditions. We determined the number of shares to be offered for resale by this prospectus by agreement with the selling security holders, and in order to adequately cover a reasonable increase in the number of shares required. In accordance with the agreement, we included 200% of the number of shares of common stock which would be issuable upon conversion in full of the debentures, assuming (i) the debentures were converted at a price equal to the lesser of (a) $0.34 and (b) 60% of the average of the lowest three inter-day prices (which need not occur on consecutive trading days) during the ten trading days immediately preceding the closing date and (ii) the debentures remained outstanding for one year and all interest was paid in shares of common stock. Since the number of shares of our common stock issuable upon conversion of the debentures will change based upon fluctuations of the market price of our common stock prior to a conversion, the actual number of shares of our common stock that will be issued under the debentures, and consequently the number of shares of our common stock that will be beneficially owned by AJW Partners and New Millennium Capital Partners cannot be determined with certainty at this time. Because of this fluctuating characteristic, we agreed to register a number of shares of our common stock that exceeds the number of our shares of common stock currently beneficially owned by AJW Partners and New Millennium Capital Partners. 18 Each holder of the debenture may not convert its securities into shares of our common stock if after the conversion, such holders together with any of its affiliates, would beneficially own over 4.999% of the outstanding shares of our common stock. This restriction may be waived by each holder on not less than 61 days notice to us. The number of shares of our common stock listed in the table below as being beneficially owned by AJW Partners and New Millennium Capital Partners includes the shares of our common stock that are issuable to each of them, subject to the 4.999% limitation, upon conversion of their debentures. The 4.999% limitation may, however, be waived by AJW Partners or New Millennium Capital Partners (but only as to themselves) upon a 61 days prior notice to us and as a such, they each may acquire and sell in excess of 4.999% of our common stock through a series of conversions and sales under the debentures. Each of the selling security holders has represented to us that it did or will with respect to the common stock issuable upon conversion of its debentures, acquire the securities listed opposite its name in the selling security holders table, in the ordinary course of business, and that it does not have any agreement or understanding, directly or indirectly, with any person to distribute those securities. None of the selling security holders are broker/dealers or affiliates of broker/dealers. The following table sets forth the name of each person who is offering shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered. Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Common shares that are issuable upon the exercise of outstanding options, warrants, convertible Preferred Stock or other purchase rights, to the extent exercisable within 60 days of the date of this Prospectus, are treated as outstanding for purposes of computing each Selling Shockholder's percentage ownership of outstanding common shares.
Shares Beneficially Owned Shares Beneficially Owned After Offering before Offering Number of Shares ------------------------- Selling Stockholders Number (1) Percent (2) Being Offered (3) Number (4) Percent -------------------- ---------- ----------- ----------------- ---------- ------- AJW Partners, LLC 5,706,522 18.63% 5,706,522 0 * New Millennium Capital Partners II, LLC 5,706,522 18.63% 5,706,522 0 * * Less than 1% (1) The number of shares of our common stock beneficially owned by AJW Partners and New Millennium Capital Partners, respectively, represent the number of shares of common stock underlying their debentures. AJW Partners and New Millennium Capital Partners, however, may not convert their debentures if doing so would cause them to beneficially own more than 4.999% (or 1,817,208 shares) of the outstanding shares of common stock on a fully converted basis. (2) Percentages are based on 24,931,847 shares of our common stock outstanding as of June 30, 2001. (3) Please see the text of the Selling Stockholders section above for a discussion regarding the determination of the number of shares to be registered for the selling stock holders. The number of shares being registered in this Prospectus is equal to 200% of these amounts or 11,413,043 for each of the 2 Selling Stockholders. (4) Assumes the sale by the selling stockholders of all of the shares of common stock available for resale under this prospectus.
All unsold securities being registered in this Registration Statement will be removed from registration by means of a post-effective amendment. 19 CERTAIN TRANSACTIONS Mr. Victor DeMarco, our controlling shareholder and Chief Executive Officer and Chairman of the Board had loaned us approximately $99,000 to cover certain indebtedness of ours, which he had personally guaranteed. We recorded a note payable to him for that amount. On September 29, 2000, Mr. DeMarco converted this debt into 1,650,000 shares of the Company's Common Stock at a conversion price of $0.06 per share. As of June 30, 2001 Mr. DeMarco has loaned us additional monies in the amount of $250,400 in order to fund our operations. Mr. Peter Des Camps, the former Senior Vice President of Corporate Development also serves as President and Chief Executive Officer for Lead Capital Ventures ("LCV"), a private investment company formed in 1999. LCV paid a debt of DeMarco Energy in the amount of $20,000 and acquired the Common Stock conversion rights associated with that debt. The conversion rights were at $0.15625 per share which resulted in 133,333 shares of Common Stock being issued to LCV. This transaction occurred on September 29, 2000. This debt was originally in the form of a $50,000 convertible debenture issued to a current shareholder on March 10, 1999. We had paid the debt down to the $20,000 balance via 2 cash payments totaling $16,719 in May and August 1999 and the issuance of 85,000 shares of our Common Stock in April 1999 at a conversion price of $0.15625 per share (a value of $13,281 per the terms of the debenture). The debenture holder individually contacted Lead Capital Ventures and Mr. Des Camps to purchase the remaining $20,000 balance of the debenture. LCV agreed to purchase this debt for $20,000 in cash and we agreed to the transfer. We did not participate in or encourage this transaction. To our knowledge, no other individuals were contacted or had an offer presented to purchase this debt. Mr. DeMarco's conversion price of $0.06 was based on the lowest market offer price for shares of the Common Stock during the prior year and was more favorable to Mr. DeMarco than could have been obtained from unaffiliated third parties. LCV's conversion price of $0.15625 was based on the conversion terms of the debenture. DESCRIPTION OF CAPITAL STOCK COMMON STOCK We are authorized to issue 100,000,000 shares of Common Stock, of which 24,931,847 shares are issued and outstanding as of June 30, 2001. Holders of shares of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors from assets legally available for that purpose and are entitled at all meetings of stockholders to one vote for each share held by them. The shares of Common Stock are not redeemable and do not have any preemptive or conversion rights. All of the outstanding shares of Common Stock are fully paid and non-assessable. In the event of a voluntary or involuntary winding up or dissolution, liquidation, or partial liquidation of DeMarco Energy, holders of Common Stock shall participate, pro rata, in any distribution of our assets remaining after payment of liabilities. Our capital stock is subject to the "penny stock" rules as defined in Rule 3a51-1 of the Securities and Exchange Act of 1934. The penny stock disclosure requirements may have the effect of reducing the level of trading activity of our common stock in the secondary market. Pursuant to the Penny Stock Reform Act of 1990 ("PSRA"), prior to effecting any transaction in any penny stock, a broker or dealer is required to give the customer a risk disclosure statement the content of which is to include the following: a. A description of the nature and level of risk for the market. b. A description of the nature and level of the risk in the market for penny stocks. c. A brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of a spread between bid and ask prices. d. A toll free telephone number for inquiries on disciplinary actions relating to security violators. e. A definition of significant terms used in the Risk Disclosure Document or in the Conduct of Trading in Penny Stock. f. Such other information as the SEC shall require by rule or regulation. The Penny Stock Reform Act also directed the SEC to adopt rules requiring broker/dealers, prior to effecting any transaction in a penny stock, to disclose in connection with the transaction the following: a. The bid and ask prices for the penny stock. b. The number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stocks. c. The amount and a description of any compensation the broker/dealer and associated persons will receive in connection with the transaction. d. Such other information as the SEC by rule determines to be useful and reliable information relating to the price of such stock. 20 The disclosure scheme under the PSRA has three related layers designed to inform investors of the extraordinary risk associated with investments in the penny stock market. The first layer requires a broker/dealer prior to the initial transaction in a penny stock with the customer to furnish the customer with a Risk Disclosure Document including, among other things, a description of the penny stock market and how it functions, its inadequacies and shortcomings, and the risk associated with investments in the penny stock market. The second layer consists of transaction related documents that the broker/dealer must make available prior to effecting a transaction in penny stocks, including quotation information, the dealer's and salesperson's compensation in connection with the transaction. Finally, the customer must be furnished with a monthly statement including prescribed information relating to market and price information concerning the penny stocks held in the customer's account. The Risk Disclosure Document (RDD) is a generic disclosure document that must be given to the customer by a broker/dealer before the initial transaction with the customer of a penny stock whether the transaction is in connection with the distribution of a security or a trading transaction. The broker/dealer must receive, and preserve as part of his records a written acknowledgment of receipt of the document from the customer prior to effecting a transaction in a penny stock. INDEMNIFICATION OF DIRECTORS AND OFFICERS The articles of incorporation of DeMarco Energy limit the personal monetary liability of our directors to the fullest extent permissible under the corporation laws of Utah. In general, Section 16-10a-841 of the Utah Revised Business Corporation Act (the URBCA"), permits the elimination of personal monetary liability in all cases except liability for: (a) the amount of a financial benefit received by a director to which he is not entitled; (b) an intentional infliction of harm on the corporation or the shareholders; (c) a violation of Section 16-10a-842 of the Utah Revised Business Corporation Act (relative to distribution of assets in violation of the URBCA or of our articles of incorporation); or (d) an intentional violation of criminal law. Except as set forth in the articles of incorporation and under the provisions of the URBCA, no statute, charter provision, bylaw, contract or other arrangement, which indemnifies any controlling person, officer or director of DeMarco Energy, affects or limits their liability. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of a small business issuer pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. MARKET FOR COMMON STOCK The Common Stock is traded in the over-the-counter market and quoted on OTC EBB under the symbol "DMES" and quoted in the pink sheets published by the National Quotations Bureau. Since 1990, from time to time, a very small number of securities broker-dealers published only intermittent quotations for the Common Stock, and there was no continuous, consistent trading market. The trading volume in the Common Stock has been and is extremely limited. During the above period, the limited nature of the trading market created the potential for significant changes in the trading price for the Common Stock as a result of relatively minor changes in the supply and demand for Common Stock and perhaps without regard to our business activities. Because of the lack of specific transaction information and our belief that quotations during the period were particularly sensitive to actual or anticipated volume of supply and demand, we do not believe that such quotations during this period are reliable indicators of a trading market for the Common Stock. As of June 30, 2001, there were approximately 1,500 holders of record of our Common Stock including stock held in street name. TRANSFER AGENT The transfer agent for our Common Stock is Fidelity Transfer Company, 1800 South West Temple, Salt Lake City, Utah 84115. Subject to the above limitations, we believe that during the ten fiscal quarters preceding the date of this filing, the high and low sales prices for the Common Stock during each quarter are as set forth in the table below (such prices are without retail mark-up, mark-down, or commissions). The sales prices were obtained from the stock sales history charts from the on-line stock quote site quicken.com. Quicken quotes are provided by S&P Comstock Historical information supplied by Iverson Financial Systems. QUARTER ENDED HIGH LOW June 30, 2001 .28 .09 March 31, 2001 .22 .09 December 31, 2000 .43 .13 September 30, 2000 .76 .31 June 30, 2000 .875 .281 March 31, 2000 .531 .125 December 31, 1999 .25 .125 September 30, 1999 .35 .125 June 30, 1999 .281 .125 March 31, 1999 .53 .125 We have not paid any dividends to date. We can make no assurance that our proposed operations will result in sufficient revenues to enable profitable operations or to generate positive cash flow. For the foreseeable future, we anticipate that we will use any funds available to finance the growth of our operations and that we will not pay cash dividends to stockholders. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend on our earnings, capital requirements, restrictions imposed by lenders and financial condition and other relevant factors. 21 PLAN OF DISTRIBUTION Rule 102 of Regulation M of the Securities Exchange Act of 1934, as amended, imposes certain trading restrictions on the selling security holders and any affiliated purchasers in connection with the distribution of securities registered under this prospectus. Specifically, Rule 102 prohibits the selling stockholders or any affiliated purchasers from bidding for, purchasing or attempting to induce any person to bid for or purchase any security that is the subject of a distribution. Under Regulation M, this restriction commences one or five business days before the pricing of the offered security. The one-day restricted period is available for a security that has an average daily trading volume of $100,000 and is issued by a company with a public float of a at least $425 million. Regarding the securities offered under this prospectus and in all other cases, the five prior business day approach applies. The Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. Our Common Stock is currently traded on the Over The Counter Bulletin Board. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resale by the broker-dealer for its account; o an exchange distribution in accordance with the rules of the applicable exchange; o privately negotiated transactions; o short sales; o broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; o a combination of any such methods of sale; and o any other method permitted pursuant to applicable law. Short Sales are sales of a security not owned by the seller; a technique used to take advantage of an anticipated decline in the price of a security. An investor borrows stock certificates for delivery at the time of short sale. Covered short sales are to buy back securities previously sold; said of an investor who has sold stock short. The selling security holders may close out any covered short sale position by either converting their debentures into shares of the Company's common stock or purchasing shares of the Company's common stock in the open market. In determining the source of shares to close out the covered short position, the selling security holders will consider, among other things, the price of the Company's common stock on the open market as compared to the price per share at which they may convert their debentures. For a discussion regarding the potential effects of short sales and transactions to cover short sales, see the risk factors section of this prospectus. Naked short sales are a securities position that is not hedged from the market risk. The potential risk or reward of naked positions is greater than that of covered positions. Naked short sale positions are closed when the short position held by the investor is sold and the investor no longer holds a short position. The Selling Stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The Box is the physical location of securities or other documents held in safekeeping. The term derives from the large metal tin, or tray, in which brokerage firms and banks actually place such valuables. A Put is a type of option that grants the right to sell at a specified price a specific number of shares by a certain date. The put option buyer gains this right in return for payment of an option premium. A put option buyer hopes the stock will drop in price, while the put option seller hopes the stock will remain stable, rise, or drop by an amount less than his or her profit on the premium. A Call is a type of option that grants the right to buy 100 shares of a particular stock or stock index at a predetermined price before a preset deadline, in exchange for a premium. The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. 22 The Selling Stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a Selling Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The Selling Stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares other than ordinary course brokerage arrangements, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the Selling Stockholders. Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the Selling Stockholders. We have agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby has been passed upon for us by Locke Liddell & Sapp LLP, Austin, Texas. EXPERTS The consolidated financial statements of DeMarco Energy for the years ended June 30, 2001, and 2000, appearing in this Prospectus and Registration Statement have been audited by Nathan M. Robnett, CPA, Austin, Texas, independent auditors, as set forth in their report thereon appearing elsewhere herein. ADDITIONAL INFORMATION As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information with respect to DeMarco Energy and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits thereto. Statements contained in this Prospectus concerning the provisions of documents filed with the Registration Statement as exhibits and schedules are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. The Registration Statement, including the exhibits and schedules thereto, may be obtained at the address noted below. We are publicly held and traded and file annual and other periodic reports pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and such reports and other information filed by us may be inspected and copied at the public reference facilities of the Commission in Washington, D.C., and can be read or obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Commission maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. 23 INDEX TO FINANCIAL STATEMENTS TABLE OF CONTENTS PAGE Independent Auditor's Report (Nathan M. Robnett, CPA) F-2 Balance Sheets at June 30, 2001 and June 30, 2000 F-3 Statements of Operations for the F-4 Years ended June 30, 2001 and June 30, 2000 Statements of Changes in Stockholders' Capital for F-5 Years ended June 30, 2001 and June 30, 2000 Statements of Cash Flows for the Years ended F-7 June 30, 2001 and June 30, 2000 Notes to Financial Statements F-8 F-1 24 Independent Auditor's Report To the Board of Directors of DeMarco Energy Systems of America, Inc. (A Development Stage Company) We have audited the accompanying balance sheets of DeMarco Energy Systems of America, Inc. as of June 30, 2001 and 2000 and the related statements of income, changes in stockholders' capital, and cash flows for the years then ended and cumulative from inception. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DeMarco Energy Systems of America, Inc. as of June 30, 2001 and 2000, and the results of its operations and its cash flows for the years then ended and cumulative from inception in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note I to the financial statements, the Corporation has suffered losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note I. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Robnett & Company, P.C. Austin, Texas August 22, 2001 F-2 25
DEMARCO ENERGY SYSTEMS of AMERICA, INC. (A Development Stage Company) BALANCE SHEETS AS OF JUNE 30, 2001 and JUNE 30, 2000 ASSETS As of As of June 30, 2001 June 30, 2000 ------------- ------------- Current Assets: Cash and Equivalents $ 261 $ 23,213 Restricted Escrow 250,000 - Accounts Receivable 240 3,240 ------------- ------------- Total Current Assets 250,501 26,453 ------------- ------------- Capital Assets: Fixtures, Fixtures and Equipment 165,335 151,137 Less: Accumulated Depreciation (150,134) (124,331) ------------- ------------- Total Fixed Assets 15,201 26,806 ------------- ------------- Other Assets: Patent, net of Accumulated Amortization of $991 8,921 9,582 and $330 at June 30, 2001 and 2000 Manuals, net of Accumulated Amortization of 7,000 9,000 $3,000 and $1,000 at June 30, 2001 and 2000 Deposits 1,000 1,000 ------------- ------------- Total Other Assets 16,921 19,582 ------------- ------------- TOTAL ASSETS $ 282,623 $ 72,841 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current Liabilities: Accounts Payable $ 159,299 $ 37,656 Cash Overdraft 4,284 - Current Portion of Notes Payable 21,935 64,787 Other Accrued 72,566 1,773 ------------- ------------- Total Current Liabilities 258,084 104,216 ------------- ------------- Long-Term Debt: Convertible Debentures 700,680 197,000 Notes Payable - 22,586 Due to Shareholders 354,035 127,451 ------------- ------------- TOTAL LIABILITIES 1,312,799 451,253 ------------- ------------- SHAREHOLDERS' EQUITY Common Stock, 100,000,000 Shares Authorized, Par $0.001, and 24,931,847 and 22,837,414 shares issued at June 30, 2001 and 2000 24,932 22,837 Additional Paid-In-Capital 2,520,006 2,244,329 Retained Deficit Accumulated (3,521,964) (2,435,048) Subscriptions Receivable (53,150) (210,530) ------------- ------------- TOTAL SHAREHOLDERS' EQUITY (1,030,176) (378,412) ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 282,623 $ 72,841 ============= ============= See Notes to the Financial Statements.
F-3 26
DEMARCO ENERGY SYSTEMS of AMERICA, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2001 and JUNE 30, 2000 Year Ended Year Ended Cumulative June 30, 2001 June 30, 2000 From Inception ------------- ------------- -------------- Revenues Royalty Fees $ 5,051 $ 21,906 $ 71,040 Sales - - 760,691 Other Income - - 76,506 ------------- ------------- -------------- Total Revenue 5,051 21,906 908,237 ------------- ------------- -------------- Costs and Expenses Selling and Administrative 652,712 230,409 3,766,608 Depreciation and Amortization 28,464 32,949 154,125 Interest 410,791 29,217 545,926 ------------- ------------- -------------- Total Costs and Expenses 1,091,967 292,575 4,466,659 ------------- ------------- -------------- Loss Before Extraordinary Item (1,086,916) (270,669) (3,558,422) Extraordinary Items Foregiveness of Debt - - 66,356 ------------- ------------- -------------- Loss from Continuing Operations (1,086,916) (270,669) (3,492,066) Discontinued Operations Loss from Operations of Discontinued Subsidiary (Cyberlink) - - (10,032) Loss on Disposal of Assets of Subsidiary (Cyberlink) - - (19,866) Net Loss $(1,086,916) $ (270,669) $ (3,521,964) ============= ============= ============== Earnings Per Share - Basic $ (0.045) $ (0.012) ============= ============= Earnings Per Share - Fully Diluted $ (0.036) $ (0.012) ============= ============= See Notes to the Financial Statements.
F-4 27
DEMARCO ENERGY SYSTEMS of AMERICA, INC. (A Development Stage Company) STATEMENTS OF CHANGES in STOCKHOLDERS' CAPITAL FOR THE YEARS ENDED JUNE 30, 2001 and JUNE 30, 2000 Retained Deficit Accumulated Common Stock Shares of Additional During the at Par Common Stock Paid - In Subscriptions Development $(0.001) Outstanding Capital Receivable Stage Total ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1988 - - - - - - ------------ ------------ ---------- ------------- ------------ ----------- Issuance of 38,000,000 Shares 38,000 38,000,000 111,306 - - 149,306 of Common Stock at Acquisition of Corporate Shell Reduction of 37,050,000 Shares (37,050) (37,050,000) - - - (37,050) of Common Stock in 40 to 1 reverse stock split Issuance of 12,092,105 12,092 12,092,105 68,625 - - 80,717 Shares of Common Stock Net Loss - - - - (150,093) (150,093) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1989 13,042 13,042,105 179,931 - (150,093) 42,880 Net Loss - - - - (39,703) (39,703) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1990 13,042 13,042,105 179,931 - (189,796) 3,177 Net Loss - - - - (98,180) (98,180) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1991 13,042 13,042,105 179,931 - (287,976) (95,003) Issuance of 3,863,849 3,865 3,864,849 459,298 - - 463,163 Shares of Common Stock Net Loss - - - - (200,779) (200,779) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1992 16,907 16,906,954 639,229 - (488,755) 167,381 Issuance of 1,886,884 1,887 1,886,884 96,031 - - 97,918 Shares of Common Stock Net Loss - - - - (150,068) 150,068) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1993 18,794 18,793,838 735,260 - (638,823) 115,231 Issuance of 1,424,752 1,425 1,424,752 451,143 - - 452,568 Shares Common Stock Net Loss - - - - (250,529) (250,529) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1994 20,219 20,218,590 1,186,403 - (889,352) 317,270 Issuance of 246,400 246 246,400 234,633 - - 234,879 Shares of Common Stock Net Loss - - - - (253,198) (253,198) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1995 20,465 20,464,990 1,421,036 - (1,142,550) 298,951 See Notes to Financial Statements.
F-5 28
DEMARCO ENERGY SYSTEMS of AMERICA, INC. (A Development Stage Company) STATEMENTS OF CHANGES in STOCKHOLDERS' CAPITAL FOR THE YEARS ENDED JUNE 30, 2001 and JUNE 30, 2000 Retained Deficit Accumulated Common Stock Shares of Additional During the at Par Common Stock Paid - In Subscriptions Development $(0.001) Outstanding Capital Receivable Stage Total ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1995 20,465 20,464,990 1,421,036 - (1,142,550) 298,951 Issuance of 393,590 394 393,590 212,639 - - 213,033 Shares of Common Stock Net Loss - - - - (214,625) (214,625) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1996 20,858 20,858,580 1,633,676 - (1,357,175) 297,359 Issuance of 10,315,560 10,316 10,315,560 329,298 - - 339,614 Shares of Common Stock Subscriptions Receivable - - - (189,080) - (189,080) Net Loss - - - - (150,866) (150,866) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1997 31,174 31,174,140 1,962,974 (189,080) (1,508,041) 297,027 Issuance of 446,000 446 446,000 141,792 (15,800) - 142,238 Shares of Common Stock Net Loss - - - - (439,498) (439,498) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1998 31,620 31,620,140 2,104,766 (204,880) (1,947,539) (16,033) Redemption of 9,166,483 (9,166) (9,166,483) 119,126 (5,650) - 109,960 Shares of Common Stock Net Loss - - - - (216,840) (216,840) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 1999 22,454 22,453,657 2,223,892 (210,530) (2,164,379) (122,913) Issuance of 383,757 384 383,757 20,436 - - 20,820 Shares of Common Stock Net Loss - - - - (270,669) (270,669) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 2000 22,838 22,837,414 2,244,328 (210,530) (2,435,048) (378,412) Issuance of 2,094,433 2,094 2,094,433 (57,589) 157,380 - 101,885 Shares of Common Stock Beneficial Conversion Feature - - 333,267 - - 333,267 of Convertible Debt Net Loss - - - - (1,086,916) (1,086,916) ------------ ------------ ---------- ------------- ------------ ----------- Balance at June 30, 2001 $ 24,932 24,931,847 $2,520,006 $ (53,150) $(3,521,964) $(1,030,176) See Notes to the Financial Statements.
F-6 29
DEMARCO ENERGY SYSTEMS of AMERICA, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2001 and JUNE 30, 2000 For the Year For the Year Ended Ended Cumulative June 30, 2001 June 30, 2000 From Inception ------------- ------------- -------------- Cash flows from operating activities: Net Loss $(1,086,916) $ (270,699) $(3,521,964) Adjutments to reconcile net loss to net cash Provided (used) by operating activities: Depreciation and Amortization $ 28,464 $ 32,949 $ 154,125 Changes in operating assets and liabilities: (Increase) Decrease in Accounts Receivable 3,000 45,000 (241) Increase in Other Assets - (3,240) (1,000) Increase (Decease) in Accounts Payable 121,643 (8,452) 159,299 Increase (Decrease) in Accrued Liabilities 75,077 (2,615) 76,850 Loss on Disposal of Assets of Subsidiary's Assets - - 19,867 -------------- ------------- -------------- Total Adjustments 228,184 63,642 408,900 -------------- ------------- -------------- Net Cash Used by Operating Activities (858,732) (207,057) (3,113,064) -------------- ------------- -------------- Cash flows from investing activities: Patent - - (9,912) Manuals Development - (10,000) (10,000) Property and Equipment Additions (14,198) (2,311) (185,201) Increase in Restricted Cash (250,000) - (250,000) -------------- ------------- -------------- Net Cash Provided (Used) by Investing Activities (264,198) (12,311) (455,113) -------------- ------------- -------------- Cash flows from financing activities: Proceeds (Repayments) from Long - Term Debt (65,438) (49,917) 21,935 Proceeds from Notes to Shareholders 226,584 72,031 354,035 Proceeds from Convertible Debentures 836,947 197,000 1,033,947 Proceeds from Issuance of Common Stock 101,885 20,820 2,158,521 -------------- ------------- -------------- Net Cash Provided by Financing Activities 1,099,978 239,934 3,568,438 -------------- ------------- -------------- Net increase (decrease) in Cash and Cash Equivalents $ (22,952) $ 20,566 $ 261 Cash and Cash Equivalents at the Beginning of the Year 23,213 2,647 - -------------- ------------- -------------- Cash and Cash Equivalents at the End of the Year $ 261 $ 23,213 $ 261 ============== ============= ============== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for Interest Expense $ 15,382 $ 10,696 $ 145,985 See Notes to the Financial Statements.
F-7 30 DEMARCO ENERGY SYSTEMS, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2001 and JUNE 30, 2000 Note A - Summary of Significant Accounting Policies Nature of Operations DeMarco Energy Systems of America, Inc. (the Company) was organized under the laws of the State of Utah in 1983. The Company is engaged in the marketing of the DeMarco Energy Systems water-air heating/cooling systems, energy audits and energy related equipment such as lighting and electrical fixture retro-fittings. During 1989, the Company exchanged 10,396,790 shares of its stock for exclusive rights to a United States patent. The patent was granted for a unique water-source heat pump system that both heats and cools buildings and provides domestic hot water at an extremely low cost to install and operate. The heat pump is specifically designed to utilize municipal water systems as a heat source/sink. Florida Heat Pump Manufacturing Co. manufactures the DeMarco Energy Miser System under a patent licensing agreement. During the fiscal year ending June 30, 1999, the Company filed an application with the United States Patent Office for a patent covering a heat pump system using gray water sources, reclaimed water sources and other non-potable water sources. Costs of approximately $20,000 related to the patent application have been capitalized. At June 30, 2001, the patent had not been granted and the eventual approval or denial of this patent application is indeterminable at this time. DeMarco Energy Systems of America, Inc. currently has installations in Oregon, Pennsylvania, Washington, Montana, South Dakota, Mississippi, and California. In July 1996, the Company organized Cyberlink Systems, Inc. (Cyberlink), a wholly owned subsidiary. Cyberlink was organized to refurbish and market after-market computer components. During March of 1998, Cyberlink ceased operations. All components of Cyberlink were disposed of during the fiscal year ended June 30, 1999 and the related results from discontinued operations are reported on the income statements under loss from discontinued operations. Basis of Financial Statements Presentation The consolidated financial statements include the accounts of the Company and its subsidiary (Cyberlink). Inter-company transactions and accounts have been eliminated. Furniture and Equipment Furniture, equipment, and other long-term assets are recorded at historical cost less depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. Purchases and improvements that extend the life of assets are capitalized whereas maintenance, repairs and immaterial purchases expensed as incurred. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Holdings of highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Royalty Fee Arrangements The Company has contracted with Florida Heat Pump Manufacturing, Inc. of Fort Lauderdale, Florida for the manufacture and distribution of a water source heat pump. The Company receives a 20% royalty fee, calculated from the base production price for manufacture of each unit. The base production price may vary. Through the agreement with Florida Heat Pump Manufacturing, Inc., the Company has net royalties of $5,051 and $21,906 at June 30, 2001 and 2000. The company recognizes royalty revenues when invoiced. The Company has no obligation under the agreement with Florida Heat Pump Manufacturing, Inc. to provide warranty or servicing services either financially or otherwise for the equipment sold. Advertising The Company's policy is to expense advertising costs as the costs are incurred. Advertising costs of $55,941 and $27,961 have been expensed for the years ended June 30, 2001 and 2000, respectively. Development Stage Company The Company is in the "development stage" and as such is required to present the financial statements from inception. The Company is involved in obtaining a patent and developing a market for that patent. The Company is considered to be in the development stage until substantial revenues are produced in regard to the operations of the organization. 31 Note B - Convertible Debt Issuance The company has outstanding, $700,680 and $197,000 in convertible debentures bonds at June 30, 2001 and 2000, respectively. Bonds with principal value of $200,680 bear interest at 8% per year payable after being held for two years, and are convertible into the Company's common stock at fixed conversion rates ranging from $0.10 to $0.45 per share of common stock, which at date of issuance, approximated the fair value of the common stock. There is not a beneficial conversion feature associated with these bonds. Bonds with principal value of $500,000 bear interest at 10% and contain a beneficial conversion feature which allows the holder to convert the bond's principal value plus accrued interest into shares of common stock at the lesser of $0.34 per share and the average of the lowest three days in the last ten trading days preceding the conversion at a forty (40) percent discount and are convertible at the date of issuance (September 26, 2000). Interest of $333,267 was calculated as a function of the excess of market value over the discounted conversion rate of common stock at the date of issuance and was expensed on that date. At June 30, 2001 and 2000, $55,146 and $2,262 of interest was accrued in relation to the debentures bonds payable. The debenture bonds mature during the fiscal year ended June 30, 2002 and are expected to be converted into shares of common stock. The debenture bonds are not classified as current debt. Note C - Notes Payable Notes payable, relating to long-term leasing contracts and collateralized by computer systems and other leased equipment, were originally capitalized at $128,384 and have been fully depreciated. The notes bear interest at rates ranging from 12-18.55% and mature in the year ended June 30, 2002. Outstanding principal at June 30, 2001 and 2000 is $21,935 and $52,540, respectively. During the year ended June 30, 2001, the Company paid off a note payable held by a bank. Shares in the company owned by the company's president secured the note. Outstanding principal of $0 and $34,833 was payable at June 30, 2001 and 2000, respectively and interest accrued at a rate of 11.5%. Note D - Commitments and Contingencies Office Facility Lease The Company has entered into an office facility lease, guaranteed by the Company's president, calling for the following future rents: Year ending June 30, 2002 $ 24,808 Year ending June 30, 2003 25,906 Year ending June 30, 2004 26,364 Year ending June 30, 2005 10,527 ----------- Total $ 87,605 ========== Escrowed Cash Pursuant to the Escrow Agreement dated September 26, 2000, $250,000 of the cash proceeds from the issuance of $1,500,000 of debenture bonds payable is to be withheld and maintained in an escrow account to cover contingencies should they arise. At the date of report, the escrowed funds have been released to the company and no contingencies related to the funds exist. Note E - Earnings (Loss) per Common Share Earnings (Loss) per common share are computed by dividing net losses by the weighted average number of common share outstanding during the year. The weighted average number of common shares outstanding during the years ended June 30, 2001 and 2000 was approximately 24,347,464 and 22,645,000 shares, respectively. The fully diluted number of shares outstanding for the years ended June 30, 2001 and 2000 was 29,945,014 and 23,301,018, respectively. 32 Note F - Income Taxes As of June 30, 2001, DeMarco Energy Systems, Inc. had net operating loss carry forwards of approximately $2,250,000 that expire between 2010 and 2021 and are available to offset future taxable income to the extent permitted under the Internal Revenue Code. The Company's management estimates that the likelihood of utilizing the deferred tax asset associated with the net operating loss carry-forwards is less than fifty percent (50 %). For this reason, Management does not feel the recognition of a deferred tax asset would be appropriate at the date of report. Note G - Related Party Transactions The president of the company has advanced sums of $250,351 and $99,651 at June 30, 2001 and 2000. Additional advancements totaling $3,000 and $7,800 at June 30, 2001 and 2000 were received from a former affiliate of the Company. The loans bear interest at 8% and $11,528 of interest has been accrued at June 30, 2001. An additional loan from a shareholder is recorded as having a balance of $20,000 at June 30, 2000. During the year ended June 30, 2001, this note was converted into 133,333 shares of common stock and is considered settled. During the year ending June 30, 1999, the chairman of the board passed away. His estate forgave $66,356 owed by the company to him. The resultant gain from the forgiveness of debt is included as an extraordinary gain on the cumulative income statement. Note H - Fair Values of Financial Instruments The Company's financial instruments consist of cash and notes payable. The Company estimates the fair values of all financial instruments does not differ materially from the aggregate carrying values of its financial instruments recorded on the accompanying balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. None of the financial instruments are held for trading purposes. Note I - Going Concern As shown in the accompanying financial statements, the Company incurred net operating losses of ($753,649) and ($270,669) and had current liabilities in excess of current assets of $7,583 and $ 424,800, for the years ended June 30, 2001 and 2000, respectively, which raise substantial doubt about the Company's ability to continue as a going concern.. The Company's management intends to raise capital through equity offerings and expects that $700,680 of convertible debenture bonds payable will be converted to common stock. The Company's management has also increased their marketing efforts to raise revenues. The financial statements do not include any adjustments that might be necessary if the Corporation is unable to continue as a going concern. 33 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our articles of incorporation limit the personal monetary liability of our directors to the fullest extent permissible under the corporation laws of Utah. In general, Section 16-10a-841 of the Utah Revised Business Corporation Act (the URBCA"), permits the elimination of personal monetary liability in all cases except liability for: (a) the amount of a financial benefit received by a director to which he is not entitled; (b) an intentional infliction of harm on the corporation or the shareholders; (c) a violation of Section 16-10a-842 of the Utah Revised Business Corporation Act (relative to distribution of assets in violation of the URBCA or our articles of incorporation); or (d) an intentional violation of criminal law. Except as set forth in the articles of incorporation and under the provisions of the URBCA, no statute, charter provision, bylaw, contract or other arrangement which indemnifies any controlling person, officer or director of our Company, affects or limits their liability. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION All costs, expenses and fees in connection with the registration of the shares of Common Stock offered hereby shall be borne by us. Commissions and discounts, if any, attributable to the sales of shares of Common Stock hereunder will be borne by the Selling Stockholders. The Selling Stockholders may agree to indemnify any broker-dealer or agent that participates in a transaction involving sales of shares of Common Stock against certain liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify the Selling Stockholders against certain liabilities in connection with the offering of the shares of Common Stock hereunder, including liabilities arising under the Securities Act. We anticipate incurring the following expenses in connection with the registration of these shares of Common Stock: 1. Legal expenses $50,000 2. Consulting fees 20,000 3. Registrations fees 1,400 ------- Total $71,400 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES On September 13,1999, we completed a private placement (the "Placement") of 696,852 shares of our Common Stock to 33 individual and institutional investors. The aggregate sales proceeds of the Placement were $174,300. We believe that the issuance of shares of Common Stock in the Placement was exempt from the registration requirements of the Securities Act under Rule 506 under the Securities Act. There was no underwriter involved and all persons acquiring the stock were accredited investors. During the eight-month period from January through August 2000, we issued a series of convertible debentures bearing 8% interest. A total of $229,380 was raised from this issuance. The debentures mature in 24 months from the time of issue. Interest payments are calculated quarterly and totaled upon conversion and included in the stock distribution. The debentures carry various conversion privileges ranging from $0.10 to $0.45 a share. The debenture holders have the right to convert any or all of the principal into our Common Shares at any time after the first 12 months from issuance. If all debenture holders elect to convert, we will issue approximately 1,200,000 shares of our Common Stock to the holders and be relieved of the debt. We believe that the issuance of shares of Common Stock in the Placement was exempt from the registration requirements of the Securities Act under Rule 506 adopted thereunder. There was no underwriter involved and all persons offered and acquiring the debentures were accredited investors. The following table lists the amount of debentures issued and the date of issuance: DEBENTURE AMOUNT ISSUE DATE ---------------- --------------- $ 2,500 January 20, 2000 10,000 January 20, 2000 3,000 January 20, 2000 1,000 January 20, 2000 3,000 January 20, 2000 200 January 22, 2000 2,000 January 26, 2000 2,500 January 26, 2000 1,000 January 26, 2000 2,000 January 26, 2000 3,000 January 26, 2000 2,500 January 26, 2000 1,000 January 26, 2000 500 January 26, 2000 2,500 January 26, 2000 500 January 26, 2000 1,000 January 26, 2000 500 January 26, 2000 2,000 January 26, 2000 1,000 January 26, 2000 500 January 26, 2000 1,000 January 26, 2000 7,000 January 30, 2000 1,000 February 15, 2000 1,000 February 16, 2000 4,000 February 17, 2000 1,000 February 29, 2000 1,000 April 11, 2000 22,500 April 13, 2000 3,000 April 19, 2000 3,000 May 11, 2000 5,000 May 12, 2000 3,000 May 25, 2000 5,000 May 26, 2000 6,000 June 5, 2000 35,000 June 9, 2000 2,500 June 9, 2000 2,500 June 13, 2000 57,500 August 25, 2000 26,180 August 28, 2000 -------------- $ 229,380 34 On September 26, 2000, we entered into an agreement with AJW Partners, LLC and New Millennium Capital Partners II, LLC for the private placement of $1,500,000 of our Secured Convertible Debentures. These debentures are convertible into shares of our Common Stock. The funding of the debentures will occur in two phases with the first $500,000 (less legal and consulting fees of $45,000) being received by us on September 27, 2000. The remaining $1,000,000 will be funded within 5 days following the effective registration with the Securities and Exchange Commission of the underlying securities of DeMarco Energy. If all debenture holders elect to convert, we will issue approximately 10,869,564 shares of our Common Stock to the holders and will be relieved of the debt. Since the debentures were sold in a private transaction, solely to accredited institutional investors, we believe that the issuance of the debentures was exempt from registration requirements of the Securities Act under Rule 506 of Regulation D and Section 4(2) of the Securities Act. Mr. Victor DeMarco, the Company's controlling shareholder and Chief Executive Officer and director had personally loaned us approximately $99,000 through the period ended June 30, 2000. On September 29, 2000, Mr. DeMarco converted this entire debt into 1,650,000 shares of our Common Stock at a conversion price of $0.06 per share. Because Mr. DeMarco is an officer and director of DeMarco Energy, we believe the issuance of shares to Mr. DeMarco was exempt from the registration requirements of the Securities Act under Rule 506 of Regulation D and Section 4(2) of the Securities Act. Mr. Peter Des Camps, formerly our Senior Vice President of Corporate Development also serves as President and Chief Executive Officer for Lead Capital Ventures ("LCV"), a private investment company formed in 1999. LCV paid a debt of DeMarco Energy in the amount of $20,000 and acquired the Common Stock conversion rights associated with that debt. The conversion rights were at $0.156 per share which resulted in 133,333 shares of Common Stock being issued to LCV. This transaction occurred on September 29, 2000. Because LCV is an accredited institutional investor and Mr. Descamps was an officer of DeMarco Energy, we believe this transaction was exempt from registration requirements of the Securities Act under Rule 506 of Regulation D and Section 4(2) of the Securities Act. 35 ITEM 27. EXHIBITS Exhibit Number Name of Exhibit ------- --------------- 3.01 DeMarco Energy Systems of America, Inc. Articles of Incorporation (1) 3.02 DeMarco Energy Systems of America, Inc. By-Laws (1) 4.01 Secured Convertible Debenture Purchase Agreement (2) 4.02 DeMarco Energy Systems of America, Inc. 10% Secured Convertible Debenture (2) 4.03 Security Agreement (2) 4.04 Intellectual Property Security Agreement (2) 4.05 Registration Rights Agreement (2) 4.06 Escrow Agreement (2) 4.07 Amended Terms Agreement with AJW Partners, LLC. And New Millennium Capital Partners II, LLC. (1) 5.01 Opinion of Locke Liddell & Sapp LLP with respect to the legality of the securities being offered hereby (1) 10.01 PG&E Energy Services Master Agreement (1) 10.02 Lighting Management Consultants Strategic Partnership Agreement (1) 10.03 SLi Strategic Partnership Agreement (1) 10.04 Florida Heat Pump OEM Agreement (1) 10.05 Amended Florida Heat Pump Agreement (1) 10.06 Chevron Energy Solutions, L.P. Master Agreement (1) 13.01 Annual Report Form 10KSB for June 30, 2001 (3) 23.01 Consent of Locke Liddell & Sapp LLP (included as part of its opinion) 23.02 Consent of Nathan M. Robnett, CPA (1) ------------------------ (1) Filed herewith. (2) Incorporated by reference from Form 8-K filed on October 11, 2001. SEC file number 000-28283. (3) Incorporated by reference from Form 10KSB filed on September 28, 2001. SEC file number 000-28283. 36 ITEM 28. UNDERTAKINGS The Company will: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" Table in the effective registration statement. (iii)Include any additional or changed material information on the Plan of Distribution. (2) For determining liability under the Securities Act, treat each post- effective amendment as a new Registration Statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company under Rule 424(b)(1) or (4), or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that the offering of the securities at that time as the initial bona fide offering of those securities. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of its Articles of Incorporation, its By-Laws, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment by Registrant for expenses incurred or paid by an officer, director or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 37 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Austin, State of Texas, on the 8th day of October, 2001. DEMARCO ENERGY SYSTEMS OF AMERICA, INC, By: /s/ Victor M. DeMarco ---------------------------------------- Victor M. DeMarco, President/ Chief Operating Officer, Chief Accounting Officer In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE /s/ Victor M. DeMarco President, Chief Operating October 8, 2001 ----------------- Officer Chief Accounting Victor M. DeMarco Officer /s/ John W. Adams Director, Vice-President October 8, 2001 -------------- of Sales John W. Adams /s/ Mary L. DeMarco Director October 8, 2001 ---------------- Mary L. DeMarco 38 TABLE OF EXHIBITS Exhibit Number Name of Exhibit ------- --------------- 3.01 DeMarco Energy Systems of America, Inc. Articles of Incorporation (1) 3.02 DeMarco Energy Systems of America, Inc. By-Laws (1) 4.01 Secured Convertible Debenture Purchase Agreement (2) 4.02 DeMarco Energy Systems of America, Inc. 10% Secured Convertible Debenture (2) 4.03 Security Agreement (2) 4.04 Intellectual Property Security Agreement (2) 4.05 Registration Rights Agreement (2) 4.06 Escrow Agreement (2) 4.07 Amended Terms Agreement with AJW Partners, LLC. And New Millennium Capital Partners II, LLC. (1) 5.01 Opinion of Locke Liddell & Sapp LLP with respect to the legality of the securities being offered hereby (1) 10.01 PG&E Energy Services Master Agreement (1) 10.02 Lighting Management Consultants Strategic Partnership Agreement (1) 10.03 SLi Strategic Partnership Agreement (1) 10.04 Florida Heat Pump OEM Agreement (1) 10.05 Amended Florida Heat Pump Agreement (1) 10.06 Chevron Energy Solutions, L.P. Master Agreement (1) 13.01 Annual Report Form 10KSB for June 30, 2001 (3) 23.01 Consent of Locke Liddell & Sapp LLP (included as part of its opinion) 23.02 Consent of Nathan M. Robnett, CPA (1) ------------------------ (1) Filed herewith. (2) Incorporated by reference from Form 8-K filed on October 11, 2001. SEC file number 000-28283. (3) Incorporated by reference from Form 10KSB filed on September 28, 2001. SEC file number 000-28283. 39 EX-3 3 exhibit3-01.txt ARTICLES OF INCORPORATION EXHIBIT 3.01 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF DeMARCO ENERGY SYSTEMS OF AMERICA, INC. DeMarco Energy Systems of America, Inc., by and through the undersigned, constituting the President and Secretary of such corporation, hereby amends the Articles of Incorporation of said corporation as follows: 1. The name of the corporation is DeMarco Energy Systems of America, Inc. 2. Article IV of the Articles of Incorporation is amended to read as follows: Section 1. The authorized capital of this corporation shall consist of one hundred million (100,000,000) common shares, having $.001 par value. All such common shares are non-assessable and each share shall have equal rights as to voting and in the event of dissolution and liquidation. Section 2. The shareholders shall have no preemptive rights to acquire any shares of this corporation. There shall be no cumulative voting by shareholders. 3. Article XI of the Articles of Incorporation is repealed. 4. A new Article XI of the Articles of Incorporation is adopted to read as follows: To the fullest extent permitted by the Utah Revised Business Corporation Act or any other applicable law as now in effect or as it may hereafter be amended, a director of this corporation shall not be personally liable to the corporation or its shareholders for monetary damages for any action taken or any failure to take any action, as a director. 5. The foregoing amendments were adopted by the shareholders at a meeting held on January 24, 1997. 6. The number of shares of common stock outstanding and entitled to vote upon such amendments was 21,013,640. The number of votes indisputably represented at the meeting was 11,238,181. 7. The number of shares voted for the amendment set forth in paragraph 2 above was 11,079,181; against was 159,000; and none abstained. The number of shares voted for each of the amendments set forth in paragraphs 3 and 4 above was 11,179,181; against was 59,000; and none abstained. 8. The foregoing amendments do not provide for an exchange, reclassification, or cancellation of issued shares of the corporation. 9. At the special meeting of the shareholders held on January 24, 1997, a resolution was duly adopted to provide that the provisions of Section 16-10a-704 of the Utah Revised Business Corporation act may operate to permit a the corporation to take action by the written consent of fewer than all of the shareholders entitled to vote with respect to the subject matter of any action. Dated: January 24, 1997 /s/ VICTOR M. DEMARCO ------------------------------------ Victor M. DeMarco, President Attest: /s/ JOHN W. WYATT ------------------------------------ John W. Wyatt, Secretary ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF FOUNTAIN HEAD, INC. Fountain Head, Inc., by and through the undersigned, constituting the President and Secretary of Fountain Head, Inc., hereby amends the Articles of Incorporation of said Corporation as follows: 1. The name of the Corporation is Fountain Head, Inc. 2. Article I of the Articles of Incorporation is amended to read as follows: The name of the corporation is DeMarco Energy Systems of America, Inc. 3. The foregoing amendment was adopted by the shareholders at a meeting held on November 17, 1989. 4. The number of shares outstanding and entitled to vote upon such amendment was 38,000,000. 5. The number of shares voted for the amendment was 22,486,500; against was 0; and abstained was 0. 6. The foregoing amendment does not provide for an exchange, reclassification, or cancellation of issued shares of the Corporation. However, the shareholders also approved at the above-referenced meeting, a 1 for 40 reverse split of the outstanding common shares. 7. The foregoing amendment does not effect a change in the amount of stated capital of the Corporation. However, the above-referenced reverse split will reduce the amount of stated capital from $38,000 to approximately $950. Dated: December 1, 1989 Attest: FOUNTAIN HEAD, INC. By: /s/ JOHN W. WYATT By: /s/ LOUIS M. DEMARCO ---------------------------- -------------------------- John W. Wyatt, Secretary Louis M. DeMarco, President The State of Texas ) ) County of Travis ) On the 1st day of December, 1989, before me, the undersigned, a Notary Public, duly commissioned and sworn, personally appeared Louis M. DeMarco, known to me to be the president of Fountain Head, Inc., who executed the within instrument and known to me to be the person who affixed his name thereto as such president and who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned. My Commission Expires: /s/ --------------------------------- Notary Public Residing in The State of Texas ) ) County of Travis ) On the 1st day of December, 1989, before me, the undersigned, a Notary Public, duly commissioned and sworn, personally appeared John W. Wyatt, known to me to be the secretary of Fountain Head, Inc., who executed the within instrument and known to me to be the person who affixed his name thereto as such president and who acknowledged to me that he executed the same freely and voluntarily and for the uses and purposes therein mentioned. My Commission Expires: /s/ --------------------------------- Notary Public Residing in -3- ARTICLES OF INCORPORATION OF FOUNTAIN HEAD, INC. WE, THE UNDERSIGNED natural persons of the sage of twenty-one years or more, acting as incorporators of a corporation under the Utah Business Corporation Act adopt the following Articles of Incorporation for such corporation. ARTICLE I CORPORATE NAME The name of this corporation is Fountain Head, Inc. ARTICLE II DURATION OF CORPORATION The duration of this corporation is "perpetual". ARTICLE III CORPORATE PURPOSES The purpose for which this corporation is organized is the purchase, lease and sell real property for investment and to acquire other business entities or investments, and all matters related or ancillary thereto and to do all things and engage in all lawful transactions which a corporation organized under the laws of the State of Utah might do or engage in, even though not expressly stated herein. ARTICLE IV CAPITALIZATION The aggregate number of shares which this corporation shall have authority to issue is FIFTY MILLION (50,000,000) shares of $0.001 par value Common Stock. All stock of the corporation shall be of the same class and shall have the same rights and preferences. Fully paid stock of this corporation shall not be liable to any further call or assessment. -4- ARTICLE V PRE-EMPTIVE RIGHTS ABOLISHED The authorized and treasury stock of this corporation may be issued at such time, upon such terms and conditions and for such consideration as the Board of Directors shall determine. Shareholders shall not have pre-emptive rights to acquire unissued shares of the stock of this corporation. ARTICLE VI COMMENCING BUSINESS This corporation will not commence business until consideration of a value of at least $1,000 has been received for the issuance of shares. ARTICLE VII INTERNAL AFFAIRS The Directors shall adopt Bylaws which are not inconsistent with law or these Articles for the regulation and management of the affairs of the corporation. These Bylaws may be amended from time to time or repealed pursuant to laws. ARTICLE VIII REGISTERED OFFICE AND AGENT The address of this corporation's initial registered office and name of its original registered agent at such address is: Richard J. Lawrence Suite 500 175 South West Temple Salt Lake City, Utah 84101 ARTICLE IX DIRECTORS The Board of Directors consist of not less than three (3) nor more than nine (9) members as the Board of Directors may itself from time to time determine. The names and addresses of persons who are to serve as Directors until the first meeting of stockholders, or until their successors be elected and qualify are: -5- NAME ADDRESS ---- ------- William L. Jorgensen 2778 South 100 West Bountiful, Utah 84010 Reed T. Searle 9226 South 2490 West West Jordan, Utah 84084 Alan K. Tibbitts 2672 South 50 West Bountiful, Utah 84010 ARTICLE X INCORPORATORS The name and address of each Incorporator is: NAME ADDRESS ---- ------- William L. Jorgensen 2778 South 100 West Bountiful, Utah 84010 Reed T. Searle 9226 South 2490 West West Jordan, Utah 84084 Alan K. Tibbitts 2672 South 50 West Bountiful, Utah 84010 ARTICLE XI OFFICERS AND DIRECTORS CONTRACTS No contract or other transaction between this corporation and any other corporation shall be affected by the fact that a Director or officer of this corporation is interested in or is a Director or officer of such other corporation; and any Director, individually or jointly, may be a party to or may be interested in any corporation or transaction of this corporation or in which this corporation is interested; and no contract or other transaction of this corporation with any person, firm or corporation shall be affected by this fact that any Director of this corporation is a party to or is interested in such contract, act or transaction or any way connected with such person, firm or corporation, and every person who may become a Director of this corporation is hereby relieved from liability that might otherwise exist from contracting with the corporation for the benefit of himself or any firm, association or corporation in which he may be in any way interested, provided said Director acts in good faith. -6- DATED this 13th day of January, 1983. /s/ WILLIAM L. JORGENSEN ---------------------------------------- William L. Jorgensen /s/ REED T. SEARLE ---------------------------------------- Reed T. Searle /s/ ALAN K. TIBBITTS ---------------------------------------- Alan K. Tibbitts STATE OF UTAH ) : ss. COUNTY OF SALT LAKE ) I, THE UNDERSIGNED, a Notary Public, hereby certify that on the 13th day of January, 1993, William L. Jorgensen, Reed T. Searle and Alan K. Tibbitts, personally appeared before me who being by me first duly sworn severally declared that they are the persons who signed the foregoing document as incorporators and that the statements therein contained are true. DATED this 13th day of January, 1983. /s/ SHARON E. VANCE ---------------------------------------- Notary Public My commission expires: Residing at: September 20, 1986 Salt Lake City, Utah -7- EX-3 4 exhibit3-02.txt BY-LAWS EXHIBIT 3.02 BYLAWS OF DEMARCO ENERGY SYSTEMS OF AMERICA, INC. (A UTAH CORPORATION) ARTICLE I. OFFICES SECTION 1.1 BUSINESS OFFICE AND REGISTERED OFFICE. The principal office of the corporation shall be located at any place either within or outside the state of Utah as designated by the Board of Directors. The registered office of the corporation shall be located within the State of Utah and may be, but need not be, identical with the principal office (if located within the State of Utah). ARTICLE II. SHAREHOLDERS SECTION 2.1 ANNUAL AND SPECIAL SHAREHOLDERS MEETINGS. The annual meeting of the shareholders shall be held on the second Friday of August in each year, beginning with the year 1997, at the hour of 3:00 o'clock p.m. or at such other time on such other day within such month as shall be fixed by the board of directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Utah such meeting shall be held on the next succeeding business day. Special meetings of the shareholders, for any purpose or purposes, described in the meeting notice, may be called by the president, or by the board of directors and shall be called by the president at the request of the holders of not less than one-tenth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting. The board of directors may designate any place, either within or without the State of Utah as the place of meeting for any annual or any special meeting of the shareholders. SECTION 2.2 NOTICE OF SHAREHOLDER MEETING. (a) Required notice. Written notice stating the place, date and hour of any annual or special shareholder meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either personally or by mail, at the direction of the president, the board of directors, or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting and to any other shareholder entitled by the Utah Revised Business Corporation Act or the articles of incorporation to receive notice of the meeting. (b) Contents of Notice. The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called. If a purpose of any shareholder meeting is to consider either: (1) a proposed amendment to the articles of incorporation (including any restated articles requiring shareholder approval); (2) a plan of merger or share exchange; (3) the sale, lease, exchange or other disposition of all, or substantially all of the corporation's property; (4) the dissolution of the corporation; or (5) the removal of a director, the notice must so state and be accompanied by respectively a copy or summary of the: (1) articles of amendment or restated articles; (2) plan of merger or share exchange; and (3) transaction for disposition of all, or substantially all, of the corporation's property. If the proposed corporate action creates dissenters' rights, the notice must state that shareholders are, or may be entitled to assert dissenters' rights, and must be accompanied by a copy of Part 13 of the Utah Revised Business Corporation Act. SECTION 2.3 FIXING OF RECORD DATE. In order to make a determination of shareholders for any directors may fix in advance a date as the record date. The record days prior to the date on which the particular action requiring such determination of shareholder, is to be taken. SECTION 2.4 SHAREHOLDER LIST. The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record of all the shareholders of the corporation entitled to vote at each meeting of shareholders thereof, arranged in alphabetical order, with the address of and the number of shares held by, each shareholder. The list must be arranged by voting group (if such exists) and within each voting group by class or series of shares. The shareholder list must be available for inspection by any shareholder, beginning on the earlier of ten days before the meeting or two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. SECTION 2.5 SHAREHOLDER QUORUM REQUIREMENTS. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. SECTION 2.6 PROXIES. At all meetings of shareholders. a shareholder may vote in person or vote by proxy which is executed in writing by the shareholder or which is executed by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation or other person authorized by the corporation to tabulate votes before or at the time of the meeting. No proxy shall be valid more than 11 months from the date of its execution unless otherwise provided in the proxy. -2- ARTICLE III. BOARD OF DIRECTORS SECTION 3.1 GENERAL POWERS. Unless the articles of incorporation have dispensed with or limited the authority of the board of directors by describing who will perform some or all of the duties of a board of directors, all corporate powers shall be exercised by or under the authority of and the business and affairs of the corporation shall be managed under the direction of the board of directors. SECTION 3.2 NUMBER, TENURE, AND QUALIFICATIONS OF DIRECTORS. Unless otherwise provided in the articles, the authorized number of directors shall be not less than three (minimum number) nor more than nine (maximum number); provided that after shares are issued and for as long as the corporation has fewer than three shareholders entitled to vote for the election of directors, the board of directors may consist of a number of individuals equal to or greater than the number of those shareholders. Each director shall hold office until the next annual meeting of shareholders or until removed. However, if his term expires, he shall continue to serve until his successor shall have been elected and qualified or until there is a decrease in the number of directors. Unless required by the articles, directors do not need to be residents of the State of Utah or shareholders of the company. SECTION 3.3 REGULAR AND SPECIAL MEETINGS OF THE BOARD OF DIRECTORS. The board of directors may provide, by resolution, the time and place, either within or without the State of Utah for the holding of regular meetings, which shall be held without other notice than such resolution. Special meetings of the board of directors may be called by or at the request of the president, chairman or any two directors. SECTION 3.4 DIRECTOR QUORUM. A majority of the number of directors prescribed by resolution (or if no number is prescribed the number in office immediately before the meeting begins) shall constitute a quorum for the transaction of business at any meeting of the board of directors unless the articles require a greater number. SECTION 3.5 REMOVAL OF DIRECTORS. The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. ARTICLE IV. OFFICERS SECTION 4.1 NUMBER OF OFFICERS. The officers of the corporation shall be a president, a secretary and a treasurer, each of whom shall be appointed by the board of directors. Such other officers and assistant officers as may be deemed -3- necessary, including any vice-presidents, may be appointed by the board of directors. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation. SECTION 4.2 APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors. Any officer or agent may be removed by the board of directors at any time, with or without cause. SECTION 4.3 PRESIDENT. The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the board of directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. SECTION 4.4 THE VICE-PRESIDENTS. If appointed, in the absence of the president or in the event of his death, inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their appointment) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. (If there is no vice-president, then the treasurer shall perform such duties of the president.) Any vice-president may sign, with the secretary or an assistant secretary, certificates for shares of the corporation. The issuance of which have been authorized by resolution of the board of directors; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. SECTION 4.5 THE SECRETARY. The secretary shall: (a) prepare and maintain the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation and if there is a seal of the corporation see that it is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (f) sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (g) have general charge of the stock transfer books -4- of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. SECTION 4.6 THE TREASURER. The treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositaries as shall be selected by the board of directors and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. SECTION 4.7 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries, when authorized by the board of directors, may sign with the president or a vice-president certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors. ARTICLE V. AMENDMENTS SECTION 5.1 AMENDMENTS. The corporation's board of directors may amend or repeal the corporation's bylaws unless: (1) the articles of incorporation or the Utah Revised Business Corporation Act reserve this power exclusively to the shareholders in whole or part; or (2) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw; or (3) the bylaw either establishes, amends, or deletes, a supermajority shareholder quorum or voting requirement. The corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors. CERTIFICATE OF SECRETARY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby certify that the undersigned is the secretary of DeMarco Energy Systems of America, Inc., a corporation duly organized an existing under and by virtue of the laws of the State of Utah; that the above and foregoing Bylaws of said corporation were duly and regularly adopted as -5- such by the Board of Directors of said corporation by unanimous consent on the 10th day of October 1996; and that the above an foregoing Bylaws are now in full force and effect. Dated this 10th day of October 1996. /s/ JOHN W. WYATT ------------------------ John W. Wyatt, Secretary EX-4 5 exhibit4-07.txt AMENDED TERMS AGREEMENT AJW AND NEW MILLENNIUM EXHIBIT 4.07 New Millennium Capital Partners II, LLC 155 First Street, Suite B Mineola, NY 11501 AJW Partners, LLC 155 First Street, Suite B Mineola, NY 11501 March 28, 2001 DeMarco Energy Systems of America, Inc. 12885 Highway 183 Suite 108-A Austin, Texas 78750 Re: AMENDMENTS TO TRANSACTION DOCUMENTS Ladies and Gentlemen: The parties to this letter agreement have agreed to amend (i) the Convertible Debenture Purchase Agreement ("PURCHASE AGREEMENT"), dated September 26, 2000, between AJW Partners, LLC ("AJW"), New Millennium Capital Partners II, LLC ( "NEW MILLENNIUM" and together with AJW, the "HOLDERS") and DeMarco Energy Systems of America, Inc. (the "COMPANY") and (ii) the 10% Secured Convertible Debenture ("CONVERTIBLE DEBENTURE") issued to the Holders by the Company and due on September 26, 2001, in the manner set forth below. Capitalized terms used in this letter agreement and not otherwise defined shall have the meanings set forth in the Convertible Debenture or the Purchase Agreement. (1) Section 1.1(a)(iii) of the Purchase Agreement currently provides, among other things, that the Holders shall provide additional funding to the Company in an aggregate amount equal to $1,000,000 within thirty days following the Effective Date. Such provision is now amended solely to provide that such additional funding shall occur within 5 days following the Effective Date. (2) The Convertible Debentures issued to each Holder currently provides, among other things, that "the Holder may elect to receive interest hereunder in shares of [c]ommon [s]tock or cash." Such provision is now amended to provide that any interest due under the Convertible Debentures shall be payable in cash or shares of the Company's common stock at the option of the Company and not the Holders. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. Except as otherwise specified in this amendment, the terms and provisions of the Purchase Agreement and the Convertible Debentures remain without modification. Please indicate your agreement with the foregoing by executing this letter and returning the same to our attention, whereupon this letter agreement shall immediately become a legally valid and binding agreement between the Holders and the Company. Sincerely, New Millennium Capital Partners II, LLC By: First Street Manager II, LLC By:/s/ Glenn A. Arbeitman ----------------------------- Name: Glenn A. Arbeitman Title: Manager AJW Partners, LLC By: SMS Group, LLC By:/s/ Corey S. Robotsky ----------------------------- Name: Corey S. Robotsky Title: Manager DeMarco Energy Systems of America, Inc. By:/s/ Victor M. DeMarco ------------------------- Name: Victor M. DeMarco Title: EX-5 6 exhibit5-01.txt LEGAL OPINION Exhibit 5.01 LOCKE LIDDELL & SAPP LLP ATTORNEYS & COUNSELORS 100 CONGRESS AVENUE (512) 305-4700 Suite 300 Fax: (512) 305-4800 Austin, Texas 78701-4042 www.lockeliddell.com AUSTIN-DALLAS-HOUSTON-NEW ORLEANS (512)305-4716 cashmos@lockeliddell.com October 5, 2001 DeMarco Energy Systems of America, Inc. 12885 Highway 183 Suite 108-A Austin, Texas 78750 Re: Form SB-2 - DeMarco Energy Systems of America, Inc. Gentlemen: As legal counsel to DeMarco Energy Systems of America, Inc., a Utah corporation (the "Company"), we have examined the Articles of Incorporation and Bylaws of the Company as well as such other documents and proceedings as we have considered necessary for the purposes of this opinion. We have also examined and are familiar with the Company's registration statement on Form SB-2, as amended by Amendment number 1,(the "Registration Statement") as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), relating to registration of 22,826,086 shares of the Company's common stock, par value $.0001 per share (the "Common Shares"), which may be offered or sold by the Selling Stockholders referred to in the Registration Statement. Based upon the foregoing, and having regard to legal considerations which we deem relevant, we are of the opinion that the Common Shares are, or will be upon issuance in connection with the conversion of the underlying 10% secured convertible debentures, legally issued, fully paid and non-assessable. We hereby consent to the inclusion of this opinion letter as an exhibit to the Registration Statement and the reference to our Firm under the caption "Legal Matters." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, Locke Liddell & Sapp LLP /s/ Locke Liddell & Sapp LLP EX-10 7 exhibit10-01.txt PG&E ENERGY SERVICES MASTER AGREEMENT EXHIBIT 10.01 PG&E ENERGY SERVICES SUBCONTRACTOR MASTER AGREEMENT FOR ENERGY RELATED EQUIPMENT AND SERVICES THIS SUBCONTRACTOR MASTER AGREEMENT ("Master Agreement"), effective as of August 23, 1999 ("Effective Date), is made and entered into between PG&E ENERGY SERVICES CORPORATION, a California corporation with principal offices at 345 California Street, Suite 3200, San Francisco, California 94104 ("PG&E ES") and DEMARCO ENERGY SYSTEMS OF AMERICA, INC., a Utah Corporation, with principal offices au 12885 Highway 183, Suite 108-A, Austin, Texas 78750 ("SUBCONTRACTOR"). ARTICLE 1. RECITALS 1.1 Whereas, SUBCONTRACTOR is in the business of providing, among other products and services, certain energy related equipment and services (as hereinafter defined) to its customers; and 1.2 Whereas, PG&E ES has or will be executing agreements with various Customers, including Facility owners and/or tenants ("Customers"), to provide certain energy related equipment; and 1.3 Whereas, PG&E ES desires to retain SUBCONTRACTOR to design, provide, install and optionally maintain and/or operate certain specified energy related equipment ("Energy Related Equipment") hereinafter described; and 1.4 Whereas, this Master Agreement sets forth the general terms and conditions for SUBCONTRACTOR to design, provide, install and optionally maintain and/E operate the Energy Related Equipment, as requested by FG&E ES on a work order basis ("Work Order, as a subcontractor to E&E ES. Individual Work Orders will be issued under his Master Agreement which shall constitute Amendments to this Master Agreement and will be fully incorporated herein. Each Work Order will identify the Customer: individual Site Locations where the work will be performed: Scope of Work including description of Energy Related Equipment and other related equipment to be provided; Project Schedule; compensation: any changes to Warranty provisions for equipment provided; if the Operations and Maintenance ("O&M") provisions shall apply and any modifications to such C&M provisions that shall apply to the Work Order: changes to the insurance requirements for SUBCONTRACTOR's subcontractors; and whether or not Performance Bonds shall be required tr the Work Order work; and NOW. THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the Parties agree as follows: ------------------------------------------------------------------------------ "PG&E Energy Services is not the same company as Pacific Gas and Electric Company. the utility PG&E Energy Services is not regulated by the California Public Utilities Commission; and you do not have to buy PG&E Energy Services products in order to continue to receive quality regulated services from Pacific Gas and Electric Company. the utility." -1- ARTICLE 2. WORK ORDER 2.1 GENERAL PROVISIONS. Work under this Master Agreement shall be performed on a Work Order basis as requested by PG&E ES. Each Work Order issued by PG&E ES shall be executed by both Parties and will serve as authorization for SUBCONTRACTOR to commence work as described in the Work Order. Each Work Order shall be subject to all the terms and conditions of this Master Agreement, but shall constitute a separate and independent performance obligation of the part of SUBCONTRACTOR and payment obligation of PG&E ES. The Work Order may not modify the Master Agreement general terms and conditions except in regards to the Warranty; Operations and Maintenance obligations; SUBCONTRACTOR's subcontractors insurance coverage; and whether or not Performance Bonds will be required for the Work Order Work. Each Work Order. a sample form is attached as EXHIBIT A to this Master Agreement. may include additional information but shall include all of the following information: A) PG& E ES Contract Number assigned to this Master Agreement; and B) Date of the Work Order and Work Order Number; and C) Identification of Customer who owns and/or leases the Facility, or Facilities, where the Work will be performed; and D) All Facility Site Locations where Work will be performed,' and E) Scope of Work, including description of the Energy Related Equipment to be provide; and F) Project Schedule, including commencement date, substantial completion date, and Operational Date; and G) Contract Amount for Work Order including schedule of payment, and payment terms; and H) Indication of whether or not standard Operations and Maintenance ("O&M") provisions apply and if so, details of the O&M provisions and any changes or modifications to the O&M terms; and I) Changes to standard Warranty provisions, if any. Any other changes or modifications to the general terms and conditions of the Master Agreement shall require an amendment to the Master Agreement. 2.2 EFFECT OF CHANGES AND MODIFICATIONS TO MASTER AGREEMENT O&M AND WARRANTY PROVISIONS. Each Work Order may include changes and/or modifications to the standard Master Agreement provisions as to O&M, Warranty, Performance Bond, and insurance requirements tr SUBCONTRACTOR's lower tiered subcontractors. If such changes are made, those changes shall affect only the individual Work Order and shall not affect the standard Master Agreement provisions or previously and/or subsequently issued Work Orders. -2- ARTICLE 3. SCOPE OF WORK 3.1 GENERAL PROVISIONS. SUBCONTRACTOR shall design, procure, install, and optionally, operate, and maintain at each Site Location the Energy Related Equipment, and any other material, hardware, or software, as identified in the Work Order. 3.2 PERMITS. SUBCONTRACTOR shall obtain any and all necessary permits to complete the Work, as described herein, and as identified in the Work Order. 3.3 INSTALLATION/CONSTRUCTION PHASE. SUBCONTRACTOR shall provide or cause the Work to be performed including, but not limited to, providing all labor, ma-dais, equipment, tools, transportation and other facilities and services necessary for the proper design. procurement and installation of the Energy Related Equipment. If Work includes Construction, as defined in Exhibit B, the terms and conditions of Article 6 herein shall apply. 3.4 LICENSING. SUBCONTRACTOR shall possess any and all licenses required by Applicable Laws to complete the Work, and if specified in the Work Order, to operate and maintain the installed Energy Service Equipment. If SUBCONTRACTOR does not possess a required license- SUBCONTRACTOR shall either acquire the license prior to start of Work or shall subcontract such Work to a contractor who possesses the required license to perform the Work and who shall perform the Work for which a license is required. ARTICLE 4. PERFORMANCE 4.1 PROJECT SCHEDULE AND STANDARD OF PERFORMANCE. SUBCONTRACTOR shall diligently, and competently perform the Work set forth in all Work Orders, All work performed will comply with standards for comparable work performed by reputable contractors working in the same geographical area where the Work will be performed. A Project Schedule will be attached to each Work Order, 4.2 ACCESS TO SITE LOCATIONS. SUBCONTRACTOR shall be solely responsible for coordinating directly with the Customer regarding all issues related to access C the Site Location to perform the Work. 4.3 DIRECTION TO SUBCONTRACTOR. SUBCONTRACTOR shall take direction only from PG&E ES, or as otherwise designated in writing by PG&E ES, and -or from Customer or others, unless directed because of immediate safety concerns- All requests for additional Work, changes - Work, and/or direction from the Customer or others shall Ce forwarded to PO&E ES' Project Manager for prior written approval Dr denial prior to acting on such requests- If SUBCONTRACTOR performs such work requested without PG&E ES' prior written approval, SUBCONTRACTOR shall not receive any additional compensation or time for such unauthorized work. 4.4 REQUESTS FOR ADDITIONAL WORK. SUBCONTRACTOR shall perform the Work as specified in each Work Order. SUBCONTRACTOR is under no obligation to perform additional work which exceeds the Scope of Work described in the Work Order. During the performance of Work, PG&E ES may request SUBCONTRACTOR E perform additional work, outside the Scope of Work, and such new work shall be authorized by a new or amended Work Order. If, during the performance of the Work, SUBCONTRACTOR is requested to perform work under the existing Work Order that SUBCONTRACTOR believes is outside the Scope of Work identified in the Work Order, -3- SUBCONTRACTOR shall provide written notice of same to PG&E ES within three (3) working days of SUBCONTRACTOR receipt of notice of such request If the Work is teemed by PG&E ES to be outside the original Scope of Work, a new or amended Work Order for the additional work shall be issued. If PG&E ES deems said work to be within the Work Order Scope of Work, SUBCONTRACTOR shall perform such work. But may do so under protest for additional compensation and/or time and such protests shall be resolved in accordance with terms of Section 11.3 herein. 4.5 MATERIAL CHANGED CONDITION. If, during the performance of the Work, SUBCONTRACTOR believes that a Material Changed Condition is impacting or will impact the Work requiring additional time and/or compensation, SUBCONTRACTOR shall provide written notice of same to PG&E ES within Three (S) working days of SUBCONTRACTOR's notice of such Changed Condition, the anticipated time of delay and/or the estimated additional costs associated with the Material Changed Condition. SUBCONTRACTOR shall continuously update PO&E ES as to the impact of the Material Change Condition. If PG&E ES agrees that there is a Material Changed Condition, a new or amended Work Order shall be issued to increase time and/or compensation. A Material Changed Condition shall be defined as one or more of the following conditions that impact the Project Schedule ("Time".) and/or Cost: 1) parties outside the control of SUBCONTRACTOR caused delays in Project Schedule; 2) discovery of differing and unexpected site conditions which were not previously disclosed by Customer and could not have been readily discoverable by SUBCONTRACTOR prior start of Work; 3) discovery of hazardous wastes or material which was not previously disclosed: (4) adverse weather conditions not reasonably anticipated: and (5) any other condition that could not have been reasonably anticipated by the Parties and is outside SUBCONTRACTOR's control, If there is a disagreement between PG&E ES and SUBCONTRACTOR as to whether or not there 5 a Material Change Condition, those disputes shall be resolved in accordance with the provisions of Section 11.3 of this Master Agreement. 4.6 OWNERSHIP OF ENERGY RELATED EQUIPMENT. Until the Operational Date, Substantial Completion. and PG&E ES has made final payment of the Contract Amount as defined in the Work Order, all rights and liabilities of ownership of such Energy Related Equipment shalt remain with the SUBCONTRACTOR, or its subcontractors, hereunder. 4.7 FORCE MAJEURE. SUBCONTRACTOR shall use its best efforts to achieve completion of each Work Order in accordance with the Project Schedule set forth n the applicable Work Order, Performance by either PG&E ES and SUBCONTRACTOR shall not be deemed in default nor shall either Panty be held responsible for any delays that are caused by acts of God, flood, earthquake, unusually severe weather, drought, fire, lightning or other natural catastrophes: or events outside their control including war riot: civil disturbance or disobedience; sabotage; terrorism; strikes; unavoidable accidents: relocation or construction of facilities by others, or shutdown of facilities for repair, maintenance or failure by others: strike; lockout; labor disturbance; freight embargoes; acts or failure to act of any regulatory public or governmental agency or entity; or any other matter beyond the reasonable control of the Party so obligated, whether similar to matters herein enumerated or not. in the event either Party experiences a delay in performance that was caused by events beyond its control, the delayed Party shall provide a written notice of same within three (3) working days to the other Panty. Delayed performance shall be excused for the period of delay, and the time for performance shall be extended for a period equivalent to the period of delay; provided, however, that the Party delayed or prevented from -4- performance of Work per the terms of the Work Order has notified the other of such delay or prevention of performance within three (3) days of the inception thereof; and n-as thereafter kept said Panty regularly informed of the status of such delay or prevention of performance. ARTICLE 5. COMPENSATION 5.1 GENERAL PROVISIONS. For performance of Work as set for I-n each Work Order, PG&E ES will pay SUBCONTRACTOR Contract Amount and in the manner indicated in each Work Order. PO&E ES will pay progress payments for Work completed to date, or for the entire Work on a lump sum basis after the Work is completed, or other payment arrangement. as specified in the Work Order, upon receipt for SUBCONTRACTOR's invoice and in accordance with Section 5-3 herein. 5.2 INVOICES. SUBCONTRACTOR shall submit its invoice for payment to PC&E ES on a monthly basis, or as specified in the Work Order, to the PG&E ES Project Manager identified in the Work Order. 5.3 PAYMENT/RETENTION. Al invoices properly submitted by SUBCONTRACTOR, inducing applicable waivers and releases, in accordance with this Master Agreement and applicable Work Order will be paid by PG&E ES within fifteen (15) days of receipt of such invoice, less a ten (-D%) retention ("Retention") (identified by SUBCONTRACTOR in each invoice). unless an invoice contains a disputed amount, whereupon PC&E ES shall make a partial payment to SUBCONTRACTOR for the undisputed amount, minus the Retention, and PG&E ES shall withhold the disputed amount until the dispute is resolved by the Parties. Except for Retention amounts expended by PG&E ES to correct SUBCONTRACTOR's defective work or to complete the Work not completed by SUBCONTRACTOR, the -'Il Retention amount shall be paid to SUBCONTRACTOR a te time of the Work Order final payment. ARTICLE 6. CONSTRUCTION ACTIVITIES 6.1 GENERAL PROVISIONS. This Article shall apply only to those Work Orders that include Construction as defined herein that will be performed by SUBCONTRACTOR, or SUBCONTRACTOR's subcontractor. 6.2 CONSTRUCTION DEFINED. Work to be performed shall be defined as Construction Work if it includes any of the activities defined as Construction in EXHIBIT 3. Definitions, attached hereto and incorporated herein. 6.3 LICENSING. if the Work to re performed by SUBCONTRACTOR includes Construction. as defined in EXHIBIT B, any and all Construction activities must be performed by Licensed Contractors, or speciality Licensed Contractors (such as required when disturbing asbestos or other Hazardous Materials), as required by Applicable Law. If Construction Work includes certain design work that requires engineering plans, specifications, and/or drawings. such documents must be signed by an appropriately licensed engineer, and/or architect as required by Applicable Law. if SUBCONTRACTOR does not possess any of the required license or licenses, SUBCONTRACTOR shall subcontract that portion of the Work to a subcontractor, or subcontractors, who possess he required license or licenses and who shall perform such work at no additional cost to PS&E ES. -5- 6.4 PERFORMANCE BONDS. 6.4.1 PERFORMANCE BOND. SUBCONTRACTOR shall provide PG&E ES at the time of executing a Work Order, unless otherwise specified in the Work Order, an executed Performance Bond for the Construction portion. or all, of the Work. Such Performance Bond shall be in the amount of one hundred percent (100%) of the Contract Amount for the Construction Work portion. or all, of the Work defined in the Work Order, in a form and secured by a surety acceptable to PG&E ES, that shall condition the faithful performance of the Construction Work within the time identified in the Work Order. If SUBCONTRACTOR fails to complete the Construction Work within such time, or such extension thereof as may be allowed, the Work Order may be terminated and if so terminated. PG&E ES shall not thereafter pay or allow SUBCONTRACTOR any further compensation for any Construction Work cone by SUBCONTRACTOR under said Work Order, and SUBCONTRACTOR or its surety shall be liable to POSE ES for all loss or damage which it may suffer because of SUB CONTRACTOR's failure to complete the Construction Work within such time. 6.4.2 NOTIFICATION OF SURETY COMPANIES. All the surety companies providing the Performance Bond shall familiarize themselves with all or the terms and conditions of the Master Agreement and Work Order and they waive tine right of special notification of any change or modification of the Master Agreement, Work Order, extension of time; of decreased or increased work. of the cancellation of the Work Order, or of any other act or acts by PG&E ES or its authorized agents, under the terms of the Master Agreement or Work Order; and failure to -so notify the aforesaid surety companies of changes shall in no way relieve the surety companies of their obligation under the Master Agreement or Work Order. 6.5 WAIVERS AND RELEASES. 6.5.1 UNCONDITIONAL WAIVER AND RELEASE. If SUBCONTRACTOR uses subcontractors to complete any part of the Construction Work, prior to PG&E ES making any progress or final payment to SUBCONTRACTOR, SUBCONTRACTOR shall provide to POSE ES from each Construction subcontractor an Unconditional Waiver and Release at time of invoicing, in a form acceptable to PG&E ES. that states that the subcontractor has been paid in full to date for all labor, services, equipment or materials furnished to the Project at SUBCONTRACTOR's request, and thereby waives and releases any right to a mechanic's lien, stop notice, or any right against any bond. except for any disputed amount identified in the release. 6.5.2 CONDITIONAL WAIVER AND RELEASE. In addition to the requirements of Section 6.5.1 herein, prior to PG&E ES making any progress or final payment to SUBCONTRACTOR. SUBCONTRACTOR shall provide to PG&E ES a Conditional Waiver and Release at time of invoicing, in a form acceptable to PG&E ES, that states that upon receipt of payment from PG&E ES for Work under the Work Order, SUBCONTRACTOR shall waive and release any right to a mechanic's lien, stop notice, or any right against any bond for Work completed to date, except for any disputed amount identified in the waiver and release. -6- ARTICLE 7. OPERATION AND MAINTENANCE 7.1 GENERAL PROVISIONS. If tie Work Order specifies that SUBCONTRACTOR shall provide O&M services on behalf of the Customer for the installed Energy Related Equipment. SUBCONTRACTOR shall be responsible for the O&M of said equipment as specified in The Work Order. The Work Order shall provide the terms and conditions under which SUBCONTRACTOR shall provide the O&M services. Such O&M services may extend beyond the Master Agreement Term, and any such expiration of the Term shall not affect the obligations of either Priority under the outstanding and/or incomplete Work Order including the application of the terms and conditions of the Master Agreement to such Work Order. 7.2 ACCESS TO EQUIPMENT. If SUBCONTRACTOR agrees in an individual Work Order to be responsible for the O&M of the Energy Related Equipment provided and installed by SUBCONTRACTOR, SUBCONTRACTOR shall seek from the Customer, permission for SUBCONTRACTOR C reasonably access said equipment to perform O&M responsibilities in accordance with the Master Agreement and Work Order. After termination of the Work Order O&M provisions. SUBCONTRACTOR shall not have any O&M responsibility for the Energy Related Equipment. ARTICLE 8. WARRANTY SUBCONTRACTOR warrants that the Energy Related Equipment and its installation as specified in each Work Order shall conform to applicable specifications, drawings, and descriptions and shall be fit for the particular purpose, shall be merchantable, of good workmanship and material, and free from defect. SUBCONTRACTOR assumes responsibility for workmanship and warrants the Energy Related Equipment to be free from defects and is suitable for the purposes intended by PG&E ES and Customer. SUBCONTRACTOR '5 warranties shall run to PG&E ES and Customer, shall not E deemed exclusive and shall be in effect for a period of One (I) Year from the Operational Date of the Energy Related Equipment, or such Warranty period as specified in the Work Order. If PG&E ES or the Customer notifies, or SUBCONTRACTOR has notice of any equipment defect or non-conforming work, SUBCONTRACTOR shall promptly correct the equipment defect or non-conforming work at its own cost and expense. ARTICLE 9. TERM OF AGREEMENT This Master Agreement shall remain-n effect for an initial term of one (1) year ('Term') commending on the Effective Date, and such Term shall be automatically extended for additional one (1) year terms, unless the Master Agreement is terminated earlier in accordance with of Article 10 herein. Unless otherwise stated in a Notice of termination, any termination shall not affect the obligations of either Panty under any outstanding and/or incomplete Work Order. ARTICLE 10. TERMINATION 10.1 TERMINATION FOR CAUSE. I either Parity defaults in the performance its obligations under this Master Agreement. unless such default is due to causes beyond the control of the defaulting Party per Section 4.7, Force Majeure, and such default continues for a period of thirty (30) calendar days after the defaulting Party receives written notice of the default from the non-defaulting Parity. and the defaulting Party does not -Ere the default or receive written approval of a proposal and schedule to cure -7- the default that is acceptable to the non-defaulting Party within such time, the non-defaulting Party may terminate this Master Agreement and/or exercise any right or remedy, provided by law or equity. Upon termination of this Master Agreement, each Parity shall forthwith return to the other all papers. materials, and property of the other held by such Parity in connection herewith. Each Party shall also assist the other in the orderly termination of this Master Agreement and the transfer of all aspects hereof, tangible and intangible, as may be necessary for the orderly, non-disrupted business continuation of each Party. 10.2 TERMINATION FOR INSOLVENCY. Either Party may terminate this Master Agreement immediately by written notice to the other if: (1) the other Parity ceases to carry on its business; or (2) a receiver or similar officer's appointed for the other Party: or (3) the other Parity becomes insolvent, admits in writing its inability to pay debts as they mature, is adjudicated bankrupt, or makes an assignment for the benefit of its creditors or another arrangement of similar import; or (4) voluntary proceedings under bankruptcy or insolvency laws are commenced by he other Panty, or involuntary proceedings are commenced and such proceedings have not been discharged within forty-five (45) days. 10.3 TERMINATION FOR CONVENIENCE. PG&E ES shall have the right to terminate tints Master Agreement at any time during the Term of the Master Agreement for is convenience upon sixty (60) days advance written Notice to SUBCONTRACTOR. Upon such termination. each Party shall forthwith return to the other all papers, materials. and property of the other held by such Party in connection herewith. Earn Party shall also assist the other in the orderly termination of this Master Agreement and the transfer of all aspects hereof, tangible and intangible. as may be necessary for the orderly. non-disrupted business continuation of each Parity. Notwithstanding the above. SUBCONTRACTOR shall complete Work under an existing Work Order unless terminated per Sections 10.1 and 10.2 herein. ARTICLE 11. LIABILITY 11.1 INDEMNIFICATION. Each Panty hereby agrees to protect, indemnify and hold the other harmless. and to defend the other. with competent counsel reasonably satisfactory to the indemnified Party, from and against any and all Claims and the assertion thereof to the extent arising from the negligence, breach of contractor willful misconduct of tine indemnifying Party, except That neither Party shall be responsible for Calms arising from the sole negligence or intentional misconduct of the other Party. In no event shall PG&E ES be liable to SUBCONTRACTOR, Customer, or others for any indirect, incidental, consequential or special damages of any kind whatsoever, including without limitation any loss of revenue or loss of profit, loss of savings. loss of goodwill. cost of any substitute Energy Related Equipment downtime cost of capitol, loss of qualification, increased cost of operation. cost of replacement power or fuel or claims of SUBCONTRACTOR or other third parties, by reason of anything done or omitted to be done by-PG&E ES in connection with any Work Order issued under this Master Agreement. -8- 11.2 INSURANCE. SUBCONTRACTOR shall maintain the following insurance coverage.SUBCONTRACTOR is also responsible for its lower-tiered Subcontractors maintaining sufficient limits of the same insurance coverage. (1) Workers' Compensation and Employers' Liability: Workers' Compensation insurance or self-insurance indicating compliance with any applicable labor codes, acts, laws or statutes, state or federal, where SUBCONTRACTOR performs Work. Employers' Liability insurance shall not be less than $1,000,000 for injury or death each accident. (2) Commercial General Liability: Coverage shall be at least as broad as the Insurance Services Office (ISO) Commercial General Liability Coverage 'occurrence' form, with no coverage deletions. The limit shall not be less than $1,000,000 each occurrence for bodily injury, property damage, and personal injury. If coverage is subject to a general aggregate limit this aggregate limit shall be twice the occurrence limit, Coverage shall: a) by 'Additional Insured' endorsement add as insured PG&E ES. its directors, officers, agents and employees with respect to liability arising out of Work performed by or for tine SUBCONTRACTOR: b) be endorsed to specify that the SUBCONTRACTOR's insurance is primary and that any insurance or self-insurance maintained by POSE ES shall not contribute with it, (3) Business Auto: Coverage shall be at least as broad as Insurance Services Office (ISO) Business Auto Coverage form covering Automobile Liability, Code 1 "any auto.' The limit shall not be less than $1,000,000 each accident for bodily injury and property damage. (4) Builders Risk: An 'all risk' Builders Risk insurance policy, including earthquake and flood, shall be maintained during the course of Construction. Policy shall include coverage for materials anc equipment to be used while at the Site, offsite or while in transit to the Site. Coverage shall be written to cover the full replacement cost of the property. Limits and deductibles shall be approved by PG&E ES. PG&E ES shall be named as Loss Payee. (5) Additional Insurance Provisions: Before commencing performance of Work, SUBCONTRACTOR shall furnish PG&E ES with certificates of insurance and endorsements of all required insurance for SUBCONTRACTOR. The documentation shall state that coverage shall not be canceled except after thirty (30) days prior written notice has been give to PG&E ES. The documentation must be signed by a person authorized by that insurer to bind coverage on its behalf and shall be submitted to: PG&E Energy Services, Contracts Department, 345 California Street, Suite 3200, San Francisco, CA 94104. PG&E ES may inspect the original polices or require complete certified copies upon request. Upon request, SUBCONTRACTOR shall furnish PG&E ES the same evidence of insurance for its lower-tiered subcontractors as PG&E ES requires of SUBCONTRACTOR. 11.3 DISPUTE RESOLUTION. In E.-e event of a dispute, controversy, or claim arising out of or relating to this Master Agreement. the Parties shall confer and attempt to resolve such matter informally. If such dispute or claim can not be resolved in this manner, then the dispute or claim shall be referred first to the Panties' executive officers for their review and resolution. If the dispute or claim still can not be resolved by such officers, then tine Parties may agree to submit to non-binding mediation or either Party may file a written demand for arbitration with the American Arbitration Association ("AAA") and shall send a copy of such demand to the other Party. The arbitration shall be conducted pursuant to the Arbitration Rules of the AM in effect at the time the arbitration is commenced. The award rendered by the arbitrator shall be final and binding on the Parties and shall be deemed enforceable in any count having jurisdiction thereof and of 'he Parties. The arbitration shall be heard by one mutually agreeable arbitrator, who shall have experience in the general subject matter to which tine dispute relates. The arbitration shall take place in San Francisco, California unless both Parties mutually agree to a different venue for arbitration. -9- 11.4 ATTORNEYS' FEES. In the event that binding arbitration or other litigation is initiated between PG&E ES and SUBCONTRACTOR, the prevailing Party, as determined by the Arbitrator or Count, shall be awarded its reasonable attorneys' fees and costs. ARTICLE 12. MISCELLANEOUS 12.1 DEFINITIONS. For the purposes of This Master Agreement, including all Work Orders and Exhibits, the defined terms shall have the meaning as set forth in EXHIBIT B, Definitions, attached hereto and incorporated herein. 12.2 INDEPENDENT CONTRACTOR. SUBCONTRACTOR's performance of Work under this Master Agreement and all Work Orders shall be as an independent contractor to PG&E ES, and not as an employee, representative or agent of PG&E ES, and shall be responsible for its own work. As an independent contractor, SUBCONTRACTOR shall employ, at its own expense, all personnel necessary to perform the Work, represents that all personnel engaged in performing such Work are fully qualified. authorized, and permitted to do so under all Applicable Laws, and shall be responsible for all matters including payment of its employees, compliance with social security. workers compensation requirements. And withholding for federal, local, and state taxes. In no event shall PG&E ES shall be held responsible for any actor omission of SUBCONTRACTOR. 12.3 COMPLIANCE WITH LAWS. Each Panty agrees that it shall comply with all Applicable Laws including federal, state and local laws, ordinances, regulations, and codes in the performance of this Master Agreement including but not limited to acquiring licenses, insurance, permits. authorizations. registrations. or other governmental requirements necessary for performance of each Party's obligations hereunder. 12.4 GOVERNING LAW/VENUE. This Master Agreement shall be governed by, and interpreted and construed in accordance with, the laws of the State of California, without reference to its rules of conflict of laws. For the enforcement of any dispute resolved pursuant to Articles 10 and 11 of this Master Agreement, the Parties hereby consent to personal and exclusive jurisdiction and venue of the State and Federal Courts within the City and County of San Francisco, California. 12.5 SEVERABILITY. In the event that any provision of this Master Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void. this Master Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the benefits or burdens of this Master Agreement to either PG&E ES or Customer. 12.6 ASSIGNMENT. SUBCONTRACTOR shall not transfer or assign any rights or interests in this Master Agreement or individual Work Orders without the prior written consent PG&E ES. -10- 12.7 CHANGES/MODIFICATION/WAIVER. No change or modification to this Master Agreement nor an: waiver of any rights hereunder, shall be effective unless it is consented to in writing by both Parties. The failure of a Party to insist upon compliance with the strict forms of this Master Agreement or to act or react upon a default in the performance of any obligation hereunder shall not excuse or constitute any form of waiver of that Party's rights or the other Party's obligation. The waver of any breach or default shall not constitute a waiver of any other right hereunder or any subsequent breach or default. 12.8 NOTICES. Any notices hereunder shall be given in writing and shall be delivered by hand or by first class certified U.S. Mail, return receipt requested to the addresses set forth below, or to such other address as either Panty may substitute by written notice to the other in the matter contemplated herein, and will be deemed given when delivered, or, if delivery is not accomplished by some fault of the addressee. when tendered. To PG&E ES: With copy to; To SUBCONTRACTOR: PG&E Energy Services Corporation 6900 East Camelback E. Suite 800 Scottsdale, AZ 86261 Attn: Robert Holmes, -Program Manager, Phone Number: (480)874-4067 Fax Number: (480) 994-4438 PG&E Energy Services Corporation 345 California Street, Suite 3200 San Francisco, CA 94104 Attention: Manager, Contract Contract Services DeMarco Energy Services of America, Inc, 2885 Highway 183, Suite 10&A Austin, Texas .78750 Attention: Peter Des Camps, Sr. VP Phone Number: (512)335-1494 Fax Number. (512)335-6380 12.9 THIRD PARTY BENEFICIARIES. This Master Agreement shall not create any third party beneficiary obligations with respect to any third party. 12.10 CONFIDENTIAL AGREEMENT. The terms and conditions of this Master Agreement shall be subject. to that certain Mutual Non-Disclosure Agreement between PG&S ES and SUBCONTRACTOR dated April 12, 1999 which is attached hereto as EXHIBIT C and incorporated herein. 12.11 DUPLICATE ORIGINALS. Two (2) duplicate originals of this Master Agreement shall be executed each of which shall be deemed an original but both of which together shall constitute one and the same instrument. -11- 12.12 ENTIRE AGREEMENT. This Master Agreement contains the entire agreement between the Parties and there are no oral or written representations. understandings. or agreements between the Parties respecting the subject matter of, this Master Agreement, which are not fully expressed herein. 12.13 EXHIBITS. The Exhibits to this Master Agreement are listed as following and are fully incorporated herein: EXHIBIT A Work Order Sample Form EXHIBIT B Definitions EXHIBIT C Executed Mutual Non-Disclosure Agreement IN WITNESS WHEREOF the Parties hereto have executed this Master Agreement as of the day and year first above written. PG&E Energy Services Corporation DeMarco Energy Systems of America, Inc. By: /s/ Michael Coffin By: /S/ Victor M. DeMarco ----------------------------- ------------------------------- Michael Coffin (signature) Victor M. DeMarco Name: Name: Michael Coffin Victor M. DeMarco Title: Title: Vice President President/CEO -12- EXHIBIT A WORK ORDER SAMPLE FORM PG&E ENERGY SERVICES PG&E ES CONTRACT NUMBER: 2131 WORK ORDER # _____________ SUBCONTRACTOR MASTER AGREEMENT FOR ENERGY RELATED EQUIPMENT AND SERVICES THE SUBCONTRACTOR MASTER AGREEMENT (Master Agreement), entered into [Month, Day, Year] by and between PG&E ENERGY SERVICES CORPORATION, a California corporation with principal offices at 345 California Street, Suite 3200. San Francisco, California 94104 ("PG&E ES") and DEMARCO ENERGY SYSTEMS OF AMERICA, INC., a Utah corporation ("SUBCONTRACTOR"), with principal offices at 12885 Highway 183, Suite 108-A, Austin. Texas 78750 is hereby amended on this date [ADD DATE OF WORK ORDER] by this Work Order which is fully incorporated into the MASTER AGREEMENT as follows: 1. CUSTOMER. The Customer for whom the Work will be performed is ______________. The address and phone number of the customer is _________________________. 2. SCOPE OF WORK/SITE LOCATIONS. The Scope of Work at each Site Location, including the description of the Energy Related Equipment and other materials to be provided and installed and any other Work to be performed; Warranty provisions; and the Operations and Maintenance provisions. if any: to be provided under this Work Order is identified on ATTACHMENT 1 - "SCOPE OF WORK/SITE LOCATIONS" attached hereto and incorporated herein, Unless otherwise described herein. SUBCONTRACTOR shall be responsible for me disposal of alt lights and ballasts removed from facilities as pant of me Work herein, including responsibility of such light and ballasts that are deemed hazardous materials. 3. PROJECT SCHEDULE. The Project Schedule for each Site Location where Work shall be performed by SUBCONTRACTOR pursuant to this Work Order. Including Commencement Date, Substantial Completion Date, and Operational Date is identified on "ATTACHMENT 2 -PROJECT SCHEDULE" attached hereto and incorporated herein 4. CONTRACT AMOUNT FOR WORK ORDER. The total Contract Amount for performance of this Work Order, schedule of payment, and payment terms is as follows: [ ADD HERE____________] 5. GENERAL TERMS AND CONDITIONS. All other Terms and Conditions provided in the Master Agreement remain unchanged. -13- IN WITNESS WHEREOF, the Parties hereto have executed this Work Order as of the day and year first above written. PG&E ENERGY SERVICES CORPORATION DEMARCO ENERGY SYSTEMS OF AMERICA, INC. By: By: ----------------------------- ------------------------------ Name: Name: Title: Title: "PG&E Energy Services is not the same company as Pacific Gas and Electric Company, the utility. PG&E Energy Services is not regulated by the California Public utilities Commission: and you do not have to buy PG&E Energy Services products in order to continue to receive quality regulated services from Pacific Gas and Electric Company, the utility." -14- PG&E ENERGY SERVICES PG&E ES CONTRACT NUMBER: 2131 EXHIBIT B DEFINITIONS For the purposes of its Master Agreement, including all Work Orders and Exhibits, the defined terms herein shall have the meaning set forth as follows: 1. APPLICABLE LAWS: "Applicable Laws" shall mean all laws, building codes, rules, regulations, or orders of any federal, state, county, local, or other governmental body, agency, or other authority having jurisdiction over the performance of the Work, as may be in effect at the time the work is completed. 2. CUSTOMER: "Customer" shall mean the owner and/or tenant of the Facility where SUBCONTRACTOR shall perform the Work pursuant to an applicable Work Order, 3. CLAIMS: "Claims" shall mean any and all actions, claims, losses, damages, expenses or liabilities of either Party arising from or a result of this Master Agreement. 4. CONSTRUCTION: "Construction" shall mean any Work to be performed that involves any and all construction, alteration, repair, addition to, subtraction from, improving, moving, wrecking or demolishing any building, highway, road, parking facility, excavation, or other structure or improvement, or to do any pant thereof, including the erection of scaffolding or other structures or works in connection therewith, and the cleaning of grounds or structures in connection with any of the above activities. 5. CONTRACT AMOUNT: "Contract Amount" shall mean the amount of compensation that shall be paid to SUBCONTRACTOR by PG&E ES for satisfactorily providing and installing the equipment, and optionally providing operational and maintenance services for such equipment. described in each Work Order. 6. EFFECTIVE DATE: "Effective Date" shall mean the date this Master Agreement is fully executed as noted above and is the date the Master Agreement is in full force and effect. 7. ENERGY RELATED EQUIPMENT: Energy Related Equipment' shall mean the certain equipment provided and installed, and possibly operated and maintained if requested in the Work Orders, by SUBCONTRACTOR and includes any and all other material, hardware, or software, as specified in each Work Order. Such Energy Related Equipment is and shall remain the personal property of SUBCONTRACTOR, with all the rights and liabilities associated with such ownership, until the final acceptance by the Customer, the Operational Date, and PG&E ES has made final payment to SUBCONTRACTOR of the Contract Amount defined in the Work Order. 8. FACILITY OR FACILITIES: "Facility" or "Facilities" shall mean the building(s), structure(s) and or other fixtures on the Site Location where Work shall be performed pursuant to an applicable Work Order, 9. HAZARDOUS SUBSTANCES. "Hazardous Substances" shall mean any hazardous, toxic, or dangerous wastes, substances, chemicals, constituents. Contaminants, pollutants, and materials and any other carcinogenic, corrosive, ignitable, radioactive, reactive, toxic, or otherwise hazardous substances or mixtures (whether solids, liquids, or gases) now or at any time subject to regulation, control, remedation, or otherwise addressed under Applicable Laws. 10. INSTALLATION: "Installation" shall mean the setting up and placement of the Energy Related Equipment in accordance with all Applicable Laws, in the manner it will be operated, and as defined in the Work Order. Installation wilt not be deemed complete until the Operational Date and final acceptance by PG&E ES and the Customer. 11. MASTER AGREEMENT: "Master Agreement" shall mean this Energy Related Equipment and Services Master Agreement and all Exhibits attached hereto which are incorporated herein, as the same may be amended or modified from time to time in accordance with the provisions hereof. -15- 12.MATERIAL CHANGED CONDITION: "Material Changed Condition" shall mean changes to the Work, outside the Scope of Work, as defined in Section 4.5, Material Changed Conditions, herein. 13. OPERATIONAL DATE: "Operational Date" shall mean the date when the Energy Related Equipment, and other related equipment, is fully installed and operational. SUBCONTRACTOR shall provide written notice of such date to PG&E ES. Unless PG&E ES disputes, for reasonable cause, the validity of the notice within 15 days of receiving such report, the same shall be deemed accepted by PG&E ES as the Operational Date. 14. OPERATIONS AND MAINTENANCE SERVICES OR O&M: "Operations and Maintenance Services", or O&M, shall mean the provision of operations and maintenance services for the equipment, and any and all other material, hardware, or software provided and installed by SUBCONTRACTOR, in accordance with Article 7 herein. 15. PARTY OR PARTIES: "Party" or "Parties" shall mean PG&E ES, SUBCONTRACTOR.- each or both of them, as the context may require pursuant to the terms and conditions of this Master Agreement. 16. PROJECT: "Project" shall mean the entirety of Work to be performed by SUBCONTRACTOR, as well as all efforts of PG&E ES, CITGO, Customer. and other entities, all as an integrated whole. 17. SITE LOCATION: "Site Location" shall mean the location of the facility where the Energy Related Equipment, other related equipment, and any Test Equipment will be installed, as described and identified in the Work Order. 18. TIME: "Time" shall mean the time period within which the SUBCONTRACTOR shall complete the Work in accordance with the Work Order Project Schedule. 19. RETENTION: "Retention" shall mean the amount to be withheld by PG&E ES from each payment to SUBCONTRACTOR, in the amount of ten (10%) percent, to ensure SUBCONTRACTOR'S performance and completion of the Work as defined in the Work Order. 20. WARRANTY: "Warranty" shall mean, unless otherwise defined in the Work Order, the Energy Related Equipment provided and installed by SUBCONTRACTOR shall conform to applicable specifications and shall be fit for the particular purpose, shall be merchantable. of good workmanship and material, and free from defect for a period of one (1) year from the Operational Date as defined herein. 21. WORK: "Work" shall mean the all the equipment and services described in each Work Order to be provided. installed and performed by SUBCONTRACTOR. Depending on the terms of each Work Order, the Work may include SUBCONTRACTOR designing, supplying, installing, maintaining. operating, and warranting of certain Energy Related Equipment, and providing any other energy-related services specified in the Work Order. The Work described in each Work Order shall also include all labor necessary to produce such services, all materials, fabrications, assemblies, and equipment incorporated or to be incorporated in such installation. 22. WORK ORDER: "Work Order" shall mean the document more fully described in Article 3 of this Master Agreement. To be effective, each Work Order must be executed by both Parties. -16- EX-10 8 exhibit10-02.txt LMC STRATEGIC PARTNERSHIP AGREEMENT EXHIBIT 10.02 STRATEGIC PARTNERSHIP AGREEMENT This Agreement is by and between Lighting Management Consultants, Inc. (hereinafter, "LMC") with its principal place of business at 5626 Star Lane, Houston, Texas 77057 and DeMarco Energy Systems of America, Inc. (hereinafter, "DEMARCO")with its principal place of business at PO Box 201057, Austin, Texas 78720-1057. NATURE OF THE PARTNERSHIP It is with mutual understanding between LMC and DEMARCO to enter into a strategic partnership agreement, where DEMARCO has relationships and contracts with various organizations to perform energy efficient lighting retrofits and energy management services, and LMC is in the energy efficient lighting business and agrees to become the primary company rendering for DeMarco services such as: energy audits, energy-related feasibility studies, lighting system removal/demolition, lighting system installation/retrofit, and energy management services for commercial, industrial and institutional applications. The relationship description, contributions, terms, conditions, and other covenants are set forth herein. 1) PURPOSE. The purpose of this agreement is to engage LMC to perform as PROJECT MANAGER the services described in Articles 1, 2, and 3 herein for the contracts and/or work orders issued to DEMARCO. DEMARCO will perform their duties and responsibilities as described in Article 4, 10, 11, and 12, plus any other duties and responsibilities required to assist LMC with performing their obligations. Each party will perform all individual duties, responsibilities and requirements as set forth in this agreement. 2) COMMENCEMENT. Effective immediately, DEMARCO will issue all work relating to lighting systems installation, retrofit and/or demolition to LMC, and LMC agrees to perform the services required of each work order or contract for and on behalf of DEMARCO. 3) DURATION. The duration of this agreement is perpetual until such time either party wishes to terminate the relationship, and does so by furnishing written notice of their intent to terminate at least 60 days prior to the effective date. All contracts in-works, services being performed at that time and work orders under construction by LMC will be performed through completion, regardless of time requirements to fulfill the project's work scope. Failure to perform will result in a reduction in final payment, based upon percentage of completion, less reasonable expenses. 4) MUTUAL NON-DISCLOSURE. It is understood that DEMARCO and LMC have individually entered into Mutual Non-Disclosure Agreements with certain companies, and each agrees to honor and carry-out the terms of the others agreement(s), unless otherwise agreed to in writing and attached hereto. A mutual Non-Disclosure agreement has been executed between DEMARCO and LMC and is attached hereto. 5) NON-COMPETE. DEMARCO and LMC agree to not compete with each other for the same contracts or work orders for the duration of this agreement. It is understood that each have individually negotiated and/or earned contracts prior to this agreement, or have contracts or work orders not yet issued, but are considered in process to be issued, and that these work orders or agreements are not in direct competition between DEMARCO and LMC. It is further agreed each company will establish a system to notify the other of contracts under negotiation and subsequent date awarded, and that either company will not individually bid for the other company's work contracts without receiving prior written permission to conduct such activities from that company. If for whatever reason a contract (regardless of status `under negotiation' or `awarded') is considered to be in competition between either company, then the default shall go to LMC, unless it is reasonably determined otherwise by each party, or that DEMARCO had made initial contact or introduction first and was capable of performing services required to fulfill its obligations under such contract. 6) COMPENSATION FOR SERVICES. DEMARCO agrees to pay to LMC the entire bid amount for each contract awarded to DEMARCO for the services agreed to be performed and completed by LMC. It is understood by each party that each bid submitted by LMC to DEMARCO shall include and reflect a five percent profit for DEMARCO, calculated and added to the sum total of LMC's bid. Upon receipt of final payment for each project, DEMARCO will retain their five percent profit and distribute the balance to LMC within ten days of receipt, unless otherwise agreed to in writing prior to each project's bid submission. 7) PERFORMANCE REQUIREMENTS. LMC agrees to perform the services, duties and obligations as outlined in the contracts, work orders and Articles of this Agreement to the best of their abilities, and based upon their historical performance and capabilities of providing such services, duties, and obligations. 8) DEFAULT AND REMEDIES. Upon determination that a default or breach has occurred under any portion of this agreement by either party, the affected party shall give 30 days to the defaulting party to cure the default. If the default has not been cured according to the terms of this agreement or with reasonable satisfaction of the affected party, this agreement shall become terminated within 30 days. Upon termination of this Agreement, both parties shall fulfill all outstanding obligations incurred prior to the date of termination through to the effective termination date. 9) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute 1 (one) Agreement, binding on all parties hereto, notwithstanding that all the parties have not signed the same counterpart. 10) ARTICLES OUTLINING THE WORKING RELATIONSHIP. The following Articles outline the working relationship between LMC and DEMARCO. Hereinafter, the term Project Manager refers to LMC and their identified sub-contractor position with DEMARCO and as identified within agreement(s) relating to energy efficient lighting retrofit and energy management services. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND TECHLITE APPLIED SCIENCES , INC. PAGE 80 OF 80 ARTICLE 1 PROJECT MANAGER'S RESPONSIBILITIES 1.1 PROJECT MANAGER'S SERVICES 1.1.1 The Project Manager & Services consist of those services performed by the Project Manager. Project Manager's employees and Project Manager's consultants as enumerated in Articles 2 and 5 of this Agreement and any other services included in Article 13. 1.1.3 The Project Manager shall provide sufficient organization, personnel and management to carry out the requirements of this agreement on an expeditious and economical manner consistent with the interest with DEMARCO, and when appropriate recruit, select and train personnel for placement within the DEMARCO organization. 1.1.4 The services covered by this Agreement are subject to the limitations contained in sub paragraph 13. ARTICLE 2 SCOPE OF PROJECT MANAGER'S BASIC SERVICES 2.1 DEFINITION 2.1.1 The Project Manager's Basic Services consist of those described in Paragraph 2.2 and 2.3 and any other services identified in Article 13 as part of Basic Services. 2.2 PRE - PROJECT PHASE 2.2.1 The Project Manager shall review the program furnished by DEMARCO to ascertain the requirements of the Project and shall arrive at a mutual understanding of such requirements with DEMARCO. 2.2.2 The Project Manager shall provide a preliminary evaluation of DEMARCO's program, schedule and Project budget requirements, each on terms of the other. 2.2.3 Based on previously performed audits and other energy management services criteria prepared by DEMARCO, the Project Manager shall prepare preliminary estimates of Project cost for program requirements using logistical, volume and/or similar conceptual estimating LMCniques. The Project Manager shall provide cost evaluations of alternative materials and systems. 2.2.4 The Project Manager shall expeditiously review design documents during their development and advise on proposed site use and improvements, selection of materials, building systems and equipment, and methods of Project delivery. The Project Manager shall provide recommendations on relative feasibility of Project methods, availability of materials and labor, time requirements for procurement, installation and Project, and factors related to Project cost including, but not limited to costs of alternative designs or materials, preliminary budgets and possible economics of geographic locations plus other productive factors. 2.2.5 The Project Manager shall prepare and periodically update a Project Schedule for DEMARCO's review and DEMARCO's acceptance. The Project Manager shall obtain DEMARCO's approval for the portion of the preliminary Project schedule relating to the performance requirements of PG&E ES energy management services. In the Project Schedule, the Project Manager shall coordinate and integrate the Project Manager's services, and DEMARCO's responsibilities with anticipated Project schedules, highlighting critical and long-lead-time items. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 81 OF 81 2.2.6 As DEMARCO progresses with the preparation of the Project Documents, the Project Manager shall prepare and update, at appropriate intervals agreed to by DEMARCO and Project Manager, estimates of Project Cost of increasing detail and refinement. The estimated cost of each Contract shall be indicated with supporting detail. Such estimates shall be provided for DEMARCO's approval. The Project Manager shall advise DEMARCO if it appears that the Project Cost may exceed the latest approved Project budget and make recommendations for corrective action. 2.2.7 The Project Manager shall consult with DEMARCO regarding the Project Documents and make recommendations whenever retrofit/installation details adversely affect specific or overall project logistics, cost or schedules. 2.2.8 The Project Manager shall provide recommendations and information to DEMARCO regarding the assignment of responsibilities for temporary Project facilities and equipment materials and services for common use of the Contractors. The Project Manager shall verify that such requirements and assignments of responsibilities are included in the proposed Contract Documents. 2.2.9 The Project Manager shall provide recommendations and information to DEMARCO regarding the allocation of responsibilities for safety programs among the Contractors. 2.2.10 The Project Manager shall advise on the divisions of the Project into individual Contracts for various categories of Work, including the method to be used for selecting Contractors and awarding Contracts. If multiple Contracts are to be awarded, the Project Manager shall review the Project Documents and make recommendations as required to provide that (1) the Work of the Contractors is coordinated, (2) all requirements for the Project have been assigned to the appropriate Contractor, (3) the likelihood of jurisdictional disputes has been minimized, and (4) proper coordination has been provided for phased Project. 2.2.11 The Project Manager shall prepare a Project completion schedule providing for the components of the Work, including phasing of Project, times of commencement and completion required of each Contractor ordering and delivery of products requiring long lead time, and the occupancy requirements of DEMARCO. The Project Manager shall provide the current Project completion schedule for each set of bidding documents. 2.2.12 The Project Manager shall expedite and coordinate the ordering and delivery of materials requiring long lead-time through DEMARCO. 2.2.13 The Project Manager shall provide an analysis of the types and quantities of labor required for the Project and review the availability of appropriate categories of labor required for critical phases. The Project Manager shall make recommendations for actions designed to minimize adverse effects of labor shortages. 2.2.15 The Project Manager shall assist DEMARCO in obtaining information regarding applicable requirements for equal employment opportunity programs for inclusion in the Contract Documents. 2.2.16 Following DEMARCO's approval of the Project Documents, the Project Manager shall update and submit the latest estimate of Project cost and the Project completion schedule for DEMARCO's review and approval. 2.2.17 The Project Manager shall submit the list of prospective bidders for DEMARCO's approval. 2.2.18 The Project Manager shall develop bidders' interest in the Project and establish bidding schedules. The Project Manger, with DEMARCO's Assistance, shall issue bidding documents to bidders and conduct pre-bid conferences with prospective bidders. The Project Manager shall assist DEMARCO with regard to questions from bidders and with issuance of addenda. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 82 OF 82 2.2.19 The Project Manager shall receive bids, prepare bid analysis and make recommendations to DEMARCO for DEMARCO's award of Contracts or rejection of bids. 2.2.20 The Project Manager shall assist DEMARCO in preparing Project Contracts and advise DEMARCO on the acceptability of Subcontractors and material suppliers proposed by Contractors. 2.2.21 The Project Manager shall assist DEMARCO in obtaining building permits and special permits for permanent improvements, except for permits required to be obtained directly by the various Contractors. The Project Manager shall assist DEMARCO in connection with DEMARCO's responsibility for filing documents required for the approvals of governmental authorities having jurisdiction over the Project. 2.3 PROJECT PHASE - ADMINISTRATION OF THE PROJECT CONTRACT 2.3.1 The Project Phase will commence with the award of the initial Project Contract, Work Order or purchase order and, together with the Project Manager's obligation to provide Basic Services under this Agreement, will end 30 Days after final payment to all Contractors is due. 2.3.2 The Project Manager shall provide administration of the PG&E ES Master Agreement and subsequent Work Orders throughout the Project in cooperation with the guidelines established and performance requirements of PG&E ES and DEMARCO. 2.3.3 The Project Manger shall provide administrative management and related services to coordinate scheduled activities and responsibilities of the Contractors with each other and with those of the Project Manager and DEMARCO to endeavor to manage the Project in accordance with the approved estimate of Project Cost, the Project Schedule and the Contract Documents. 2.3.4 The Project Manager shall schedule and conduct meetings to discuss such matters as procedures, progress and scheduling. The Project Manager shall prepare and promptly distribute minutes to DEMARCO, and Contractors when required. 2.3.5 Utilizing the Project Schedules provided by the Contractors, the Project Manager shall update the Project completion schedule incorporating the activities of the Contractor's progress throughout the Project, including activity sequences and duration, allocations of labor and materials, processing of Drawings, Product Data and Samples, and delivery of products requiring long lead time and procurement. The Project completion schedule shall include DEMARCO's occupancy requirements showing portions of the Project having occupancy priority. The Project Manager shall update and reissue the Project completion schedule as required to show current conditions. If an update indicates that the previously approved Project completion schedule may not be met, the Project Manager shall recommend corrective action to DEMARCO. 2.3.6 Consistent with the various holding documents and utilizing information from the Contractors the Project Manager shall coordinate the sequence of Project and assignment of space in areas where the Contractors are performing Work. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 83 OF 83 2.3.7 The Project Manager shall endeavor to obtain satisfactory performance from each of the Contractors. The Project Manager shall recommend courses of action to DEMARCO when requirements of a Contract are not being fulfilled. 2.3.8 The Project Manager shall monitor the approved estimate of Project Cost. The Project Manager shall show actual costs for activities in progress as estimated for uncompleted tasks by way of comparison with such approved estimate. 2.3.9 The Project Manager shall develop cash flow reports and forecast for the Project and advise DEMARCO as to variances between actual and budgeted on estimated costs. 2.3.10 The Project Manager shall maintain accounting records on authorized Work performed under unit costs, additional Work performed on the basis of actual costs of Labor and materials, and other Work requiring accounting records. 2.3.11 The Project Manager shall develop and improve procedures for the review and processing of applications by Contractors for progress and final payment. 2.3.11.1 Based on the Project Manager's observations and evaluations of each Contractor's Application for Payment, the Project Manager shall review and apply the amounts due the respective Contractors. 2.3.11.2 The Project Manager shall prepare a Project Application for Payment based on the Contractors' Certificates for Payment. 2.3.11.3 The Project Manager's certification for payment shall continue a representation to DEMARCO, based on the Project Manger's determinations at the site as provided in Subparagraph 2.3.12 and on the data comprising the Contractor's Applications for Payment, that to the best of the Project Manager's knowledge, information and belief, the Work has progressed to the point indicated and the quality of the Work is in accordance with the Contract Documents. The foregoing representations are subject to an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, to results of subsequent tests and inspections, to minor deviations from the Contract Documents correctable prior to completion and to specific qualifications expressed by the Project Manager. The issuance of a Certificate for Payment shall further constitute a representation that the Contractor is entitled to payment in the amount certified. 2.3.11.4 The issuance of a Certificate for Payment shall not be a representation that the Project Manager has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed Project means, methods, LMCniques, sequences for the Contractor's own Work, or procedures, (3) reviewed copies of requisitions received from Subcontractors and material suppliers and other data requested by DEMARCO to substitute the Contractor's right to payment or, (4) ascertained how or for what purpose the Contractor has used money preciously paid on account of the Contract Sum. 2.3.12 The Project Manager shall determine in general that the Work of each Contractor is being performed in accordance with the requirements of the Contract Documents, endeavoring to guard DEMARCO against defects and deficiencies in the Work. As appropriate, the Project Manager shall have authority, upon written authorization from DEMARCO, to require additional inspection or testing of the Work in accordance with the provisions of the Contract Documents, whether or not such Work is fabricated, installed or completed. The Project Manager in consultation with DEMARCO may reject Work, which does not conform to the requirements of the Contract Documents. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 84 OF 84 2.3.13 The Project Manager shall schedule and coordinate the sequence of Project in accordance with the Contract Documents and the latest approved Project completion schedule. 2.3.14 With respect to each Contractor's own Work, the Project Manager shall not have control over or charge of and shall not be responsible for Project means, methods, LMCniques, sequences or procedures, or for safety precautions and programs in connections with the Work of each of the Contractors, since these are solely the Contractor's responsibility under the Contract for Project. The Project Manager shall not be responsible for a Contractor's failure to carry out the Work in accordance with the respective Contract Documents. The Project Manager shall not have control over or charge of acts or omissions of the Contractor's, Subcontractors, or their agents or employees, or any other persons performing portions of the Work not directly employed by the Project Manager. 2.3.15 The Project Manager shall transmit to DEMARCO requests for interpretations of the meaning on intent of the Drawings and Specifications, and assist in the resolution of questions that may arise. 2.3.16 The Project Manager shall review requests for changes, assist in negotiating Contractor's proposals, submit recommendations to DEMARCO, and, if they are accepted, prepare Change Orders and Project Change Directives which incorporate DEMARCO's modifications to the Documents. 2.3.17 The Project Manager shall assist DEMARCO in the review, evaluation and documentation of Claims. 2.3.18 The Project Manager shall receive certificates of insurance from the Contractors and forward them to DEMARCO. 2.3.19 In collaboration with DEMARCO, the Project Manager shall establish and implement procedures for expediting the processing and approval of Drawings, Product Data, Samples and other submittals. The Project Manager shall review all Shop Drawings, Product Data, Samples and other submittals from the Contractors. The Project Manager shall coordinate submittals with information obtained in related documents and transmit to DEMARCO those such have been approved by the Project Manager. The Project Manager's actions shall be taken with such reasonable promptness as to cause no delay in the Work or in the activities of DEMARCO of Contractors. 2.3.20 The Project Manager shall record the progress of the Project. The Project Manager shall submit written progress reports to DEMARCO including information on each Contractor and each Contractor's Work, as well as the entire Project showing percentage of completion. The Project Manager shall keep a daily log containing a record of weather, each Contractor's Work on the site, number of workers, identification of equipment, Work accomplished, problems encountered, and other similar relevant data as DEMARCO may require. 2.3.21 The Project Manager shall maintain at the Project site for DEMARCO one record copy of all Contracts, Drawings, Specifications, addenda, Change Orders and other modifications, in good order and marked currently to record changes and selections made during Project, and in addition, approved Drawings, Product Data, Samples and similar required submittals. The Project Manager shall maintain records, in duplicate, of principal building layout lines, engineering specifications, electrical drawing layouts, as well as any other relevant data or drawing required to perform the services required, and as certified by a qualified surveyor or professional engineer. The Project Manager shall make all such records available to DEMARCO and upon completion of the Project shall deliver them to DEMARCO. 2.3.22 The Project Manager shall arrange for the delivery, storage, protection and security of DEMARCO purchased materials, systems and equipment that are a part of the Project until such items are incorporated into the Project. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 85 OF 85 2.3.23 With DEMARCO's maintenance personnel or consent with when absent, the Project Manager shall review the Contractor's final Customer Completion Certificate, or observe as available the testing and start-up of the retrofit systems and equipment. 2.3.24 When the Project Manager considers each Contractor's Work or a designated portion thereof substantially complete, the Project Manager shall, jointly with the Contractor, prepare a list of incomplete of unsatisfactory items and a schedule for their completion. The Project Manager shall assist DEMARCO in conducting inspections to determine whether the Work or designated portion thereof is substantially complete. 2.3.25 The Project Manager shall coordinate the correction and completion of the Work. Following issuance of a Certificate of Substantial Completion of the Work or a designated portion thereof, the Project Manager shall evaluate the completion of the Work of the Contractors and make recommendations to DEMARCO when Work is ready for final inspection. The Project Manager shall assist DEMARCO in conduction of final inspections, or receive suitable assurances from Quality Control of their final completion. 2.3.26 The Project Manager shall secure and transmit to DEMARCO warranties and similar submittals required by the Contract Documents and deliver all keys, manuals, record drawings and maintenance stocks to DEMARCO. The Project Manager shall forward to DEMARCO a final Project Application for Payment upon compliance with the requirements of the Contract Documents. 2.3.27 Duties, responsibilities and limitations of authority of the Project Manager as set forth in the Contract Documents shall not be restricted, modified or extended without written consent of DEMARCO, Project Manager, and Contractors. Consent shall not be unreasonably withheld. ARTICLE 3 ADDITIONAL SERVICES 3.1 GENERAL 3.1.1 The services described in this Article 3 are not included in Basic Services unless so identified in Article 13, and they shall be paid for by DEMARCO as provided in this Agreement, in addition to the compensation for Basic Services. The Optional Additional Services described under paragraph 3.3 shall only be provided if authorized or confirmed in writing by DEMARCO. If services described under Contingent Additional Services in Paragraph 3.2 are required due to circumstances beyond the Project Manager's control, the Project Manager shall notify DEMARCO prior to commencing such services. If DEMARCO deems that such services described under paragraph 3.2 are not required DEMARCO shall give prompt written notice to the Project Manager. If DEMARCO indicates in writing that all or part of such Contingent Additional Services are not required, the Project Manager shall have no obligation to provide those services. 3.2 CONTINGENT ADDITIONAL SERVICES 3.2.1 Providing services required because of significant changes in the Project including, but not limited to, changes in size, quality, complexity or DEMARCO's schedule. 3.2.2 Providing consultation concerning replacement of Work damaged by fire or other cause during Project, and furnishing services required in connection with the replacement of such Work. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 86 OF 86 3.2.3 Providing services made necessary by the termination or default of DEMARCO or a Contractor, by major defects or deficiencies in the Work of a Contractor, or by failure of performance of either DEMARCO or Contractor under a Contract for Project. 3.2.4 Providing services in evaluating an extensive number of claims submitted by a Contractor or others in connection with the Work. 3.2.5 Providing services in evaluating an extensive number of claims submitted by a Contractor or others in connection with the Work. 3.3 OPTIONAL ADDITIONAL SERVICES 3.3.1 Providing services relative to the recruitment, selection, and training of personnel, acquisition of future facilities, systems implementation and integration, and equipment purchases. 3.3.2 Providing services to investigate existing conditions or facilities or to provide measured drawings thereof. 3.3.3 Providing services to verify the accuracy of drawings or to provide measured drawings thereof. 3.3.4 Providing services to verify the accuracy of drawings or other information furnished by DEMARCO. 3.3.5 Providing services required for or in connection with DEMARCO's selection or procurement of furniture, furnishings and related equipment included in fee. 3.3.6 Providing services for tenant improvements. 3.3.7 Providing any other services not otherwise included in this Agreement. ARTICLE 4 OWNER'S RESPONSIBILITY 4.1 DEMARCO shall provide full information regarding requirements for the Project including a program which shall set forth DEMARCO's objective, schedule, constraints and criteria, including space requirements and relationships, flexibility, expansion capabilities, special equipment, systems, and site requirements. 4.2 DEMARCO shall establish and update an overall budget for the Project based on consultation with the Project Manager which shall include the Project Cost, DEMARCO's other costs and reasonable contingencies related to all of these costs. 4.3 If requested by the Project Manager, DEMARCO shall furnish evidence that financial arrangements have been made to fulfill DEMARCO's other costs and reasonable contingencies related to all of these costs. 4.4 If requested by the Project Manager, DEMARCO shall furnish evidence that financial arrangements have been made to fulfill DEMARCO's obligations under this Agreement. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 87 OF 87 4.5 DEMARCO shall designate a representative authorized to act on DEMARCO's behalf with respect to the Project. DEMARCO or such authorized representative, shall render decisions in a timely manner pertaining to documents submitted by the Project Manager in order to avoid unreasonable delay in the orderly and sequential progress of the Project Manager's service. 4.6 DEMARCO shall furnish structural, mechanical, chemical, air and water pollution tests, tests for hazardous materials, and other laboratory and environmental tests, inspections and reports required by law or the Contract Documents. 4.7 DEMARCO shall furnish all legal, accounting and insurance counseling services as may be necessary at any time for the Project, including auditing services DEMARCO may require to verify the Contractors' Applications for Payment or to ascertain how or for what purposes the Contractors have used the money paid by or on behalf of DEMARCO. 4.8 DEMARCO shall furnish the Project Manager with a sufficient quantity of Project Documents. 4.9 The services, information and reports required by Paragraph 4.6 through 4.8 shall be furnished at DEMARCO's expense, and the Project Manager shall be entitled to rely upon the accuracy and completeness thereof. 4.10 Prompt written notice shall be given by DEMARCO or to the Project Manager if DEMARCO becomes aware of any fault or defect in the Project or nonconformance with the Contract Documents. 4.11 DEMARCO reserves the right to perform Project and operations related to the Project with DEMARCO's own forces, and to award contracts in connection with the Project which are not part of the Project Manager's responsibilities under this Agreement. The Project Manager shall notify DEMARCO if any such independent action will interfere with the Project Manager's ability to perform the Project Manager's responsibilities under this Agreement. When performing Project or operations related to the Project, DEMARCO agrees to be subject to the same obligations and to have the same rights as the Contractors. 4.12 Information or services under DEMARCO's control shall be furnished by DEMARCO with reasonable promptness to avoid delay in the orderly progress of the Project Manager's services and the progress of the Work. ARTICLE 5 PROJECT COSTS 5.1 DEFINITION 5.1.1 The Project Costs shall be the total cost or estimated cost of DEMARCO of all elements of the Project. 5.1.2 The Project Cost shall include the cost a current market rates of labor and materials furnished by DEMARCO and equipment designed, specified, selected, or specially provided for by DEMARCO, plus a reasonable allowance for the Contractors' overhead and profit. In addition, a reasonable allowance for contingencies shall be included for market conditions at the time Except as provided in Subparagraph 5.1.3; Project cost shall also include the compensation of the Project Manager and Project Manager's consultants. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 88 OF 88 5.1.3 Project Cost does include the compensation of DEMARCO and Owners' consultant, costs of the land, right-of-way, financing or other costs which are the responsibility s DEMARCO as provided in Article 4. If any portion of the Project Manager's compensation is based upon a percentage of Project Cost, then Project Cost, for the purpose of determining such portion, shall include the compensation of the Project Manager or Project Manager's consultants. 5.2 RESPONSIBILITY FOR PROJECT COST 5.2.1 Evaluations of DEMARCO's Project budget, preliminary estimates of Project Cost and detailed estimates of Project Cost prepared by the Project Manager represent the Project Manger's best judgement as a person or entity familiar with the Project industry. It is recognized, however, that neither the Project Manager nor DEMARCO has control over the cost of labor, materials or equipment, over Contractor's methods of determining bid prices, or over competitive bidding, market or negotiating conditions. Accordingly, the Project Manager cannot and does not warrant or represent that bids or negotiated prices will not vary from the Project budget proposed, established or approved by DEMARCO, or from any cost estimate or evaluation prepared by the Project Manger. 5.2.2 No fixed limit of Project Cost shall be established as a condition of this Agreement by the furnishing, proposal or establishment of a Project budget unless such fixed limit has been agreed upon in writing and signed by the parties hereto. If such a fixed limit has been established, the Project Manager shall be permitted to include contingencies for design, bidding, and price escalation, and shall consult with DEMARCO to determine what materials, equipment, component systems and types of Project are to be included in the Project Documents, to suggest inclusion of alternate bids in the Project Documents to adjust the Project Cost to the fixed limit. Fixed limits, if any, shall be increased in the amount of any increase in the Contract Sums occurring after execution of the Contracts for Project. 5.2.3 If the Bidding or Negotiating Phase has not commenced within 90 days after submittal of the Project Documents to DEMARCO, any Project budget or fixed limit of Project Cost shall be adjusted to reflect changes in the general level of prices in the Project industry between the date of submission of the Project Documents to DEMARCO and the date on which proposals are sought. 5.2.4 If a fixed limit of Project Cost (adjusted as provided in Subparagraph 5.2.3) is exceeded by the sum of the lowest bonafide bids or negotiated proposals plus the Project Manager's estimate or other elements of Project Cost for the Project, DEMARCO shall: 11) give written approval or an increase in such fixed limit; 12) authorize rebidding or renegotiating of the Project within a reasonable time; 13) if the Project is abandoned, terminate in accordance with paragraphs 3; or 14) cooperate in revising the Project scope and quality as required to reduce the Project Cost. ARTICLE 6 PROJECT SUPPORT ACTIVITIES 6.1 Project Support activities, if provided by the Project Manager, shall be governed by separate contractual agreements unless otherwise provided in Article 13. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 89 OF 89 6.2 Reimbursable expenses listed in Article 13 for Project support activities nay be subject to trade discounts, rebates, refunds and amounts received from sales or surplus materials and equipment which shall accrue to DEMARCO, and the Project Manager shall make provisions so that they can be accrued. ARTICLE 7 OWNERSHIP AND USE OF OWNER'S DRAWINGS, SPECIFICATIONS AND OTHER DOCUMENTS 7.1 The Drawings, Specifications and other Documents prepared by DEMARCO are instruments of DEMARCO's service through which the Work to be executed by the Contractors is described. The Project may retain one record set. The Project Manager shall not own or claim a copyright in the Drawings, Specifications and other Documents prepared by PG&E ES, DEMARCO, OR CUSTOMER; and copies thereof furnished to the Project Manager, are for the use solely with the respect to this Project. They are not to be used by the Project Manager on other Projects or for additions to this Project outside the scope of the Work without the specific written consent of DEMARCO. The Project Manager is granted a limited license to use and reproduce applicable portions of the Drawings. Specifications and other documents prepared by the Architect appropriate to and for use in the performance of the Project Manager's services under this Agreement. All copies made under this license shall bear the statutory copyright notice, if any, shown on the Drawings, Specifications and other Documents prepared by the Architect of such drawing. Submittal or distribution to meet official regulatory requirements or for other purposes in connection with this Project is not to be construed as publication in derogation of the Architect's copyright or other reserved rights. This Agreement shall be specifically enforceable in accordance with applicable law in any court having jurisdiction thereof. ARTICLE 8 TERMINATION, SUSPENSION OR ABANDONMENT 9.1 This Agreement may be terminated by either party upon not less than seven days' written notice should the other party fail substantially to perform in accordance with the terms of this Agreement through no fault of the party initiating the termination. 9.2 If the Project is suspended by DEMARCO for more than 30 consecutive days, the Project Manager shall be compensated for services performed prior to notice of such suspension. When the Project is resumed, the Project Managers' compensation shall be equitable adjusted to provide for expenses incurred in the interruption and resumption of the Project Manager's services. 9.3 This Agreement may be terminated by DEMARCO upon not less than seven days' written notice to the Project Manager in the event that the Project is permanently abandoned. If the Project is abandoned by DEMARCO for more than 90 consecutive days, the Project Manager may terminate this Agreement by giving written notice. 9.4 Failure of DEMARCO to make Payments to the Project Manager in accordance with this Agreement shall be considered substantial nonperformance and cause for termination. 9.5 If DEMARCO fails to make payment when due the Project Manager for services and expenses, the Project Manager may, upon seven days' written notice to DEMARCO, suspend performance of services under this Agreement. Unless payment in full is received by the Project Manager within seven days of the date of the notice, the suspension shall take effect without further notice. In the event of a suspension of services, the Project Manager shall have no liability to DEMARCO for delay or damage caused to DEMARCO because of such suspension of services. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 90 OF 90 9.6 In the event of termination not the fault of the Project Manager, the Project Manager shall be compensated for services performed prior to termination, together with Reimbursable Expenses then due and all Termination Expenses as defined in Paragraph 9.7 9.7 Termination Expenses are those costs directly attributable to termination for which the Project Manager is not otherwise compensated. ARTICLE 9 MISCELLANEOUS PROVISIONS 10.1 Unless otherwise provided this Agreement shall be governed by the law of the place where the Project is located. 10.2 Terms in this Agreement shall have the same meaning as those in the edition of AIA Document A201/Cma. General Conditions of the Contract for Project. Project Manager-Advisor Edition, current as of the date of this Agreement. 10.3 Causes of action between the parties to this Agreement pertaining to acts of failures to act shall be deemed to have accrued and the applicable status of limitations shall commence to run not later than either the date of Substantial Completion for acts or failures to act occurring prior to Substantial Completion, or the date of issuance of the final Project Certificate for Payment for acts or failures to act occurring after Substantial Completion. 10.4 Waiver of Subrogation. DEMARCO and Project Manager waive all rights against each other and against PG&E ES, the Contractors, consultants, agents and any of them, for damages, but only to the extent covered by property insurance during Project, except such rights as they may have to the proceeds of such insurance as set forth in the edition of AIA Document A201/Cma General Conditions of the Contract for Project, Project Manager-Advisor Edition, current as of the date of this Agreement. DEMARCO and Project Manager each shall require similar waivers from their Contractors, Architect, consultants, agents, and persons or entities awarded separate contracts administered under DEMARCO's own forces. 10.5 DEMARCO and Project Manager, respectively, bid themselves, their partners, successors, assigns and legal representatives to the other party to this Agreement and to the partners, successors, assigns and legal representatives of such other party with respect to all covenants of this Agreement. Neither Owner nor Project Manager shall assign this Agreement without the written consent of the other. 10.6 This Agreement represents the entire and integrated agreement between DEMARCO and Project Manager and supercedes all prior negotiations, representations or agreements, either written or oral. This Agreement may be amended only by written instrument signed by both Owner and Project Manager. 10.7 Nothing contained in this Agreement shall create a contractual relationship with or a cause of action in favor of a third party against either DEMARCO or Project Manager. 10.8 Unless otherwise provided in this Agreement, the Project Manager and the Project Manager's consultants shall have no responsibility for the discovery, presence, handling, removal or disposal of or exposure of persons to hazardous materials in any form at the Project site, including but not limited to asbestos, asbestos products, polychlorinated bipheryl (PCB) of other toxic substances. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 91 OF 91 ARTICLE 10 INSURANCE 11.1 PROJECT MANAGER'S LIABILITY INSURANCE 11.1.1 The Project Manager shall purchase from and maintain in a company or companies lawfully authorized to do business in the jurisdiction In which the Project is located such insurance as will protect the Project Manager from claims set forth below which may arise out of or result from the Project Manager's operations under this Agreement and for which the Project Manager may be legally liable. 1. Claims under workers compensation, disability benefit and other similar employee benefit acts which are applicable to the operation to be performed; 2. Claims for damages because of bodily injury, occupational sickness or disease, or death of the Project Manager's employees; 3. Claims for damages because of bodily injury, sickness, or disease, or death of any person other than the Project Manager's employees; 4. Claims for damages insured by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirectly related to employment of such person by the Project Manager, or (2) by another person; 5. Claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom; 6. Claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle. 11.1.2 The insurance required by subparagraph 11.1.1 shall be written for not less than limits of liability specified in Article 13 or required by law, whichever coverage is greater. Coverages, whether written on an occurrence or claims-made basis, shall be maintained without interruption from date of commencement of operations under this Agreement until date of final Payment and termination of any coverage required to be maintained after final payment. ARTICLE 11 PAYMENTS TO THE PROJECT MANAGER 11.1 DIRECT PERSONNEL EXPENSE 11.1.1 Direct Personnel Expense is defined as the direct salaries of the Project Manager's personnel engaged on the Project and the portion of the cost of their mandatory and customary contributions and benefits related thereto, such as employment taxes and other statutory employee benefits, insurance, sick leave, holidays, vacations, pensions and similar contributions and benefits. 11.1.2 Salaries and fringes of persons designated as Project Managers for Projects listed in Attachment "B" as well as salaries; fringes of office personnel are included in the fee as shown in Article 13. The Project Manager's home office overhead is also included in the fee arrangement with the exception of those items identified in Article 11.2 Reimbursable expenses and as outlines in Attachment "C". STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 92 OF 92 11.1.3 The Project Manager is required to utilize DEMARCO personnel in each area of the Project, and when these positions are either unable to satisfactorily perform or are entirely absent from the organization, the Project Manager may utilize their own staff and bill DEMARCO for the Direct Personnel Expense, coupled with a letter of recommendation to hire. This recommendation should include opinions regarding types of personnel, quantity, education, and experience backgrounds, plus any and all other qualification identifications used to assist in the recruiting, selection processing, training, and management of such personnel. 11.2 REIMBURSEMENT EXPENSES 11.2.1 Reimbursement Expenses are in addition to compensation for Basic and Additional Services and include expenses incurred by the Project Manager and Project Manager's employees and consultants in the interest of the Project, as identified in the following Clauses. 11.2.1 Expense of transportation in connection with the Project; expenses in connection with authorized out-of-town travel; long-distance communications; and fees paid for securing approval of authorities having jurisdiction over the Project. 11.2.1.2 Expense of transportation in connection with the Project; expenses in connection with authorized out-of-town travel; long-distance communications; and fees paid for securing approval of authorities having jurisdiction over the Project. 11.2.1.2 Expense of reproductions, postage, express deliveries, electronic facsimile transmissions and handling of Drawings, Specifications and other documents. 11.2.1.3 If authorized in advance by DEMARCO, expense of overtime work requiring higher than regular rates. 11.2.1.4 Insurance- No additional charges for Insurance. 11.3 PAYMENTS ON ACCOUNT OF BASIC SERVICES 11.3.1 The payment schedule, as set forth in Paragraph 12.1, is the minimum payment under this Agreement. 11.3.2 Subsequent payments for Basic Services shall be made monthly within and, where applicable, shall be in proportion to services performed within each phase of service, on the basis set forth in Subparagraph 12.2.1. 11.3.3 If and to the extent that the time initially established in Subparagraph 12.5.1 of this Agreement is exceeded or extended through no fault of the Project Manager, compensation for any services rendered during the additional period of time shall be computed in the manner set forth in Subparagraph 12.3.1. 11.3.4 When compensation is based on a percentage of Project Cost and any portions of the Project are deleted or otherwise not constructed, compensation for those portions of the Project shall be payable to the extent of services are performed on those portions, in accordance with Subparagraph 12.2.1 based on (1) the lowest bona fide bids or negotiated proposals, or (2) if no such bids or proposals are received, the latest approved estimate of such portions of the Project. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 93 OF 93 11.4 PAYMENTS ON ACCOUNT OF ADDITIONAL SERVICES AND REIMBURSEABLE EXPENSES 11.4.1 Payments on account of the Project Manager's Additional Services and for Reimbursable Expenses shall be made monthly upon presentation of the Project Manager's statement of services rendered or expenses incurred. 11.5 PAYMENTS WITHHELD 11.5.1 No deduction shall be made from the Project Manager's compensation on account of penalty, liquidated damages or other sums withheld from payments to Contractors, or on account of the cost of changes in Work other than those for which the Project Manager has been found to be liable. 11.6 PROJECT MANAGER'S ACCOUNTING RECORDS 11.6.1 Records of reimbursable Expenses and expenses pertaining to Additional Services and Services performed on the basis of a multiple of Direct Personnel Expense shall be available to DEMARCO or DEMARCO's authorized representatives at mutually convenient times. ARTICLE 12 BASIS OF COMPENSATION DEMARCO shall compensate the Project Manager as follows: 12.1 BASIC COMPENSATION 12.2.1 For Basic Services, as described in Article 2, and any other services included in Article 13 as part of Basic Services. Basic Compensation shall be computed as follows: 1. The Project Manager shall be paid a fee equal to for timely completion of their responsibilities and scope of work as outlined by DEMARCO and PG&E ES. 12.3 COMPENSATION FOR ADDITIONAL SERVICES 12.3.1 FOR ADDITIONAL SERVICES OF THE Project MANAGER, as described in Article 3, and any other services included in Article 13 as Additional Services, compensation shall be computed according to ATTACHMENT "D" of this Agreement. 12.4 REIMBURSABLE EXPENSES See Attachment "C". 12.4.1 FOR REIMBURSABLE EXPENSES, as described in Paragraph 10.2 and any other items included in Article 13 as Reimbursable Expenses, a multiple of One(1) times the expenses incurred by the Project Manager and the Project Manager's employees and consultants in the interest of the Project. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 94 OF 94 12.5 ADDITIONAL PROVISIONS 12.5.1 IF THE BASIC SERVICES covered by this Agreement have not been completed within Twelve (12) months or the date hereof, through no fault of the Project Manager, extension of the Project Manager's services beyond that time shall be compensated as provided in Subparagraphs 10.3.3 and 10.3.1. 12.5.2 Payments are due and payable Thirty (30) days from the date of the Project Manager's invoice. Amounts unpaid Thirty (30) days after the invoice date shall bear interest at the rate entered below, or in the absence thereof at the legal rate prevailing from time to time at the principal place of business of the Project Manger. Interest rate is Prime plus Two(2) points. (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at DEMARCO's and Project Manager's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Specific legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers) 12.5.3 The rates and multiples set forth for Additional Services shall be annually adjusted in accordance with normal salary review practices of the Project Manager. ARTICLE 13 OTHER CONDITIONS OR SERVICES SEE Attachment "C" 13.1 LIMITS ON INSURANCE The Insurance required by Article 9 shall be written for not less than the following limits required by law: Project Manager shall furnish and maintain a liability policy having DEMARCO a Co-Insured with minimum coverage of One Million Dollars ($1,000,000.00). This Agreement is dated the 20th day of December, 1999. The laws of the State of Texas shall govern this Strategic Partnership Agreement and venue is the County of Travis. The parties executing this Agreement warrant and guarantee that they have full individual and/or corporate authority to enter into such an Agreement. All parties have read, understood, and agreed to the terms and conditions of this Strategic Partnership Agreement. BY: LMCLite Applied Sciences, Inc. BY: DeMarco Energy Systems of America, Inc. By: /S/ Tim Carnes By:/S/ Victor M. DeMarco ---------------------------------- ---------------------------- Tim Carnes, President Victor M. DeMarco, President December 20, 1999 December 29, 1999 ---------------------------------- ---------------------------- Date Date STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 95 OF 95 ATTACHMENT "A" PROJECT DESCRIPTION The timely assessment and completion of the Projects of DEMARCO as submitted specifically as energy efficient lighting retrofit service work orders issued by Pacific Gas and Electric Energy Services (hereinafter, "PG&E ES") and as they relate to the management of the sub-contractors and relationships with those individuals, agents, contractors, and/or companies involved with lighting retrofit services for and on behalf of DEMARCO projects. Where this project is not limited to a geographic region, but wherever it is feasible to perform lighting retrofit and energy management services as determined by DEMARCO and LMC. Each Work Order submitted by PG&E ES to DEMARCO shall be considered an attachment to this agreement as periodically outlined in Attachment "B", and shall become subject to the terms of this agreement. The scope of work for each location shall be determined by a separate agreement entitled as TURNKEY ENERGY EFFICIENT LIGHTING RETROFIT AGREEMENT agreed to by and between the customer and DEMARCO or as otherwise determined by a PG&E ES energy services agreement, and shall be included as a subsection to Attachment "B" of this agreement. Additional terms of this project and relationship are submitted as ATTACHMENT "C." STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 96 OF 96 ATTACHMENT "B" PROJECT LISTING FACILITY # PROJECT LOCATION BUDGET TOTAL PROJECTS BUDGET: $____________ STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 97 OF 97 ATTACHMENT "C" REIMBURSABLE EXPENSES (Not Included in Fee Compensation) Cost of all travel and transportation related expenses - (Both home office and project locations) Project related long distance communications cost. All fees and permits, should they be required. Cost of reproductions and express mail delivery. Cost of Project site office requirements. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 98 OF 98 ATTACHMENT "D" ADDITIONAL PROJECTS At DEMARCO's discretion should additional Projects not included in Attachment "A" be assigned to the Project Manager and those additional Projects run concurrent to those in Attachment "B" a fee to be agreed upon at such date for the costs associated with recruiting, selection processing, and training will be added as a portion of overhead to LMC, and added after the standard bid has been. All other terms and conditions of this Contract shall be applicable STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 99 OF 99 ATTACHMENT "E" BASIS OF COMPENSATION The basis for compensation is as follows: A) Conducting energy audits, energy feasibility studies, scope of work assessment, project bidding, lighting system removal or demolition, lighting system installation or retrofit, and energy management services for commercial, industrial, and institutional applications. B) Identifying, contracting and managing the services of field contractors/personnel to perform lighting retrofit services. C) Researching the procedures, LMCnology/products, and uniqueness in assemblage currently specified by Pacific Gas & Electric Energy Services (hereinafter, "PG&E-ES") as an acceptable energy efficient lighting retrofit, and then replicating such procedures, LMCnology/products, and uniqueness in assemblage as a DEMARCO commercial facility retrofit standard. D) Engineering and implementing a system to manage the logistics of personnel and inventory requirements to conduct lighting retrofit services. E) Maintaining a `Best In Class' reputation as maintained by PG&E-ES and as determined by overall market standards. F) Organizing the timely delivery standards specified by PG&E-ES and as outlined within their client sales contracts and work orders. G) Maintaining a standard of excellence in customer interaction and satisfaction established as tradition by PG&E-ES and jointly determined as the benchmark for an acceptable customer retrofit and client contract fulfillment. H) Represent LMC services as being performed by DEMARCO and conducted with the highest standards in customer satisfaction and service. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 100 OF 100 EX-10 9 exhibit10-03.txt SLI STRATEGIC PARTNERSHIP AGREEMENT EXHIBIT 10.03 STRATEGIC PARTNERSHIP AGREEMENT This Agreement is by and between SLi Lighting Solutions, Inc. (hereinafter, "SLi") with its principal place of business at 11999 Plano Road, Suite 190, Dallas, Texas 75023 and DeMarco Energy Systems of America, Inc. (hereinafter, "DEMARCO")with its principal place of business at PO Box 201057, Austin, Texas 78720-1057. NATURE OF THE PARTNERSHIP It is with mutual understanding between SLi and DEMARCO to enter into a strategic partnership agreement, where DEMARCO has relationships and contracts with various organizations to perform energy efficient lighting retrofits and energy management services, and SLi is in the energy efficient lighting business and agrees to become the primary company rendering for DeMarco services such as: energy audits, energy-related feasibility studies, lighting system removal/demolition, lighting system installation/retrofit, and energy management services for commercial, industrial and institutional applications. The relationship description, contributions, terms, conditions, and other covenants are set forth herein. 1) PURPOSE. The purpose of this agreement is to engage SLi to perform as Subcontractor for the services described with the attached AIA Document A401-1997 for the contracts and/or work orders issued to DEMARCO. DEMARCO will perform their duties and responsibilities as described in the AIA document, plus any other duties and responsibilities required to assist SLi with performing their obligations. Each party will perform all individual duties, responsibilities and requirements as set forth in this agreement and the AIA agreement. 2) COMMENCEMENT. Effective immediately, DEMARCO will issue work orders relating to lighting systems installation, retrofit and/or demolition to SLi, and SLi agrees to perform the services required of each work order or contract for and on behalf of DEMARCO. 3) DURATION. The duration of this agreement is perpetual until such time either party wishes to terminate the relationship, and does so by furnishing written notice of their intent to terminate at least 60 days prior to the effective date. All contracts in-works, services being performed at that time and work orders under construction by SLi will be performed through completion, regardless of time requirements to fulfill the project's work scope. Failure to perform will result in a reduction in final payment, based upon percentage of completion, less reasonable expenses. 4) MUTUAL NON-DISCLOSURE. It is understood that DEMARCO and SLi have individually entered into Mutual Non-Disclosure Agreements with certain companies, and each agrees to honor and carry-out the terms of the others agreement(s), unless otherwise agreed to in writing and attached hereto. A mutual Non-Disclosure agreement has been executed between DEMARCO and SLi and is attached hereto. 5) NON-COMPETE. DEMARCO and SLi agree to not compete with each other for the same contracts or work orders for the duration of this agreement. It is understood that each have individually negotiated and/or earned contracts prior to this agreement, or have contracts or work orders not yet issued, but are considered in process to be issued, and that these work orders or agreements are not in direct competition between DEMARCO and SLi. It is further agreed each company will establish a system to notify the other of contracts under negotiation and subsequent date awarded, and that either company will not individually bid for the other company's work contracts without receiving prior written permission to conduct such activities from that company. If for whatever reason a contract (regardless of status `under negotiation' or `awarded') is considered to be in competition between either company, then the default decision shall go to SLi, unless it is reasonably determined otherwise by each party, or that DEMARCO had previously made initial contact or introduction first and was capable of performing services required to fulfill its obligations under such contract. 6) COMPENSATION FOR SERVICES. DEMARCO agrees to pay to SLi the entire bid amount for each contract awarded to DEMARCO for the services agreed to be performed and completed by SLi. It is understood by each party that each bid submitted by SLi to DEMARCO shall include and reflect a five percent profit for DEMARCO, calculated and added to the sum total of SLi's bid. Upon receipt of final payment for each project, DEMARCO will retain their five percent profit and distribute the balance to SLi within ten days of receipt, unless otherwise agreed to in writing prior to each project's bid submission. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 101 OF 101 7) PERFORMANCE REQUIREMENTS. SLi agrees to perform the services, duties and obligations as outlined in the contracts, work orders and Articles of this Agreement to the best of their abilities, and based upon their historical performance and capabilities of providing such services, duties, and obligations. 8) DEFAULT AND REMEDIES. Upon determination that a default or breach has occurred under any portion of this agreement by either party, the affected party shall give 30 days to the defaulting party to cure the default. If the default has not been cured according to the terms of this agreement or with reasonable satisfaction of the affected party, this agreement shall become terminated within 30 days. Upon termination of this Agreement, both parties shall fulfill all outstanding obligations incurred prior to the date of termination through to the effective termination date. 9) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute 1 (one) Agreement, binding on all parties hereto, notwithstanding that all the parties have not signed the same counterpart. 10) PRIMARY CONTRACT. The contents and terms of this document serve as the primary agreement and supercede the content and terms reflected in the AIA A401-1997 contract, unless otherwise stated herein. This Agreement is dated the 24th day of May, 2000. The laws of the State of Texas shall govern this Strategic Partnership Agreement and venue is the County of Travis. The parties executing this Agreement warrant and guarantee that they have full individual and/or corporate authority to enter into such an Agreement. All parties have read, understood, and agreed to the terms and conditions of this Strategic Partnership Agreement. BY: SLi Lighting Solutions, Inc. BY: DeMarco Energy Systems of America, Inc. /S/ Rick Spilde /S/ Victor M. DeMarco ----------------------------- ----------------------------------- Rick Spilde, Officer Victor M. DeMarco, President Date May 24, 2000 Date May 24, 2000 STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 101 OF 101 EX-10 10 exhibit10-04.txt FLORIDA HEAT PUMP OEM AGREEMENT EXHIBIT 10.04 OEM AGREEMENT This agreement effective this _________ day of________, 19__ is by and between FHP MANUFACTURING DIVISION of Harrow Products, Inc. (FHP) with its principal place of business at 601 N.W. 65th Court, Fort Lauderdale, Florida 33309 and_________________________________ having its principal place of business at _______________ in the State of _____________. WHEREAS, FHP manufactures and sells certain equipment known as Water Source Heat Pump Units and Accessories (Equipment) and is willing to sell the Equipment to_____________ for the purpose of resale; and ________________is willing to purchase the Equipment for the purpose of resale to its customers; the parties agree as follows: I. Agreement to Sell.________________________agrees to purchase from FHP, and FHP agrees to sell the Equipment described in Exhibit A, attached hereto. 2. Price. Prices to be paid to FHP are set forth in Exhibit A hereto. The prices for the Equipment shall be firm for a period of three (3) months. FHP may increase the prices upon sixty (60) days written notice to _______________________. 3. Orders and Scheduling. All orders with immediate release for production and shipment shall be forwarded to FHP with the required shipping date adequately noted. All orders shall be subject to the provisions of this Agreement and no conflicting or additional terms or conditions shall apply. 4. Payment and Shipping. All Equipment shall be shipped F.O.B. factory, freight prepaid to destination as stated in order, and FHP's delivery to the carrier shall be deemed delivery to ________________. After shipment, FHP shall send its invoices for Equipment and for the prepaid freight to ________________, stating the total purchase price of the Equipment shipped, and any sales, use or excise tax applicable to the sale. Each invoice shall be paid to FHP on, or before the l5th day of the month following, for the previous month's shipments. STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 103 OF 103 5. Warranty and Indemnity. FHP warrants that the Equipment shall be free from defects in material and workmanship under normal use and service for a period of one (I) year. The effective date of this warranty shall be the completion of installation of Equipment or sixty (60) days from the actual shipment of the Equipment from the factory, whichever is earlier. The warranty does not include the air filter. The warranty obligates FHP to replace, free of charge, any part or parts that show evidence of being defective in material and workmanship and are deemed so defective by authorized personnel of FHP. The part must be returned for replacement with the proper information as required. FHP assumes no obligation for labor required to replace the defective part or parts nor for freight or postage required to return or to secure the part. Warranty does not include breakage or rupture of water tubing and/or water condenser coil when subjected to freezing temperatures. The warranty is a limited warranty, parts only. This warranty is in lieu of any other warranties, express or implied, including any implied or merchantability or fitness for particular purpose. FHP agrees to hold harmless ____________, its agents, officers, directors, and employees from and against any claims, demands, expenses, or suits which may be brought against any of the indemnified parties hereunder for personal injury or death, or damage to tangible property other than the Equipment, resulting from FHP's defective design or manufacture of the Equipment. 6. Product Changes> FHP reserves the right from time to time, at its discretion, to change, modify or discontinue production or delivery of the Equipment. FHP shall give ______________________ written notice of any product change, modification or discontinue of production of Equipment at least ninety (90) days in advance of such action. 7. Trademarks . ______________________ shall not use any trademarks or tradenames owned by FHP in connection with the resale of Equipment 8. Inability to Perform. FHP shall be excused from any delay or failure in performance hereunder caused by labor disputes, governmental requirements, Acts of God, inability to secure materials or transportation facilities, and other causes beyond FHP's control. If any such cause should continue for more than ninety (90) days, ________________________________ shall have the right, upon written notice to FHP, to terminate this agreement. 9. Nature of this Agreement Nothing in this agreement shall restrict FHP's right to sell Equipment to others. 10. Termination. This agreement may be terminated by either party without cause upon sixty (60) days' written notice to the other party. Upon termination of this agreement, both parties shall fulfill all outstanding obligations incurred prior to the date of termination. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers. DeMarco Energy Systems of America, Inc. Date: March 2, 1999 By:/S/ Victor M. DeMarco ----------------------------- ------------------------------- Victor M. DeMarco FHP MANUFACTURING DIVISION, Harrow Products, Inc. Date: March 2, 1999 By:/S/ Chris Smith ----------------------------- ------------------------------- Chris Smith, VP Sales/Marketing STRATEGIC PARTNERSHIP AGREEMENT BETWEEN INITIALS ----- ----- DEMARCO ENERGY SYSTEMS OF AMERICA, INC. AND SLI LIGHTING SOLUTIONS, INC. PAGE 104 OF 104 EX-10 11 exhibit10-05.txt AMENDED FLORIDA HEAT PUMP AGREEMENT EXHIBIT 10.05 FHP MANUFACTURING COMPANY OEM AGREEMENT This agreement, effective the 5th day of February, 2001 is by and between FHP MANUFACTURING Company (FHP) with its principal place of business at 601 NW 65th Court, Ft. Lauderdale, Florida 33309 and having its principal place of business at in the State / Country of ______________. WHEREAS, FHP manufactures and sells certain Equipment and is willing to sell the Equipment to for the purpose of resale; and is willing to purchase the Equipment for the purpose of resale to its customers; the parties agree as follows: 1. AGREEMENT TO SELL. agrees to purchase from FHP, and FHP agrees to sell the Equipment. FOR DEMARCO ENERGY SYSTEMS PATENTED APPLICATIONS ONLY. 2. PRICE, Prices to be paid to FHP are set forth in Exhibit A. hereto. The prices for the Equipment shall be firm for a period of three (3) months. FHP may increase the prices upon sixty (60) days written notice to ___________________. 3. ORDERS AND SCHEDULING. All orders with immediate release for production and shipment shall be forwarded to FHP with the required shipping date adequately noted. All orders shall be subject to the provisions of this Agreement and no conflicting or additional terms or conditions shall apply. 4. PAYMENT AND SHIPPING. All Equipment shall be shipped F.O.B. factory, freight prepaid to destination as stated in order, and FHP's delivery to the carrier shall be deemed delivery to . After shipment, FHP shall send its invoices for Equipment and for the prepaid freight to , stating the total purchase price of the Equipment shipped, and any sales, use or excise tax applicable to the sale. 5. WARRANTY AND INDEMNITY. FHP warrants that the Equipment shall be free from defects in material and workmanship under normal use and service for a period of one (1) year on all parts and an additional (8) month on the compressor. The effective date of this warranty shall be the completion of installation of Equipment or sixty (60) days from the actual shipment of the Equipment from the factory, whichever is earlier. The warranty obligates FHP to replace, free of charge, any part or parts that show evidence of being defective in material and workmanship and are deemed so defective by authorized personnel of FHP. FHP assumes no obligation for labor required to replace the defective part or parts nor for freight or postage required to replace the defective part or parts nor for freight or postage required to return or to secure the part. Warranty does not include breakage or rupture water tubing and/or water condenser coil when subjected to freezing temperatures. The warranty is a limited warranty, parts only. This warranty is in lieu of any other warranties, express or implied, including any implied or merchant ability or fitness for particular purpose. FHP agrees to hold harmless, its agents, officers, directors and employees from and against any claims, demands, expenses or suits which may be brought against any of the indemnified parties hereunder for personal injury or death, or damage to tangible property, resulting from FHP's defective design or manufacture of the Equipment. 6. PRODUCT CHANGES. FHP reserves the right for time to time, at its discretion, to change, modify or discontinue production or delivery of the Equipment. FHP shall give written notice of any product change, modification or discontinue of production of Equipment at least ninety (90) days in advance of such action. 7. TRADEMARKS. shall not use any trademarks or tradenames owned by FHP in connection with the resale of Equipment. 8. INABILITY TO PERFORM. FHP shall be excused from any delay or failure in performance hereunder caused by labor disputes, governmental requirements, Acts of God, inability to secure materials or transportation facilities, and other causes beyond FHP's control. If any such cause should continue for more than ninety (90) days, - shall have the right, upon written notice to FHP, to terminate this agreement. 9. NATURE OF THIS AGREEMENT. Nothing in this agreement shall restrict FHP's right to sell Equipment to others. 105 10. TERMINATION. This agreement may be terminated by either party without cause upon sixty (60) days' written notice to the other party. Upon termination of this agreement, both parties shall fulfill all outstanding obligations incurred prior to the date of termination. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers. OEM Purchase Multipliers: 1. .33 one year all parts additional (8) months on compressor DeMarco Energy Systems of America, Inc. Date: February 5, 2001 By:/S/ Victor M. DeMarco ---------------------------- ------------------------------- Victor M. DeMarco, President/CEO FHP MANUFACTURING Company Date: February 5, 2001 By:/S/ Chris Smith ---------------------------- ------------------------------- Chris Smith, VP Sales/Marketing 106 EX-10 12 exhibit10-06.txt CHEVRON ENERGY SOLUTIONS L.P. MASTER AGREEMENT EXHIBIT 10.06 MASTER AGREEMENT FOR DESIGN AND CONSTRUCTION SERVICES TO BE PROVIDED BY: ______________________________________ CHEVRON ENERGY SOLUTIONS CONTRACT NO. _______ DATE: February 1, 2001 107 TABLE OF CONTENTS ARTICLE 1 RECITALS.........................................................1 ARTICLE 2 DEFINITIONS......................................................1 PG&E Energy Services is not the same company as Pacific Gas and Electric Company, the utility. PG&E Energy Services is not regulated by the California Public Utilities Commission; and you do not have to buy PG&E Energy Services' products in order to continue to receive quality regulated services from Pacific Gas and Electric Company, the utility. 1/00 ARTICLE 3 PARTIES' INTENT..................................................1 ARTICLE 4 THE WORK.........................................................2 ARTICLE 5 CONTRACTOR'S DUTIES.............................................2 ARTICLE 6 FINAL COMPLETION.................................................7 ARTICLE 7 CONTRACT TIME AND SCHEDULE.......................................9 ARTICLE 8 CHANGES IN SCOPE OF WORK AND CLAIMS..............................10 ARTICLE 9 SAFETY OF PERSONS AND PROPERTY...................................12 ARTICLE 10 WARRANTIES, UNCOVERING OF WORK AND CORRECTION OF WORK.............14 ARTICLE 11 APPLICATIONS FOR PAYMENT..........................................15 ARTICLE 12 PAYMENTS TO CONTRACTOR............................................15 ARTICLE 13 INSURANCE & BONDS.................................................16 ARTICLE 14 TERMINATION OR SUSPENSION.........................................18 ARTICLE 15 INDEMNIFICATION...................................................20 ARTICLE 16 DISPUTE RESOLUTION................................................20 ARTICLE 17 MISCELLANEOUS PROVISIONS..........................................20 108 [Chevron Logo Appears Here[ CHEVRON ________________ Energy Solutions MASTER AGREEMENT FOR DESIGN AND CONSTRUCTION THIS MASTER AGREEMENT FOR DESIGN AND CONSTRUCTION ("Master Agreement"), effective [ADD DATE] ("Effective Date"), is made and entered into by and between [ADD NAME OF CONTRACTOR], a [ADD STATE ENTITY WAS FORMED] [ADD TYPE OF ENTITY I.E. CORPORATION, PARTNERSHIP, JOINT VENTURE, SOLE PROPRIETORSHIP], whose principal office is located at [ADD STREET ADDRESS AND PHONE NUMBER] (hereinafter referred to as "Contractor"), and CHEVRON ENERGY SOLUTIONS, L.P. , a Delaware limited partnership whose principal office is located at 345 California Street, Suite 3200, San Francisco, California 94104 (hereinafter referred to as "CES"), (together hereinafter referred to as the "Parties"). ARTICLE 1. RECITALS 1.1 CES provides, among other things, energy management services on behalf of its Customers. To provide these services, CES has occasion to retain qualified engineers and contractors to furnish consulting, engineering,design and construction services for its energy management Projects; and 1.2 Contractor represents that it has the capabilities to provide construction and design services for the type of work required for CES' Projects, that it possesses valid contractor's license(s), as appropriate, issued by the State Contractors' State License Boards and that it employs professional engineers properly licensed by the states the Work will be performed to practice applicable engineering, or if permitted by state law, will subcontract such engineering services to properly licensed engineers; and 1.3 This Master Agreement sets forth the general terms and conditions for Contractor to design, provide, install and/or construct specific energy management Projects as requested by CES on a work order basis ("Work Order"). Individual Work Orders will be issued under this Master Agreement which shall constitute Amendments to this Master Agreement and will be fully incorporated herein. Each Work Order issued by CES shall be executed by both Parties and will serve as authorization for Contractor to commence work as described in the Work Order. Each Work Order shall be subject to all the terms and conditions of this Master Agreement, but shall constitute a separate and independent performance obligation of the part of SUBCONTRACTOR and payment obligation of CES. A sample form of the Work Order is attached as EXHIBIT A to this Master Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: ARTICLE 2. DEFINITIONS For purposes of this Master Agreement, including all Exhibits attached to this Master Agreement, and all Work Orders and Change Orders to be issued under this Master Agreement, the defined terms shall have the meanings set forth in Exhibit B, "Definitions", attached hereto and incorporated herein. ARTICLE 3. PARTIES' INTENT 3.1 The Parties' intent is to provide for all items necessary for the proper execution and completion of the Work. Without limiting the duty of Contractor to fully review the Contract Documents, in the event of a conflict or discrepancy among the various Contract Documents, the documents shall be given precedence in the following order (in descending order of precedence): i) The Work Order; ii) This Master Agreement (including any amendments thereto); iii) Specifications; and v) Drawings - (large-scale Drawings over small-scale) In the case of any discrepancy or conflict within a document, the more stringent requirement shall govern. 3.2 If any errors, discrepancies, ambiguities or omissions are found at any time in the Contract Documents, Contractor shall notify CES in writing before beginning the Work involved. 3.3 All Drawings, Specifications and copies thereof furnished or prepared pursuant to the Work Order shall remain the property of CES. Contractor shall not use said documents for any other project, unless authorized by CES. 3.4 Contractor shall maintain the Contract Documents and their terms in confidence and shall not publish or disclose the same without CES' prior written consent. Contractor shall not use the names or trademarks of CES in any of Contractor's advertising, publicity or other marketing materials, without CES' prior written consent. [Add Contractor Name] 1 Master Agreement for Design and Construction v.5 [Date] 3.5 No amendments or modifications of the Contract Documents shall be valid unless evidenced in writing and signed by a duly authorized representative of each party. ARTICLE 4. THE WORK 4.1 Contractor shall furnish and provide all supervision, labor, transportation, equipment, materials, resources, and other services necessary to complete the Work for the Project. As indicated in the Work Order executed by both parties, the Work may include Contractor's preparation of the Plans and Specifications for the Project. 4.2 Each Work Order for the Project will set forth the scope of work for each individual Project ("Scope of Work"). In addition, the Work Order will identify any special provisions contained in a Customer Agreement between CES and Customer regarding the project schedule, compensation, , regarding potential liability to Customer for consequential damages, and other material provisions that affect Contractor's Work. Contractor shall comply with all terms of the Work Order, along with all other components of the Contract Documents. 4.3 Contractor shall not perform any Work with respect to any Project until the parties have first executed a Work Order for the Work. Any work done by Contractor prior to the execution of a Work Order shall be done at Contractor's expense. 4.4 Contractor shall take direction only from CES, or as otherwise designated in writing by CES, and not from Customer or others, unless directed because of immediate safety concerns. All requests for additional Work, changes to Work, and/or direction from the Customer or others shall be forwarded to CES' Project Manager for prior written approval or denial prior to acting on such requests. If Contractor performs such work requested without CES' prior written approval, Contractor shall not receive any additional compensation or time for such unauthorized work. ARTICLE 5. CONTRACTOR'S DUTIES 5.1 STANDARDS OF PERFORMANCE 5.1.1 Contractor represents and warrants to CES that Contractor is skilled and experienced in the type of project that is the subject of the Work Order and shall diligently perform the Work set forth in all Work Orders. All work performed by Contractor will comply with standards for comparable work performed by reputable contractors working in the same geographical area where the Work will be performed. Contractor further represents and warrants that it has satisfied itself as to the conditions under which the improvements are to be constructed, including, but not limited to, climatic conditions, available labor supply and costs, local and other governmental requirements, available equipment supply and costs, as well as all other items which, in Contractor's judgment, could in any manner affect the timely performance or cost of the Work. 5.1.2 Contractor and CES recognize the business relationship established between them by the Contract Documents. In performing the Work, Contractor shall, as an independent contractor to CES, furnish its best reasonable skill, attention and judgment throughout the course of the Project. Contractor shall also provide efficient business administration and supervision, keep at all times an adequate supply of labor and materials on hand, and prosecute the Work toward completion in the best and soundest way and in the most expeditious and economic manner consistent with the reasonable interests of CES. 5.1.3 Contractor shall incorporate in the Work only materials that are new and of the grades specified in the Plans and Specifications. Contractor's workmanship shall meet or exceed industry standards recognized by the various applicable trades. All Work shall be executed in a neat, skillful and workmanlike manner. 5.1.4 Contractor shall observe and at all times fully comply with all Applicable Laws and Applicable Permits. 5.1.5 Contractor shall pay applicable prevailing wages if the Customer is a public or Federal agency, or if such payments are otherwise required by law. 5.1.6 Contractor shall hold, and shall ensure that all subcontractors doing any portion of the Work hold, all applicable licenses required to perform the Work covered by the Work Order, and shall keep all such licenses current and valid during the performance of the Work. [Add Contractor Name] 2 Master Agreement for Design and Construction v.5 [Date] 5.2 PERSONNEL & SUBCONTRACTORS 5.2.1 Prior to commencement of the Work, Contractor shall designate a project manager and/or a project superintendent in writing to CES, and shall provide CES with the written resume of such person(s). Thereafter, Contractor shall not change such designations without CES' written consent that will not be unreasonably withheld, unless the designated person ceases to be employed by Contractor (in which case Contractor shall provide CES with the written resume of such person's replacement). CES may, by providing written notice to any of Contractor's corporate officers, object to any persons designated by Contractor, originally or subsequently, as project manager or project superintendent, whom CES deems objectionable within its reasonable discretion. Upon such notice of objection, Contractor and CES shall meet and confer, and, based on said discussions, Contractor shall, if requested by CES, promptly submit an alternative designation reasonably acceptable to CES. Contractor's project superintendent shall devote full time attention to the Project and shall maintain an office at the Site, as appropriate. Such superintendent shall direct, coordinate and supervise all Work required by the Contract Documents and shall inspect all materials delivered to the Site. 5.2.2 Contractor's designated representative shall be empowered by Contractor to have full authority to execute any and all instruments that require the signature of Contractor and to otherwise act on behalf of Contractor with respect to all matters arising out of the Contract Documents. 5.2.3 Contractor shall only employ for the Project competent and skilled workers who satisfactorily perform their duties. When requested by CES in writing, Contractor shall discharge and shall not re-employ for the Project any person who is reasonably deemed by CES as unfit, unskilled, disorderly, dangerous, insubordinate, incompetent, or otherwise objectionable. 5.2.4 Contractor shall acknowledge receipt of materials and equipment purchased for the Project and shall provide storage and protection for such materials and equipment upon delivery. Contractor shall promptly ascertain whether or not the materials and equipment comply with the Contract Documents and shall immediately remove any nonconforming materials and equipment from the Site. All materials and equipment delivered to the Site, whether furnished by CES or Contractor, shall be stored and handled in such a manner to prevent damage thereto and to preclude inclusion of any foreign substances or discoloration. 5.2.5 Prior to the commencement of the Work, and before executing any subcontracts or purchase agreements for the Project, Contractor shall provide CES with a list of its intended subcontractors and suppliers for the Work. Within five (5) working days of receipt of the list, CES shall have the right to reasonably object to any subcontractors or suppliers listed by Contractor, and the parties will thereafter meet and confer with respect to any CES objection. If CES demands that a subcontractor or supplier not be used for the Project, the Contract Amount and Contract Time stated in the Work Order shall be equitably adjusted to reflect the changes caused by Contractor retaining a new subcontractor or supplier. 5.2.6 Contractor shall not be discharged from any obligations to CES hereunder as a result of any subcontract or purchase agreement. Contractor shall be as responsible to CES for the acts and omissions of its subcontractors and suppliers as it is for the acts and omissions of persons directly employed by Contractor. The responsibility of Contractor for its subcontractors and suppliers shall not be diminished by the right of CES to approve of Contractor's subcontractors and suppliers. Nothing contained herein shall create any contractual relation between any subcontractor or supplier and CES. 5.3 DESIGN PREPARATION BY CONTRACTOR: As specified by the Work Order, Contractor's Work may include the preparation of Plans and Specifications in accordance with the description of the Project set forth in the Work Order. In that event, Contractor shall comply with each of the following requirements: 5.3.1 Contractor shall employ a qualified engineer licensed to practice professional engineering in the state and/or locality where the Project is located, or if permitted by State law, may subcontract such engineering services to a properly licensed engineer. Contractor's Plans and Specifications shall be prepared under the direct supervision of a licensed professional engineer and said engineer shall stamp the design upon completion of the Plans and Specifications. 5.3.2 Contractor shall prepare the Plans and Specifications in accordance with the terms of this Master Agreement and with industry standards established by other reputable engineers practicing in the same locale as where the Project is located. Contractor's design shall also comply with all Applicable Laws and Applicable Permits. [Add Contractor Name] 3 Master Agreement for Design and Construction v.5 [Date] 5.3.3 Contractor shall be solely responsible for the adequacy, safety, suitability and completeness of its design. Contractor is responsible for taking all field dimensions and noting all field conditions which may impact engineering and design. Contractor's Plans and Specifications shall be sufficiently complete to allow for the construction of the Project. Contractor shall use its best reasonable efforts to prepare the design so as to avoid errors, ambiguities, conflicts and omissions and shall take appropriate quality assurance measures to eliminate any and all errors, ambiguities, conflicts and omissions within the Plans and Specifications. 5.3.4 Throughout the preparation of the Plans and Specifications, Contractor shall periodically supply copies of the design to CES and, as appropriate, to Customer for their review and approval. Contractor shall also periodically meet with representatives of CES and Customer to discuss the design as specified in the Work Order. 5.3.5 Contractor's Plans and Specifications shall be in strict accordance with the description of the Project set forth in the Work Order. Contractor's Plans and Specifications are subject to the approval of CES. Contractor expressly understands that any approvals of the design by CES and Customer are for the limited purpose of determining whether the design conforms to the scope of the Project. Notwithstanding any reviews and approvals of the design by CES and Customer, until final acceptance Contractor shall remain solely responsible for the adequacy, safety, suitability and completeness of the design. After final acceptance, Contractor shall remain responsible for warranty provisions, latent defects, and outstanding claims and/or liens. 5.3.6 Contractor shall submit the final Plans and Specifications to the appropriate governmental agencies having jurisdiction over the Project. Contractor shall work with said agencies to secure all Applicable Permits. 5.4 DESIGN BY OTHER ENGINEER: If the Plans and Specifications are being prepared by a CES Engineer, other CES engineering contractor, or Customer's engineer, Contractor shall, without limitation: 5.4.1 Review Plans and Specifications: Carefully study and compare the Engineer's Plans and Specifications and shall at once report to CES any error, ambiguity, or omission discovered by Contractor, including any requirement which may be contrary to any Applicable Law or Applicable Permit. Contractor shall not proceed with any portion of the Work affected by any such error, ambiguity, or omission until receipt of further direction or instruction by CES or Engineer. 5.4.2 Construction Consulting Services: Provide recommendations on construction feasibility, availability of materials and labor, time requirements for installation and construction, factors related to cost, including costs of alternative designs or materials, and possible economies; attend and provide input at meetings with CES and Engineer during the development of the design. 5.4.3 Coordination of Design: Review the Plans and Specifications as they are being prepared by Engineer, recommending alternate solutions whenever design details, materials, or systems affect the construction budget, construction feasibility or construction schedule. 5.5 CONSTRUCTION: In connection with the construction of the Work, Contractor shall, without limitation: 5.5.1 Project Control: Manage and direct the Work in all particulars, including its own activities and those of its Subcontractors, and coordinate the Work with the activities and responsibilities of CES to complete the Project in accordance with the Contract Documents. Contractor shall be solely responsible for its means, methods, techniques, sequences and procedures employed for the construction. Contractor shall also coordinate all portions of the Work required by the Contract Documents. 5.5.2 Supervision: Supervise, coordinate and direct Contractor's own forces and those of its Subcontractors, regularly monitor as appropriate to achieve adequate performance, and provide inspection to assure high workmanship for the Work. Contractor shall at all times enforce strict discipline and good order among its employees and Subcontractors and shall require its Subcontractors to do the same. 5.5.3 Physical Construction: Furnish and pay for all supervision, labor, materials, fabrications, assemblies, construction equipment and machinery, tools, water, heat, utilities, transportation and all other facilities and services that are necessary for the proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work, excluding only those items specifically identified to be provided by CES or by others. 5.5.4 Licensing: Any and all activities requiring licensing to perform, must be performed by Licensed Engineers, Licensed Contractors, or Licensed Specialty Contractors (such as required when performing electrical, plumbing, or disturbing asbestos or other Hazardous Materials), as required by Applicable Law. If Work includes certain design work that requires engineering plans, specifications, and/or drawings, such documents must be signed by an appropriately licensed engineer, and/or architect, as required by Applicable Law. [Add Contractor Name] 4 Master Agreement for Design and Construction v.5 [Date] 5.5.5 Meetings: Attend and participate in meetings with CES to be held periodically at the job site as defined in the Work Order. 5.5.5 Schedule: Provide regular monitoring of the Project Schedule as the construction progresses. Identify potential variances between scheduled and probable actual completion dates. Review schedule for work not started or incomplete and implement adjustments in the Project Schedule to meet the required completion date. Contractor shall determine the adequacy of the personnel working on the Project and also determine whether the equipment and the availability of materials and supplies are sufficient to meet the Project Schedule. Contractor shall implement appropriate action when the obligations of Contractor and Subcontractors are not being met. 5.5.6 Permits and Approvals: In consultation with CES, secure and pay for the building permit, and all other permits, approvals, charges, governmental fees and licenses necessary for the construction and the proper execution and completion of the Work. 5.5.7 Cutting, fitting and patching: Be responsible for all cutting, fitting or patching that may be required to complete the Work or to make its several parts fit together properly. Patching of all finishes shall match any existing work to meet CES' reasonable approval. 5.5.8 Clean-up: Keep the Project and Site free from accumulation of waste materials or rubbish caused by its operations. As the Work is performed, Contractor shall remove all of its waste materials and rubbish from the Site in accordance with Applicable Laws and shall be responsible for the payment of any waste disposal or waste transportation fees. With respect to Hazardous Substances, attention is directed to Section 5.8 of this Agreement. Upon the completion of the Work, Contractor shall remove all of its tools, construction equipment, machinery and surplus materials. To the extent caused by its Work, Contractor shall replace any broken glass, remove stains, spots, marks and dirt from painted or decorated work, clean hardware, remove paint spots and smears from all surfaces, clean fixtures and wash all concrete masonry and tile and clean all glass. 5.5.9 Royalties and Patents: Pay all royalties and license fees. Contractor shall defend all suits or claims for infringement of any patent rights and shall save CES harmless from loss on account thereof. However, Contractor shall not be responsible for such loss when a particular design, process, or the product of a particular manufacturer is specified by CES; provided, that if Contractor knew or reasonably should have known that the design, process, or product specification is an infringement of a patent, it shall promptly notify CES in writing of such knowledge; otherwise, it shall be responsible for such loss as may result from its failure to give prompt notice. 5.5.10 Project lines and levels: Be responsible for the accuracy of the Project lines and levels. Contractor shall carefully compare the levels shown on the Drawings with existing levels and shall call to CES' attention any discrepancies before proceeding with the Work. In accordance with industry standards of contractors performing similar work on the types of projects that will be performed by the Contractor, the Work shall be erected square, plumb, level, true in line and grade, in the exact plane and to the correct elevation and/or slope as indicated in the Contract Documents. Contractor shall visit the Site and visually inspect the general and local conditions that could affect the Work. Any failure of the Contractor to reasonably ascertain from a visual inspection of the Site the general and local conditions which could affect the Work will not relieve the Contractor from its responsibility to properly complete the Work without any additional expense to CES. Contractor shall lay out and be strictly responsible for the accuracy of the Work and for any loss or damage to CES and Customer or others by reason of the Contractor's failure to set out or perform its work correctly. Contractor shall exercise prudence so that the actual final conditions and details of its Work shall result in alignment of finish surfaces. 5.5.11 Tests: Conduct tests, inspections and approvals as required. If the Contract Documents or Applicable Laws require any portion of the Work to be inspected, tested or approved, Contractor shall give CES at least 48 hours notice of its readiness for such inspecting, testing or approval. The Contractor shall give proper written notice to all required parties of such tests, approvals and inspections. Unless otherwise specifically provided in the Contract Documents, Contractor shall bear all costs of such inspections, tests or approvals. Contractor shall also secure all required certificates of inspection, testing or approval and promptly deliver them to CES. If CES determines that any Work requires special inspection, testing, or approval not already required by the Contract Documents or [Add Contractor Name] 5 Master Agreement for Design and Construction v.5 [Date] Applicable Laws, CES may instruct Contractor to order such special inspection, testing or approval. If such special inspection or testing reveals a failure of the Work to comply with the requirements of the Contract Documents (including any Applicable Laws), Contractor shall bear all costs thereof, including compensation for any additional services of the Engineer made necessary by such failure; otherwise, CES shall bear such costs, and an appropriate Work Order will be issued. Contractor shall not be relieved of its obligations to perform the Work in accordance with the Contract Documents, notwithstanding any inspections, tests or approvals provided by CES. 5.5.12 Start-up: Start-up all systems and equipment included in the Work. Contractor has included in the Contract Amount sufficient allowances to cover contingencies that may arise in connection with the start-up of individual systems, equipment and the total facility. Contractor shall fully comply with each manufacturer's specifications and instructions. Equipment that has been specified to be furnished with manufacturer's supervision of start-up shall be placed in operation only under the supervision of manufacturer's representative. 5.5.13 Documents And Samples At The Site: Contractor shall maintain at the site in good order the following documents for CES' inspection and copying: 1. Drawings, Specifications, approved Shop Drawings, Product Data and Samples, Work Orders and other Modifications. 2. All documents which arise out of the Contract Documents or the construction of the Project, including, without limitation, the following: Subcontracts; Work Orders; Project correspondence; job meeting minutes, memoranda and notes; and any other related documents pertaining to transactions related to the Contract Documents and work performed in relation thereto. 3. A current marked set of Plans and Specifications showing record, or "as-built", conditions, configurations and locations to facilitate the preparation of record, or "as-built", drawings. 5.5.14 Reports And Project Site Documents: Contractor shall record the progress and activity of the Project on a weekly basis, maintain such records for a period of three (3) years after Final Payment, and upon request of CES, submit copies thereof to CES. Contractor shall submit written progress reports on a weekly basis, unless otherwise specified in the Work Order, to CES, including information on the status of the Work, any problems that threaten the timely completion of the Work, any pending claims, and the percentage of completion of the Work. 5.6 TAXES 5.6.1 Unless otherwise provided in the Contract Documents, Contractor shall pay all sales tax and any other tax charged on the material, equipment, and labor provided by Contractor under the Contract Documents for the Work, which are enacted by any municipal, county, federal or state authority. Upon Final Completion of its Work, Contractor shall not be responsible for payment of any tax or assessment based on the completed Work, unless otherwise provided in the Contract Documents. 5.7 USE OF SITE 5.7.1 Contractor shall confine its operations at the Site to areas permitted by Applicable Laws, Applicable Permits and the Contract Documents. Contractor shall not unreasonably encumber the Site with any materials or equipment, and it shall maintain the Site in a neat, orderly manner. Contractor shall confine its ingress and egress to the Site to areas approved in advance by CES and shall not use any other ingress or egress to or from the Site. Contractor shall assume full responsibility for any property damage resulting from the performance of its Work, except to the extent such damage was the result of CES' or Customer's negligence. 5.7.2 Contractor shall take measures to control the blowing or spreading of dust, smoke, dirt, mud and refuse from the Work to avoid nuisance and inconvenience to others whether on or off the Site. These measures shall be in compliance with, without being limited to, all Applicable Laws, and shall be subject to CES' reasonable approval. [Add Contractor Name] 6 Master Agreement for Design and Construction v.5 [Date] 5.7.3 Contractor shall perform its Work (and to have its Subcontractors and other parties so perform their work) so as to not unduly interfere with or disrupt the business operations of Customer. CES will coordinate with Customer to minimize the possibility of Customer caused delays to the construction. CES acknowledges and agrees that Contractor needs reasonable access to the Site and a reasonable amount of time per working day to perform the Work in an efficient manner, and CES will coordinate with Customer regarding same. 5.7.4 Contractor acknowledges that CES intends to minimize damage and disturbance to the environment at the Site. Contractor shall use its best efforts to limit its Work to the areas designated by CES and to protect and prevent damage or disturbance to any trees or other vegetation outside of the clearing limits shown on the Contract Documents. 5.8 DUTIES REGARDING MANAGEMENT OF HAZARDOUS SUBSTANCES AND HAZARDOUS WASTE. 5.8.1 Contractor shall be responsible for complying with all Applicable Laws with respect to the removal and proper disposal of all Hazardous Substances brought onto or generated by Contractor or by any of its Subcontractors in the course of performing the Work. Contractor shall defend, indemnify and hold CES and Customer harmless from and against any and all losses, damages, expenses, fees, claims, costs and liabilities (including, but not limited to, attorneys' fees and costs of litigation) arising out of or in any manner related to the release or threatened released of any Hazardous Substances brought onto or generated by Contractor during the course of performing the Work. It is expressly understood that this responsibility includes protecting CES and Customer from any clean-up responsibility imposed on CES or Customer under Applicable Laws. 5.8.2 Contractor shall not be responsible for any pre-existing Hazardous Substances at the Site. Contractor shall provide written notice to CES immediately upon the discovery of any pre-existing Hazardous Substances. Except in case of emergency, Contractor, or any of its subcontractors, shall not disturb, disrupt, remove, alter, dislodge or otherwise handle any pre-existing Hazardous Substances at the Site without the prior written consent of CES. As appropriate, CES will issue a Work Order to Contractor for the removal of any pre-existing Hazardous Substances from the Site. Contractor shall defend, indemnify and hold CES and Customer harmless from and against any and all losses, damages, expenses, fees, claims, costs and liabilities (including, but not limited to, attorneys' fees and costs of litigation) arising directly out of Contractor disturbing or causing a release of any pre-existing Hazardous Substances at the Site. 5.8.3 UNDER NO CIRCUMSTANCES SHALL CES BE LIABLE FOR ANY INJURY TO CONTRACTOR WHICH IS THE RESULT OF CONTRACTOR'S EXPOSURE TO HAZARDOUS SUBSTANCES. 5.9 Contractor's duties as set forth in this Article 5 of the Master Agreement are not intended to be exhaustive, and they shall not limit other duties imposed by the Contract Documents or by Applicable Laws and/or otherwise necessary for the successful completion of the Work as an integrated whole. ARTICLE 6 FINAL COMPLETION 6.1 COMPLETION AND CLOSE-OUT SUBMITTALS 6.1.1 As necessary for the completion of the Work, Contractor shall assemble and submit to CES the following materials and documentation ("Closeout Documentation"): 1. All permit sign-offs or other approvals of any governmental agency with authority over the Project. 2. One record set of all the following project documentation: (a) Specifications, (b) Project Drawings, (c) Modifications, (d) CES field orders or written instructions, sketches, etc., (e) Approved Shop Drawings, Product Data and Samples, (f) All test data and testing laboratory reports, (g) Record, or "As Built", specifications legibly marked to indicate the manufacturer, trade name, catalog number, and supplier of each product and item of equipment actually installed, (h) One reproducible Mylar record set and two sets of prints of Record, or "As Built", drawings, legibly marked concurrently with the construction process, and (i) one electronic AutoCAD copy of the Record, or "As Built", drawings. [Add Contractor Name] 7 Master Agreement for Design and Construction v.5 [Date] 3. Three duplicate sets, each separately bound and indexed in vinyl covered three ring binders, of operating instructions and maintenance recommendations for all equipment and systems installed as a part of the Work, including, without limitation, a printed parts list for all items which might be subject to replacement. The instructions shall set forth all of the information necessary for Customer to maintain and operate and make full and efficient use of all equipment and systems comprising the Work. They shall provide the name, address and telephone number of the firm or organization that is authorized by the manufacturer of the installed equipment to service the equipment as the need may arise. 4. All spare parts, maintenance materials and any other materials or equipment for which Contractor had been paid but which was not actually incorporated into Work. 5. The originals of all warranties, guaranties, bonds, or certificates of compliance required by the Contract Documents relative to the Work. These shall be compiled in a vinyl covered three ring binder and indexed in order of and in accordance with corresponding specification sections or other requirements of the Contract Documents. 6. Final affidavit and unconditional lien waivers and releases from Contractor and all its subcontractors. 6.2 FINAL COMPLETION AND FINAL PAYMENT 6.2.1 When Contractor considers the Work to be fully complete and ready for final inspection, Contractor shall certify in writing to CES that: 1. The Contractor has reviewed the Contract Documents. 2. The Contractor has inspected all Work for compliance with the Contract Documents. 3. The Contractor has determined that all Work has been completed in accordance with the Contract Documents. 4. The Contractor has cleared, tested and started-up all equipment and systems in accordance with the Contract Documents and said equipment and systems are fully operational per the manufacturers' manuals. 5. The Contractor has submitted all Close-out Documentation required by Subparagraph 6.1.1 of this Master Agreement. 6. The Work is fully completed and ready for final inspection. 6.2.2 CES will inspect the Work to verify the status of completion within a reasonable time after its receipt of Contractor's certification required by Subparagraph 6.2.1 of this Master Agreement. 6.2.3 If CES determines that any of the Work is incomplete or defective, CES will promptly notify Contractor in writing of such incomplete or defective Work, itemizing and describing such remaining items with reasonable particularity. Contractor shall immediately complete all items and remedy all stated deficiencies, after which Contractor shall send another written certification to CES that the Work is fully complete. CES will thereafter promptly re-inspect the Work. 6.2.4 When CES determines that the entire Work has been fully and properly completed in accordance with the Contract Documents, and Customer has accepted the Work, CES will give written notice to Contractor of acceptance and Final Completion. 6.3 WAIVER 6.3.1 Subject to Subparagraph 10.3 of this Master Agreement, CES' inspection, notice of Final Completion, its Final Payment, its acceptance of the Work, and Customer's possession of the Project shall not operate as a waiver of any warranty provision of the Contract Documents. Any waiver by either party of any breach of the Contract Documents shall not be held to be a waiver of any other or subsequent breach, and any waiver by either party of any right to terminate the Work Order shall not be held to be a waiver of any breach of the Contract Documents. [Add Contractor Name] 8 Master Agreement for Design and Construction v.5 [Date] 6.3.2 Contractor's acceptance of Final Payment shall constitute a waiver of all claims of Contractor except those previously made in writing and expressly identified as unsettled at the time of submission of Contractor's final Application For Payment. ARTICLE 7. CONTRACT TIME AND SCHEDULE 7.1 PROGRESS AND COMPLETION 7.1.1 The time period set forth in the Work Order for Final Completion of the Work ("Project Schedule") may be extended only for causes and events expressly authorized under this Master Agreement. Contractor shall begin Work on the Date of Commencement of the Work. Contractor shall not commence work prior to the issuance of a written notice to proceed by CES. Contractor shall thereafter prosecute the Work continuously, expeditiously and diligently at such a rate to maintain sufficient progress in accordance with the Project Schedule to achieve Final Completion within the Contract Time, unless an extension of time is justified under Article 7 of this Master Agreement. Should it appear at any time that Contractor is in danger of failing to meet any of the critical path milestone dates contained in the Project Schedule, Contractor shall cause its employees and its Subcontractors to increase personnel or perform overtime work as is necessary to return to the original Project Schedule. Contractor shall not be compensated or reimbursed for any additional costs resulting from such overtime work, and no adjustment shall be made to the Contract Amount, unless an extension of time would have been justified under Article 7 of this Master Agreement and Contractor had supplied CES with notice of its intent to accelerate prior to providing such overtime work. 7.2 DELAYS AND EXTENSIONS OF TIME 7.2.1 Time is of the essence in the performance of the Work. In the event that Final Completion of the Work is not achieved in accordance with the Project Schedule (or as such date may be extended as provided in this Article 7 of the Master Agreement), Contractor recognizes that CES may suffer substantial damages as a result of the delay. 7.2.2 Contractor shall pay CES all costs and damages which CES incurs and as necessary to hold CES harmless from any monetary loss which is caused by Contractor's failure to achieve Substantial Completion within the Contract Time set forth in the Work Order (or as extended by a subsequently issued Change Order.) CES will seek in its agreement with its Customer limit the recoverability of consequential damages against both CES and Contractor for any late completion of the Work; however, CES makes no representation that it will be able to obtain such consent. Other than consequential damages of Customer, Contractor shall not be liable to CES for consequential damages. CES shall provide notice to Contractor of any special provisions contained in the Customer Agreement between CES and Customer, at such time Contractor can agree, or not agree, to execute such Work Order. 7.2.3 Contractor may be entitled to an extension of the Contract Time for excusable delays arising from only the following events which are unforeseeable and beyond the control of Contractor and which are neither caused nor contributed to by the fault or negligence of Contractor or its Subcontractors: 1. Acts of God, such as tornado, fire, hurricane, blizzard, earthquake, typhoon, flood or other similar unavoidable casualties. 2. Labor disruption by a third party; unanticipated action or failure to act by a governmental entity having jurisdiction over the Project; or litigation commenced by any person or entity not a party to the Contract Documents. 3. Abnormal, adverse weather not reasonably foreseeable. The Contract Time will not be extended due to normal seasonal weather variations. 4. Delays caused by acts or failure to act by CES, other CES consultants and contractors, or CES' Customer. 7.2.4 In the event that Contractor requests an extension of the Contract Time, Contractor shall furnish justification and supporting documentation, as described in Section 7.2.5 below, to determine whether Contractor is entitled to an extension of time under the Contract Documents. If CES finds that Contractor is entitled to any extension of time, CES' determination as to the total number of days' extension shall be based upon the justified number of days of delay claimed by Contractor and the currently approved Project Schedule. Contractor acknowledges and agrees that actual delays in activities which, according to the most current Project Schedule, that do not affect activities critical to the completion of the Work within the Contract Time will not be a valid basis for a change to the [Add Contractor Name] 9 Master Agreement for Design and Construction v.5 [Date] Contract Time. If CES determines that Contractor is entitled to an extension of the Contract Time, an appropriate Change Order will be issued. 7.2.5 Any claim for an extension of time shall be made in writing to CES within twenty-one (21) days of Contractor's reasonable discovery of actual delay to the Work, and the circumstances and activities leading to such claim shall be indicated or referenced on Contractor's daily report for the day(s) affected; otherwise, all such claims are waived by Contractor. In making a claim for an extension of time, Contractor shall provide the following specific information and CES may request additional documentation if necessary to evaluate Contractor's claim for additional time: 1. Nature of the delay; 2. Date (or anticipated date) of commencement of delay; 3. Activities on the Project Schedule affected by the delay, and/or new activities created by the delay, and their relationship with existing activities; 4. Reason for delay; identification of person(s), or organization(s), or event(s) responsible for the delay; 5. Anticipated extent of delay; 6. Amount of additional extension of Contract time requested by Contractor; and 7. Any recommended action to avoid or minimize additional delays. 7.2.6 An extension of Contract Time shall not be granted if, in the exercise of reasonable prudence, Contractor, or anyone for whom Contractor is responsible, could have avoided the delay in the progress of the Work. Delays otherwise allowable shall be reduced by the amount of time that Contractor or anyone for whom Contractor is responsible, in the exercise of reasonable prudence, could have avoided or reduced such delays in the course of the performance of subsequent portions of the Work, provided that Contractor shall not be obligated to incur additional cost to make up any excusable delays. 7.2.7 Except as otherwise specifically provided in this Master Agreement, Contractor shall not be entitled to any increase in the Contract Amount or payment of additional compensation of any kind from CES based on any delays unless (1) Contractor gives timely notice; and (2) Contractor substantiates its claim for additional compensation by providing CES written documentation supporting that the delay is excusable and documenting all claimed extra costs associated with such excusable delay in accordance with Articles 7 and 8 herein., hall provide timely notice under Section 8.4 of this Master Agreement and shall substantiate all extra costs claimed by Contractor based on such delay. 7.3 PROJECT SCHEDULE 7.3.1 Parties will attach to the Work Order an agreed upon Project Schedule which describes Contractor's intended method of accomplishing the Work. Such Project Schedule shall be in a form acceptable to CES and shall demonstrate an expeditious, practicable and reasonable plan for accomplishing Final Completion within the Contract Time 7.3.2 Project Schedule shall take into account accomplishment of such interim milestones or requirements of CES for completion of portions of the Work at times earlier than the full Contract Time, and Contractor may use such "float" time elsewhere in the Project Schedule if it does not impact the project critical path. 7.3.3 With CES' prior written approval, the Project Schedule may be revised to reflect any adjustments extending the Contract Time, including revision to the durations, sequences and interrelationships of activities affected by the occurrences permitting such adjustment. CES shall be entitled to rely on the Project Schedule (and as revised) in planning and scheduling performance of its obligations under the Contract Documents or of interrelated work by its own forces or separate contractors. 7.3.4 Contractor shall coordinate its Work with CES and all other contractors, subcontractors and suppliers so as not unreasonably delay or disrupt their performance or impact the project critical path. Oral extensions of the Contract Time shall not be binding on CES. ARTICLE 8. CHANGES IN THE SCOPE OF WORK AND CLAIMS 8.1 REQUESTS FOR ADDITIONAL WORK. Contractor shall perform the Work as specified in each Work Order and any subsequently issued Change Orders. Contractor is under no obligation to perform additional work which exceeds the Scope of Work described in the Work Order and written Change Orders. During the performance of Work [Add Contractor Name] 10 Master Agreement for Design and Construction v.5 [Date] on a particular Work Order, CES may request Contractor to perform additional work, outside the Scope of Work, and such new work shall be authorized by a written Change Order. If, during the performance of the Work, Contractor is requested to perform work under the existing Work Order that Contractor believes is outside the Scope of Work identified in the Work Order, or a subsequently issued Change Order, Contractor shall provide written notice of same to CES within twenty-one (21) working days of Contractor receipt of notice of such request. If the Work is deemed by CES to be outside the original Scope of Work, a Change Order for the additional work shall be issued. If CES deems said work to be within the Work Order Scope of work, or another subsequently approved Change Order Scope of Work, Contractor shall perform such work, but shall do so under protest for additional compensation and/or time and such protests shall be submitted to CES as a Claim for additional compensation and/or time. Such claims for additional compensation and/or time shall be resolved in accordance with terms of Articles 7 and 8. 8.2 MATERIAL CHANGES IN THE SCOPE OF WORK. 8.2.1 If, during the performance of the Work, Contractor believes that a Material Changed Condition is impacting or will impact the Work requiring additional time and/or compensation, Contractor shall provide written notice of same to CES within twenty-one (21) days of Contractor's notice of such Changed Condition, the anticipated time of delay and/or the estimated additional costs associated with the Material Changed Condition. Contractor shall continuously update CES as to the impact of the Material Changed Condition. If CES agrees that there is a Material Changed Condition, a new or amended Work Order shall be issued to increase time and/or compensation. A "Material Changed Condition" shall be defined as one or more of the following conditions that impact the Project Schedule ("Time") and/or Cost: 1) parties outside the control of Contractor caused delays in Project Schedule; 2) discovery of differing and unexpected site conditions which were not previously disclosed by Customer and could not have been readily discoverable by Contractor prior to start of Work; 3) discovery of hazardous wastes or material which was not previously disclosed; (4) adverse weather conditions not reasonably anticipated; and (5) any other condition that could not have been reasonably anticipated by the Parties and is outside Contractor's control. If there is a disagreement between CES and Contractor as to whether or not there is a Material Change Condition, those disputes shall be resolved in accordance with the provisions of this Master Agreement. 8.2.2 If there is any change to the scope of work resulting in a change in the Contract Amount, the change to the Contract Amount shall be determined in one or more of the following ways: l. By mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation; 2. By unit prices stated in the Contract Documents or subsequently agreed upon; or 3. By the method provided in Subparagraph 8.2.3 of this Master Agreement. Except as otherwise provided in the Contract Documents, the cost or credit to CES resulting from a Change in the Work, not covered by unit prices, shall be based on the following percentages added to the extra material and labor costs: Percentage allowance to Contractor for overhead and profit for extra work performed by Contractor with its own forces shall be Fifteen Percent (15%); the percentage allowance to Contractor for overhead and profit for extra work performed by Contractor's Subcontractor and supervised by Contractor shall be Ten Percent (10%); and plus a reasonable allowance for costs of delay that shall be documented and verified at CES' request. 8.2.3 If Contractor does not respond promptly or disagrees with the method of adjustment in the Contract Amount, the method and the adjustment to shall be determined by CES on the basis of the reasonable expenditures and savings of those performing the Work attributable to the Change, including, in the case of an increase in the Contract Amount, a reasonable amount for overhead and profit as defined in Section 8.2.2 above. In such case, Contractor shall keep and present, in such form as CES may prescribe, an itemized accounting together with appropriate supporting data such as invoices, Subcontractor quotes and other documents and records as CES may require to verify Contractor's costs. Unless otherwise provided for in the Contract Documents, costs for the purposes of this Section shall be limited to the following: [Add Contractor Name] 11 Master Agreement for Design and Construction v.5 [Date] l. costs of labor, including social security, old age, and unemployment insurance, fringe benefits required by agreement or customer, and worker's compensation insurance; 2. costs of materials, supplies, and equipment, including cost of transportation, whether incorporated or consumed; 3. rental costs of machinery and equipment, exclusive of hand tools, whether rented from the Contractor or others; 4. costs of premiums for all bonds and insurance, permit fees, and sales, use or similar taxes related to the Work; 5. additional costs of supervision and field office personnel and other field office costs directly attributable to the change. 8.2.4 Notwithstanding any dispute regarding any requested adjustment in the Contract Amount or Contract Time with respect to a change in the Work, Contractor shall promptly proceed with the Work required by any Work Order issued by CES and CES shall continue to make payments to Contractor in accordance with the Contract Documents. 8.3 CLAIMS 8.3.1 Other than changes initiated by CES, Contractor shall not be entitled to any adjustment of Contract Amount or Contract Time except in strict compliance with the procedures hereinafter set forth. The failure of Contractor to assert any claim within the time limits prescribed herein or in the form or manner precisely as required hereby shall be deemed a material prejudice to the interests of CES and shall constitute an absolute waiver of the claim and the right to file or thereafter prosecute same. 8.3.2 In the event that Contractor contends that any order (which shall include direction, instruction, interpretation or determination) from CES or other event or occurrence causes a Change in the Work entitling Contractor to an adjustment of either the Contract Amount or Contract Time or both, Contractor shall: 1. Provide a written Notice of Claim to CES within twenty-one (21) days after the occurrence of the event or first recognized the condition giving rise to such claim. Such Notice of Claim must clearly identify the event or condition that is relied upon and contain a clear statement of why it constitutes a basis for adjustment. 2. The Notice of Claim shall include a clear, concise recital of the basis upon which the claim is asserted, including a designation of the provision(s) in the Contract Documents on which the claim is based and the amount of time and compensation claimed. All costs, expenses or damages and extensions of time claimed as a result of the alleged change shall be described in reasonable detail and shall be supported with reasonable documentation. 3. To the extent that any adjustment to the Contract Time is sought, Contractor shall also fully comply with the requirements of Article 7. 8.3.3 CES shall review any claim that was timely submitted by Contractor. In conducting this review, CES shall have the right to require Contractor to submit such additional documents, data and other information as CES may reasonably require. The failure to submit such additional documents, data or other information within fifteen (15) working days following Contractor's receipt of CES' written request shall be deemed a waiver of the claim. If, upon completion of such review, CES determines that a Change is justified, CES shall issue a new or amended Work Order amending the Contract Amount or Contract Time or both as appropriate. If Contractor disputes the determination made by CES, as a condition precedent of any further action to resolve such dispute, Contractor must notify CES in writing within five (5) working days following receipt of the decision of such dispute and permit CES fifteen (15) additional working days to reconsider and, if it deems it appropriate, modify its decision. ARTICLE 9: SAFETY OF PERSONS AND PROPERTY 9.1 Contractor shall take all reasonable precautions for the safety of, and shall provide all reasonable protection to prevent damage, injury or loss to: 9.1.1 All employees and its Subcontractors and their employees on the Project or performing the Work and all other persons who may be affected thereby; [Add Contractor Name] 12 Master Agreement for Design and Construction v.5 [Date] 9.1.2 All Work and all materials and equipment to be incorporated therein, whether in storage on or off the Site under the care, custody or control of Contractor or any of its Subcontractors; and 9.1.3 Other property at the Site or adjacent thereto, including trees, shrubs, lawns, walks, utilities, pavements, etc. 9.2 Contractor shall give all notices and shall comply with all Applicable Laws bearing on the safety of persons or property or their protection from damage, injury or loss. Specifically but without limitation, Contractor and its Subcontractors shall thoroughly familiarize themselves with all requirements of Public Law 91-956 enacted by Congress, December 29, 1970, cited as the "Occupational Safety and Health Act of 1970", and all amendments thereto, commonly referred to as OSHA, and Contractor shall have the responsibility to fully enforce and comply with all provisions of this Act. 9.3 Contractor shall erect and maintain, as required by existing conditions and the progress of the Work, all reasonable safeguards for safety and protection of the Work, including posting danger signs and other warnings against hazards, promulgating safety regulations and notifying CES and Customer of adjacent utilities. 9.4 Contractor shall promptly remedy all damage or loss to any property caused in whole or in part by Contractor or its Subcontractors, except such damage or loss attributable to the negligent acts or omissions of CES, Customer, or others for whom they are responsible. 9.5 In any emergency affecting the safety of persons or property, Contractor shall reasonably act to prevent threatened damage, injury or loss. 9.6 Contractor shall exercise appropriate, reasonable care in carrying out any Work involving explosive or other dangerous methods of construction or hazardous procedures, materials or equipment. Contractor shall use properly qualified individuals to carry out such Work in a safe and reasonable manner so as to reduce the risk of damage, injury or loss. 9.7 Contractor shall designate an employee at the Site who shall act as Contractor's designated safety representative with a duty to prevent accidents. Unless otherwise identified in writing, the designated safety representative shall be the Contractor's project superintendent. 9.8 Contractor shall not overload the structures or conditions at the Site and shall take reasonable steps not to load any part of the structures or Site so as to give rise to an unsafe condition or create an unreasonable risk of damage, injury or loss. Contractor may submit a written request to CES or Customer for loading information concerning the structures at the Site. 9.9 Contractor shall give prompt written notice to CES of any accident involving personal injury requiring a physician's care, any property damage exceeding five hundred dollars ($500.00) in value, or any accident or failure that could have resulted in serious personal injury, whether or not such an injury was sustained. 9.10 Contractor shall establish its own written safety program implementing safety measures, policies and standards conforming to those required or recommended by governmental and quasi-governmental authorities having jurisdiction, and by CES and Customer, including, but not limited to, requirements imposed by the Contract Documents and the Customer Agreement. Contractor shall comply with the reasonable recommendations of insurance companies having an interest in the Project, and shall stop any part of the Work which CES deems unsafe until corrective measures satisfactory to CES shall have been taken. CES' failure to stop Contractor's unsafe practices shall not relieve Contractor of the responsibility therefor. Contractor shall notify CES immediately following an accident and shall promptly confirm the notice in writing. A detailed written report shall be furnished if requested by CES. Contractor shall indemnify CES and Customer for fines or penalties imposed on CES or Customer as a result of a safety violation by Contractor. 9.11 Material Safety Data (MSD) sheets as required by law and pertaining to materials or substances used or consumed in the performance of the Work shall be submitted to CES by Contractor. MSD sheets obtained by CES from other contractors or sources shall be made available to Contractor. 9.12 Use and handling of Hazardous Substances by Contractor shall be in compliance with all Applicable Laws. [Add Contractor Name] 13 Master Agreement for Design and Construction v.5 [Date] ARTICLE 10. WARRANTIES, UNCOVERING OF WORK AND CORRECTION OF WORK 10.1 UNCOVERING OF WORK 10.1.1 CES shall inspect the Work at times chosen to avoid delay to Contractor's Work. If any portion of the Work is covered contrary to the requirements of the Contract Documents or to the express request of CES during construction, Contractor shall, if required in writing by CES, uncover such work for CES' observation. Any defective Work shall be removed and replaced at Contractor's expense. 10.1.2 If any portion of the Work has been covered which CES has not specifically requested to observe prior to being covered or which the Contract Documents did not state should be observed by CES prior to covering, CES may request to see such Work and it shall be uncovered by Contractor. If such Work is found to be in accordance with the Contract Documents, the cost and additional time of uncovering and replacement shall, by appropriate Work Order, be paid by CES. If such Work is found to be not in accordance with the Contract Documents, Contractor shall pay such costs unless the condition was caused by CES, or a separate contractor, in which event CES shall be responsible for the payment to Contractor of such costs. 10.2 WARRANTY AND CORRECTION OF WORK 10.2.1 Contractor warrants to CES that all materials and equipment furnished under the Work Order will be new unless otherwise specified, and that all Work (without limitation, including all materials, equipment and workmanship) will be of the specified quality, free from defects and in strict conformance with the Contract Documents and Equipment Manufacturers warranty provisions. All Work not conforming to these requirements, including substitutions not properly approved and authorized, may be considered defective. Contractor further agrees to correct all deficient Work discovered by CES and/or Customer during a period of one (1) year after the Date of Substantial Completion of the Work or for such longer period of time as provided by specific warranties contained elsewhere in the Contract Documents. In addition to making such corrections, repairs and/or replacements, Contractor shall correct, repair and/or replace any other property damage to Customer caused as a result of such defective materials, equipment and/or workmanship. Such corrective work shall be at the sole expense of Contractor and shall be performed in a timely manner at the reasonable convenience of Customer. The warranties set forth in this Paragraph and elsewhere in the Contract Documents shall survive Substantial Completion and final acceptance of the Work. 10.2.2 Without limiting the responsibility or liability of Contractor under the Contract Documents, all warranties and attendant rights given by manufacturers on materials or equipment incorporated in the Work are hereby assigned by Contractor to CES and Customer. If requested, Contractor shall execute formal assignments of said manufacturers' warranties to CES and/or Customer. 10.2.3 Contractor shall promptly correct all Work rejected by CES that does not comply with the requirements of the Contract Documents whether observed before Final Completion of the Work or thereafter observed within the warranty period, whether or not fabricated, installed or completed. Contractor shall bear all costs of correcting and/or replacing all such rejected Work incurred by CES including the expense of repairing and/or replacing all other property damage caused by such replacement and re-execution. The one (1) year period for correction of Work shall be extended by the corrective Work performed by Contractor pursuant to this section 10.2, unless otherwise specified in the Work Order. 10.2.4 Contractor shall remove from the Site all portions of the Work which are defective or nonconforming and which have not been corrected unless removal is waived by CES. 10.2.5 If Contractor fails to correct defective or nonconforming Work within the time period set forth in CES' written notice to Contractor, CES may, but shall not be required to, correct such defective or nonconforming Work. All costs of such corrective action incurred by CES (including engineering and other consultant's fees and expenses) plus a fee equal to ten percent (10%) of the repair costs incurred by CES shall be deducted from the balance of any amounts due to Contractor, or if that is insufficient, Contractor shall pay the difference to CES upon demand. [Add Contractor Name] 14 Master Agreement for Design and Construction v.5 [Date] 10.3 ACCEPTANCE OF DEFECTIVE OR NONCONFORMING WORK If CES prefers to accept defective or nonconforming Work, CES may do so instead of requiring its removal and correction, in which case a Work Order will be issued to reflect a reduction in the Contract Amount in an appropriate amount. Such adjustment shall be effective regardless of whether Final Payment has been made. 10.4 NON-LIMITATION OF RIGHTS AND REMEDIES The warranties set forth in this Article 10, and those contained elsewhere in the Contract Documents or implied by law, shall be deemed cumulative and not alternative or exclusive. No warranty shall be deemed to alter or limit any other warranty or any other remedy or right under the Contract Documents or provided by law. Nothing contained in this Article 10 shall be construed to establish a period of limitation with respect to any other obligation which Contractor has under the Contract Documents or under any separate warranty or guaranty required thereby. The warranty period established by the Contract Documents relates only to the specific obligation of Contractor to correct the Work, and it has no relationship to the Project Schedule, nor any statute of limitations regarding time within which proceedings may be commenced against Contractor to establish Contractor's liability with respect to its obligations other than specifically to correct the Work. ARTICLE 11. APPLICATIONS FOR PAYMENT 11.1 Contractor shall submit an Application For Payment, or alternatively referred to as the Invoice, to CES in accordance with the Schedule of Values as described below. 11.2 Within fourteen (14) calendar days from the date of execution of the Work Order, Contractor shall prepare and submit a Schedule of Values apportioned to the various divisions or phases of the Work. Each line item contained in the Schedule of Values shall be assigned a monetary price such that the total of all such items shall equal the Contract Amount. The Schedule of Values shall be subject to approval by CES and shall be prepared in such detail as may be required by CES or Customer and, in addition thereto, CES and Contractor may agree on the extent of the detail which must be supported by such documents and proof as CES may require. 11.3 Contractor's Applications For Payment (or invoice) shall be itemized and supported by the Schedule of Values and any other substantiating data (including notarization) as CES may require. Applications For Payment may include payment requests on account of properly authorized Work Orders. 11.4 Contractor warrants and guarantees that title to all Work covered by any Application For Payment, whether incorporated in the Project or not, will pass to CES free and clear of all liens, claims, security interests or encumbrances upon the date Contractor receives payment for such Work. 11.5 Waivers and Releases. As a prerequisite for all progress or final payments to Contractor, Contractor shall provide, in a form satisfactory to CES and Owner, partial lien or claim waivers in the amount of the application for payment and affidavits covering its subcontractors, materialmen, truckers, and suppliers for completed subcontract work. Such waivers may be conditional upon payment.tain Waivers and Releases as described herein. First, a Conditional Waiver and Release shall be provided to PG&E ES at time of invoicing, in a form acceptable to PG&E ES, that states that upon receipt of payment from PG&E ES for Work under the Work Order, Contractor shall waive and release any and all rights to a mechanic's lien, stop notice, or any right against any bond for Work completed to date, except for any disputed amount identified in the waiver and release. Also as a prerequisite for progress and final payments, Contractor shall provide Unconditional Waivers and Releases at time of invoicing, in a form acceptable to PG&E ES, from any and all of its subcontractors, materialmen, truckers and suppliers that states that they have been paid in full to date for all labor, services, equipment or materials furnished to the Project at Contractor's request, and thereby waive and release any right to a mechanic's lien, stop notice, or any right against any bond, except for any disputed amount identified in the release. 11.6 For each payment period, Contractor shall submit its Application for Payment (Invoice) for Work performed no later than seven (7) calendar days prior to the date that CES payment application is required to be submitted to Customer under the Customer Agreement, unless otherwise agreed. Contractor may include in its Applications for Payment materials and equipment purchased by Contractor and suitably stored at the Site or elsewhere for use in performance of the Work. ARTICLE 12. PAYMENTS TO CONTRACTOR 12.1 The Work Order will set forth the Contract Amount for the Contractor's Work and the Progress Payment Schedule. The total Contract Amount shall constitute the complete compensation for Contractor's Work with respect to the Project. CES shall be under no obligation to compensate Contractor any additional amounts beyond the Contract Amount, unless there is a written Work Order that increases the Contract Amount. 12.2 CES shall require a ten percent (10%) retainage to be withheld from payments made by CES to Contractor. CES may provide for a reduction of retainage based upon a percentage of completion of the Work. [Add Contractor Name] 15 Master Agreement for Design and Construction v.5 [Date] 12.3 CES may decline to pay Contractor, in whole or in part, to such extent as may be necessary in CES' good faith opinion to protect CES from loss because of: 1. Defective or nonconforming Work not remedied; 2. Third party claims or liens filed or reasonable evidence indicating probable filing of such claims or liens; 3. Failure of Contractor to make payments properly to its subcontractors; 4. Reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Amount; 5. Damage to CES or to Customer, for which Contractor is liable as set forth in the Contract Documents; 6. Reasonable evidence that the Work will not be completed within the Contract Time, as properly amended; or 7. Failure to perform the Work in accordance with the Contract Documents. When these grounds are corrected by Contractor, CES shall promptly make payment without interest for amounts withheld based on the deficiencies. 12.4 Any overpayments to Contractor shall, unless otherwise credited or adjusted, be repaid to CES. 12.5 If CES does not pay Contractor within thirty (30) days after payment is due, or such time as payment is required by applicable state law, whichever is earlier, interest at one percent (1%) per month shall accrue commencing on the date payment was due. 12.6 If Contractor is in any way indebted to CES under this Master Agreement, moneys due Contractor hereunder may be withheld as an offset against such other indebtedness. 12.7 Final payment of the balance owed to Contractor shall be due thirty (30) days after receipt by CES of final payment from Customer for the Work, or such time as required by applicable state law, whichever is earlier. However, Contractor shall not be entitled to final payment until Final Completion of the Work. Contractor agrees to furnish, if and when required by CES, payroll affidavits, receipts, vouchers, releases of claims for labor and material and releases from its subcontractors and vendors, in a form satisfactory to CES, prior to receipt of any payment. In the event of a payment a payment not made timely by Contractor, CES may, at its option, make any payment or portion thereof by joint check payable to Contractor and any of its subcontractors, suppliers, truckers, and/or materialmen. 12.8 Contractor agrees, upon payment by CES to Contractor for Work pursuant to this Master Agreement, to waive and release all lien rights that may exist or which may arise regarding the Work for such Work; and to furnish, if requested, waivers and releases of liens from every person or company furnishing labor or material for the Work in a form acceptable to CES; and to protect CES, the Work, and Customer from all expenses arising out of Contractor's failure of performance under the Contract Documents. 12.9 Contractor Payment of its Subcontractors and Suppliers. Upon payment by CES to Contractor, Contractor shall promptly pay its subcontractors and suppliers the amounts to which they are entitled. In the event CES has reason to believe that labor, material, or other obligations incurred in the performance of the Work are not being paid, CES may give written notice of a potential claim or lien to the Contractor and may take any steps deemed necessary to assure that progress payments are utilized to pay such obligations, including but not limited to the issuance of joint checks. If upon receipt of notice, the Contractor does not (a) supply evidence to the satisfaction of CES that the moneys due and owing have been paid; or (b) post a bond indemnifying the Owner, CES, and CES' surety, if any, and the premises from a claim or lien, CES shall have the right to withhold from any payments due or to become due to the Contractor a reasonable amount to protect CES from any and all loss, damage or expense including attorney's fees that may arise out of or related to any such claim or lien. If CES has reason to believe that the Contractor is not complying with the payment terms of this Master Agreement, CES shall have the right to contact the Contractors subcontractors and suppliers to ascertain whether they are being paid by the Contractor in accordance with this Master Agreement. ARTICLE 13. INSURANCE & BONDS 13.1 Contractor shall maintain the following insurance coverage. Contractor is also responsible for its Subcontractors maintaining the same insurance coverage as noted below, unless otherwise specified in the Work Order. [Add Contractor Name] 16 Master Agreement for Design and Construction v.5 [Date] 13.1.1 WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY 1. Workers' Compensation insurance or self-insurance indicating compliance with any applicable labor codes, acts, laws or statutes, state or federal, where Contractor performs Work pursuant to each Work Order. 2. Employers' Liability insurance shall not be less than $1,000,000 for injury or death for each accident. 13.1.2 COMMERCIAL GENERAL LIABILITY 1. Coverage shall be at least as broad as the Insurance Services Office (ISO) Commercial General Liability Coverage "occurrence" form, with no coverage deletions. 2. The limit shall not be less than $2,000,000 with respect to each occurrence for bodily injury, property damage and personal injury. Such coverage shall at least be as broad as the Insurance Services Office (ISO) Commercial Liability Coverage "occurrence" form, with no coverage deletions. 3. Coverage shall: a) by "Additional Insured" endorsement add as insureds CES, Customer, and all directors, officers, agents and employees of CES and Customer, with respect to liability arising out of Work performed under this Master Agreement by Contractor; b) be endorsed to provide cross-liability coverage, and c) specify that Contractor's insurance is primary and that any insurance or self-insurance maintained by CES shall not contribute with it. 13.1.3 BUSINESS AUTO 1. Coverage shall be at least as broad as the Insurance Services Office (ISO) Business Auto Coverage form covering Automobile Liability, code 1 "any auto." 2. The limit shall not be less than $1,000,000 for each accident for bodily injury and property damage. 13.1.3 PROFESSIONAL LIABILITY 1. Professional Liability (Errors and Omissions Liability) insurance appropriate for the design and engineering work to be furnished under this Master Agreement. Coverage shall be for a professional error, act or omission arising out of the scope of work provided hereunder. 2. The limit shall not be less than $1,000,000 for each claim. If coverage is subject to an aggregate, this aggregate limit shall be twice the claim limit. 3. With respect to any professional liability insurance provided on a claims-made basis, Contractor shall maintain such coverage continuously throughout its performance of its Work under this Master Agreement, and, without lapse, for a period of four (4) years thereafter. 13.1.4 BUILDER'S RISK INSURANCE 1. Contractor shall furnish builder's risk insurance on an "all-risk" basis subject to standard terms, conditions and exclusions, and with deductibles, limits and additional peril coverage to cover the Work provided pursuant to each Work Order. 13.1.6 ADDITIONAL INSURANCE PROVISIONS 1. Before commencing performance of Work, Contractor shall furnish CES with certificates of insurance and endorsements of all required insurance for Contractor. 2. The documentation shall state that coverage shall not be modified or canceled except after thirty (30) days prior written notice has been given to CES. 3. The documentation must be signed by a person authorized by that insurer to bind coverage on its behalf and shall be submitted to CES. 4. CES may inspect the original policies or require complete certified copies, at any time and the policies must be carried by companies reasonably acceptable to CES. 5. Upon request, Contractor shall furnish CES the same evidence of insurance for its Subcontractors as CES requires of Contractor. 13.2 PERFORMANCE AND PAYMENT BONDS 13.2.1 Upon the request of CES for any Project, Contractor shall furnish a performance and/or payment bond with respect to its Work performed pursuant to a Work Order. The performance bond shall guarantee Contractor's faithful performance of all terms and conditions of the Contract Documents. The performance and/or payment bond shall provide CES with security for Contractor's payment of all claims of laborers, mechanics, subcontractors, suppliers and the like for the costs of improvements made with respect to the Project at issue. [Add Contractor Name] 17 Master Agreement for Design and Construction v.5 [Date] 13.2.2 If a performance or payment bond, or both, are required of Contractor under the Contract Documents, then said bonds shall be in the full amount of the Contract Price, unless otherwise specified in the Contract Documents, and shall be in a form and by a surety mutually agreeable to CES and Contractor. 13.2.3 In the event Contractor shall fail to provide any required bonds prior to starting the Work or entering the Site, CES may terminate the Work Order and enter into a contract for the balance of the Work with another contractor. All CES costs and expenses incurred as a result of said termination shall be paid by Contractor. ARTICLE 14. TERMINATION OR SUSPENSION 14.1 TERMINATION BY CES FOR CAUSE 14.1.1 Grounds for Termination. CES may terminate this Master Agreement or an individual Work Order for material breach of this Master Agreement if the Contractor: 1. Persistently or repeatedly refuses or fails to supply enough properly skilled workers or proper materials; or 2. fails to make payment to subcontractors of undisputed amounts for materials or labor in accordance with the respective agreements between Contractor and the subcontractors; or 3. persistently disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or 4. otherwise is guilty of substantial breach of a provision of the contract Documents; or 5. Makes any material misrepresentations to CES (including but not limited to misrepresentations in connection with any Application For Payment); or 6. Is adjudicated as bankrupt; or 7. Makes a general assignment for the benefit of its creditors. 14.1.2 Notice to Cure: If any of the above reasons exist, CES shall notify Contractor in writing that Contractor is in default of this Master Agreement and/or individual Work Order. Contractor shall have five (5) days after receipt of this notification to either (1) commence and continue correction of the default with diligence and promptness to CES' satisfaction, or (2) present to CES a plan to correct the default in a timely manner that is satisfactory to CES. 14.1.3 Termination: If Contractor fails to cure the default within five (5) days, or within the time agreed to by the Parties pursuant to section 14.1.2 above, CES may without prejudice to any other rights or remedies of CES, and after giving Contractor and the Contractor's surety, if any, seven (7) days written notice of termination of the Master Agreement and/or an individual Work Order, terminate employment of contractor and may, subject to any prior rights of the surety: 1. take possession of the site and of all materials, equipment, tools, and construction equipment and machinery thereon owned by Contractor; 2. accept assignment of subcontract; 3. finish the Work by whatever reasonable method CES deems expedient, and 4. shall give Contractor written notice thereof. Contractor thereafter shall cure the default, or take specific corrective action, as soon as possible and in any event within five (5) working days from receipt of the written notice of default. 14.1.4 If CES terminates the Master Agreement and/or an individual Work Order for one of the reasons stated in Section 14.1.1, the Contractor shall not be entitled to receive further payment until the Work is finished. 14.1.5 If the unpaid balance of the Contract Amount exceeds the costs of finishing the Work, such excess shall be paid to the Contractor. If such costs exceed the unpaid balance, the Contractor shall pay the difference to CES. This obligation for payment shall survive the termination of this Master Agreement or individual Work Order. [Add Contractor Name] 18 Master Agreement for Design and Construction v.5 [Date] 14.1.6 CES' failure to exercise any particular rights or remedies set forth in this Article 14 shall not operate as a waiver of any other rights or remedies; or prevent CES from exercising such rights or remedies. 14.2 TERMINATION BY CES FOR CONVENIENCE 14.2.1 Notwithstanding any other terms contained in the Contract Documents, in the event CES' contract or individual Work Order with Customer is terminated by Customer, CES shall have the right to terminate the respective Work Order with Contractor for CES' convenience by giving Contractor written notice that the Work Order is terminated. 14.2.2 Payment for Work - Contractor's Termination Statement. Contractor shall, as soon as practical after receiving a notice of termination for convenience under Subparagraph 14.2.1, submit to CES, Contractor's statement showing all of the costs incurred by Contractor in the performance of the Work terminated pursuant to this Article. CES shall, within thirty (30) days after receipt of such statement, pay to Contractor all amounts properly included thereon. The phrase "costs incurred by Contractor in the performance of the Work terminated" as used herein shall be deemed to include: 1. Subcontract termination costs; 2. Cancellation fees in regard to equipment and materials ordered; 3. Cost of all materials and equipment ordered which cannot be canceled less actual proceeds received upon the disposition thereof; 4. Restocking fees in regard to materials ordered; 5. Loss of profit for work completed as of the date of termination; 7. Field work accomplished; 8. Permit, engineering bond and inspection fees; 9. All other direct costs actually incurred by Contractor which can be demonstrated by invoice, canceled check or other appropriate documentation, and 10. Upon payment by CES of the sums set forth in Subparagraph 14.2.3, Contractor shall transfer to CES title to all materials, equipment and other property included or ordered for the terminated Work, the cost of which was included in Contractor's termination statement. 14.2.3 Acceptance of such payment by Contractor as being in accordance with this Article 14 shall constitute a waiver of all further claims by Contractor against CES under the Work Order. 14.3 CES' RIGHT TO SUSPEND WORK 14.3.1 CES may order in writing Contractor to suspend, delay or interrupt all or any part of the Work for such period of time as CES may determine to be appropriate for the convenience of CES. 14.3.2 If CES orders a suspension, delay, or interruption of the Work, an adjustment of the Contract Amount shall be made for any increase in Contractor's costs of performance, including a mark-up for overhead and profit as provided in Article 8 of this Agreement, and of the Contract Time for any increase in the time required for performance of the Work necessarily caused by such suspension, delay or interruption. However, no equitable adjustment shall be made to the extent that performance would have been so suspended, delayed or interrupted by any other cause that would not have entitled Contractor compensation under Article 8 of this Master Agreement , including the fault or negligence of Contractor. 14.4 CES' RIGHT TO STOP WORK If Contractor fails to correct defective Work as required elsewhere in the Contract Documents, or persistently fails to carry out the Work or supply labor or materials in accordance with the Contract Documents, CES may order in writing Contractor to stop the Work or the affected Work Order, or any portion thereof, until the cause [Add Contractor Name] 19 Master Agreement for Design and Construction v.5 [Date] for such order has been eliminated; however, this right of CES to stop the Work shall not give rise to any duty on the part of CES to exercise this right for the benefit of Contractor or any other person or entity. 14.5 PARTIES' RIGHT TO TERMINATE 14.5.1 Both CES and Contractor have the right to terminate a Work Order under Master Agreement, upon seven (7) days written notice to the other Party, if the Work under a Work Order is delayed or suspended for a period that exceeds one hundred and twenty (120) days through no act or fault of CES, the Contractor or any of the Contractor's subcontractors, its sub-subcontractor, or their agents or any other persons performing portions of the Work under contract with the Contractor, because of acts or failures to act by others that are beyond the control of CES, Contractor, or Contractor' subcontractor(s) and/or if CES fails to pay Contractor any Progress Payments due and owing for more than one hundred and twenty (120) days. If a Work Order is so terminated, Contractor may recover from CES payment for Work executed and for proven loss with respect to materials, equipment, equipment, tools, and construction equipment and machinery, including reasonable overhead, profit and damages. 14.5.2 Either Party may terminate this Master Agreement without cause upon sixty (60) days written notice to the other Party, if all Work Orders then in effect have achieved Final Completion and no further Work Orders have been issued. Contractor shall be entitled to payment for all Work performed in accordance with this Master Agreement. ARTICLE 15. INDEMNIFICATION 15.1 Contractor shall, to the fullest extent permitted by law, indemnify and hold harmless Customer, CES, CES' consultants, and their agents, officers, directors, employees, successors, and assigns of any of them from and against all claims, damages, losses and expenses and costs of any kind or description, including, but not limited to attorney's fees and other related costs and expenses, losses and damages, arising out of or resulting from performance of the Work. These indemnification obligations shall be limited to claims, damages, losses or expenses (1) that are attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, and (2) to the extent such claims, damages, losses or expenses are caused in whole or in part by negligent acts or omissions or willful misconduct of Contractor, its Subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this paragraph. 15.2 In claims against CES, or its Customer, consultants and other subcontractors, agents, employees by an employee of Contractor, its subcontractors, or anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under Article 15 shall not be limited by a limitation on the amount or type of damages, compensation, or benefits payable by or for Contractor, or its subcontractors, under workers' compensation acts, disability benefits acts, or other benefit acts. ARTICLE 16. DISPUTE RESOLUTION In the event of a dispute, controversy, or claim arising out of or relating to this Master Agreement, the Parties shall confer and attempt to resolve such matter informally. If such dispute or claim can not be resolved in this manner, then the dispute or claim shall be referred first to the Parties' executive officers for their review and resolution. If the dispute or claim still can not be resolved by such officers, then the Parties may agree to submit to non-binding mediation or either Party may file a written demand for arbitration with the American Arbitration Association ("AAA") and shall send a copy of such demand to the other Party. The arbitration shall be conducted pursuant to the Commercial Arbitration Rules of the AAA in effect at the time the arbitration is commenced. The award rendered by the arbitrator shall be final and binding on the Parties and shall be enforceable in any court having jurisdiction thereof and of the Parties. The arbitration shall be heard by one mutually agreeable arbitrator, who shall have experience in the general subject matter to which the dispute relates. The arbitration shall take place in the state where the project under dispute is located, unless both Parties mutually agree to a different venue for arbitration. [Add Contractor Name] 20 Master Agreement for Design and Construction v.5 [Date] ARTICLE 17. MISCELLANEOUS PROVISIONS 17.1 Cross references, captions, headings, the index and citations of sections and subsections in this Master Agreement are for the convenience of Contractor and CES, and they are not intended to be plenary or exhaustive nor are they intended to be considered in interpreting this Master Agreement or any other part of the Contract Documents. 17.2 There are incorporated in this Master Agreement the provisions of Executive Order 11246 (as amended) of the President of the United States on Equal Employment Opportunities and the rules and regulations issued pursuant thereto with which Contractor represents that it will comply unless exempted. 17.3 If any clause of the Contract Documents is held as a matter of law to be unenforceable or unconscionable, the remainder of the Contract Documents shall be enforceable without such clause. 17.4 No provisions of the Contract Documents shall in any way inure to the benefit of any third party (including the public at large) so as to constitute such person as a third party beneficiary of the Contract Documents, except as specifically provided elsewhere in the Contract Documents. 17.5 Contractor shall subordinate, and shall have its Subcontractors subordinate, any lien or claim or right of lien against the Project and its real property which Contractor and his Subcontractors may now or hereafter have on account of construction labor, services or materials provided under the Contract Documents in connection with the Work or otherwise for the Project, to any promissory note, loan agreement, mortgage, deed to secure debt, or other instrument executed by CES or Customer. 17.5 NOTICES. Any notices hereunder, except as specifically provided elsewhere in the Contract Documents, shall be given in writing and shall be delivered by hand or by first class certified U. S. Mail, return receipt requested to the addresses set forth below, or to such other address as either Party may substitute by written notice to the other in the matter contemplated herein, and will be deemed given when delivered, or, if delivery is not accomplished by some fault of the addressee, when tendered.
---------------------------------------------------------------------------------------- TO CES: WITH COPY TO: TO CONTRACTOR: ---------------------------------------------------------------------------------------- Chevron Energy Solutions Chevron Energy Solutions Contractor Name Street Address 345 California Street, Suite 3200 Street Address City, State, Zip Code San Francisco, CA 94104 City, State, Zip Code Attn: Name, Title Attn: Legal Department Attn: Name, Title Phone Number: Phone Number : Fax Number: Fax Number: ----------------------------------------------------------------------------------------
17.6 SIGNS. No signs shall be placed on the Project site by Contractor or any Contractor subcontractor without the prior written approval of CES. 17.7 GOVERNING LAW. The Contract Documents shall be governed by the laws of the SState of California of California excluding any conflicts of law principles. 17.8 FINANCIAL BOOKS AND RECORDS. Contractor shall maintain financial books, documents, and cost accounting records with respect to the Contract Amount on a cash basis in accordance with generally accepted accounting principles. These records shall be made available to CES, upon request for audit, inspection or copying to the extent that they relate to any issue of entitlement to payment or adjustment of the Contract Amount. 17.9 THIRD PARTY BENEFICIARIES. This Master Agreement shall not create any third party beneficiary rights or obligations with respect to any third party. 17.10SUCCESSORS AND ASSIGNS. Each Party shall have the right to assign its rights and interests in this Master Agreement and individual Work Orders to an affiliate, subsidiary, or successor company who shall be bound to the terms and conditions of this Master Agreement. 17.11CONFIDENTIAL AGREEMENT. The terms and conditions of this Master Agreement shall be subject to that certain Mutual Nondisclosure Agreement between CES and Contractor dated [ADD DATE OF MNDA]. 17.12DUPLICATE ORIGINALS. Two (2) duplicate originals of this Master Agreement shall be executed; each of which shall be deemed an original but both of which together shall constitute one and the same instrument. 17.13ENTIRE AGREEMENT. This Master Agreement contains the entire agreement between the Parties and there are no oral or written representations, understandings, or agreements between the Parties respecting the subject matter of this Master Agreement, which are not fully expressed herein. [Add Contractor Name] 21 Master Agreement for Design and Construction v.5 [Date] IN WITNESS WHEREOF, the Parties hereto have executed this Master Agreement as of the day and year first above written. DEMARCO ENERGY SYSTEMS OF AMERICA, INC. CHEVRON ENERGY SOLUTIONS, L. P. By: /S/ Victor M. DeMarco By: /S/ Lee J. Hanson ----------------------------------- ---------------------------- (Signature) (Signature) Name: Victor M. DeMarco Name: Lee J. Hanson --------------------------------- -------------------------- Title: President Title: SR VP Operations -------------------------------- ------------------------- [Add Contractor Name] 22 Master Agreement for Design and Construction v.5 [Date] EXHIBIT A WORK ORDER SAMPLE FORM CES CONTRACT NUMBER: ______ [Chevron Logo Appears Here] CHEVRON ________________ Energy Solutions WORK ORDER # ______ TO MASTER AGREEMENT FOR DESIGN AND CONSTRUCTION THE MASTER AGREEMENT FOR DESIGN AND CONSTRUCTION ("Master Agreement"), entered into on [MONTH DAY, YEAR] by and between CHEVRON ENERGY SOLUTIONS, L. P., a Delaware limited partnership with principal offices at 345 California Street, Suite 3200, San Francisco, California 94104 ("CES") and [ADD CONTRACTOR'S NAME, ADDRESS, AND PHONE NUMBER, a [ADD STATE] Corporation, with principal offices located at[ADD ADDRESS AND PHONE NUMBER], or its applicable wholly owned subsidiary identified below in Section 2, ("Contractor") is hereby amended on this date [ADD DATE OF WORK ORDER EFFECTIVE DATE] ("Work Order Effective Date")by this Work Order which is fully incorporated into the MASTER AGREEMENT as follows: CUSTOMER. The Customer for whom the Work will be performed is _____________ _______________. The address and phone number of the Customer is ______________. SUBSIDIARY COMPANY OF [ADD CONTRACTOR'S NAME] PERFORMING WORK, IF ANY: [ADD NAME, ADDRESS, CONTACT NAME, AND PHONE NUMBER OF SUBSIDIARY COMPANY PERFORMING THE WORK UNDER THIS WORK ORDER. LEAVE BLANK IF NONE.] ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 3. SCOPE OF WORK/ SITE LOCATIONS. The Scope of Work at each Site Location, including the description of the Scope of Work, including equipment and materials to be provided and installed and any other Work to be performed; Warranty provisions; and the Operations and Maintenance provisions, if any; to be provided under this Work Order is identified on ATTACHMENT 1 - "SCOPE OF WORK/SITE LOCATIONS" attached hereto and incorporated herein. Unless otherwise described herein or in Attachment 1, Contractor shall be responsible for the removal, transport, and proper disposal of Hazardous Substances identified in the Scope of Work attached hereto and to provide to CES certification that such equipment was properly transported from the site location(s) and properly disposed of. 4. PROJECT SCHEDULE. The Project Schedule for each Site Location where Work shall be performed by Contractor pursuant to this Work Order, including Commencement Date, Substantial Completion Date, and Operational Date, is identified on "ATTACHMENT 2 - PROJECT SCHEDULE" attached hereto and incorporated herein 5. CONTRACT AMOUNT FOR WORK ORDER. The total Contract Amount for performance of this Work Order, schedule of payment, and payment terms is as follows: [ADD TOTAL AMOUNT HERE AND ALSO INDICATED IF CONTRACT AMOUNT WILL BE PAID AS A ONE-TIME LUMP SUM, FIXED FEE PAID VIA PROGRESS PAYMENTS, BASED ON TIME AND MATERIALS NOT TO EXCEED A CERTAIN DOLLAR AMOUNT, AND IF PROGRESS PAYMENTS WILL BE PAID ON A MONTHLY BASED ON WORK COMPLETED DURING THE PRIOR MONTH, OR BY ACHIEVEMENT OF DEFINED MILESTONES, ETC.] 6. CONTRACTOR/ENGINEERING LICENSE(S). Contractor possesses the following Engineering and/or Contractor license(s) and/or certificates, with the number indicated, expiration date, and in what state the licensed was issued, as required by law to perform the work as described in the Scope of Work at the Site Locations identified on Attachment 1. If any work is to be performed by a subcontractor to the Contractor, please also indicate your subcontractor's name along with the same following information required to perform such work. CONTRACTOR/ENG. NAME LICENSE/CERTIFICATE TYPE LICENSE NUMBER EXPIRATION DATE STATE ISSUED [Add Contractor Name] Master Agreement for Design and Construction v.3 7. GENERAL TERMS AND CONDITIONS. Except for terms and conditions provided in this Work Order, all Work performed pursuant to this Work Order shall be subject to the terms and conditions of the Master Agreement. If this Work Order is executed by a wholly owned Subsidiary Company of Contractor, such Subsidiary Company agrees to perform such work and be bound by the above referenced Master Agreement, a copy of which shall be provided by CES to the Subsidiary Company upon request. IN WITNESS WHEREOF, the Parties hereto have executed this Work Order as of the day and year first above written. CONTRACTOR (OR CONTRACTOR'S SUBSIDIARY COMPANY) NAME CHEVRON ENERGY SOLUTIONS, L. P. BY: BY: ----------------------------------------- ------------------------------ (Signature) (Signature) NAME: NAME: ----------------------------------------- ------------------------ TITLE: TITLE: ----------------------------------------- ------------------------ [Add Contractor Name] Master Agreement for Design and Construction v.5 CES Contract No. ___________ EXHIBIT B DEFINITIONS For the purposes of this Master Agreement, including all Work Orders and Change Orders, the defined terms herein shall have the meaning set forth as follows: 1. APPLICABLE LAWS: "Applicable Laws" shall mean all laws, building codes, rules, regulations, or orders of any federal, state, county, local, or other governmental body, agency, or other authority having jurisdiction over the performance of the Work, as may be in effect at the time the Work is undertaken. 2. APPLICABLE PERMITS: "Applicable Permits" shall mean all permits, waivers, authorizations, or licenses issued or required to be issued by any federal, state, county, local, or other governmental body, agency, or other authority having jurisdiction over the performance of the Work, as may be in effect at the time the Work is undertaken. 3. APPLICATION FOR PAYMENT: "Application for Payment" shall mean the Contractor's application requesting and verifying its entitlement to payment for Work performed, including all supporting documentation as set forth herein in Articles 11 and 12 hereof. 4. CES: "CES" refers to Chevron Energy Solutions, L. P., a wholly owned entity of the Chevron Products Company. The term CES means CES or its authorized representative. 5. CHANGE: "Change" shall mean any addition to, deletion from, suspension of or other modification to the quality, schedule, function or intent of the Work, including without limitation any such addition, deletion, suspension or other modification that effects a change in the Scope of Work, Contract Amount, or Contract Time as provided for in Article 8 of the Master Agreement. 6. CHANGE ORDER: "Change Order" shall mean a written document signed by both Contractor and CES that describes the changes to the terms of an individual Work Order and that formally amends an individual Work Order. A Change Order may add to, delete, modify, and/or change and amend the Work Order's scope of work, compensation, and/or the schedule for completion of the Work identified in the Work Order. 7. CLAIMS: "Claims" shall mean any and all actions, claims, losses, damages, expenses or liabilities of either party arising from or a result of this Master Agreement, Work Order, and/or Change Orders. 8. CONSTRUCTION: "Construction" shall mean any Work to be performed that involves any and all construction, alteration, repair, addition to, subtraction from, improving, moving, wrecking or demolishing any building, highway, road, parking facility, excavation, or other structure or improvement, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith, and the cleaning of grounds or structures in connection with any of the above activities. 9. CONSTRUCTION DOCUMENTS: "Construction Documents" shall mean the Final Construction Documents, and any and all Change Orders affecting those documents, that provide the final plans and specifications that describe the technical requirements for the installation of all the materials and equipment pursuant to this Master Agreement and individual Work Order. 10. CONTRACT AMOUNT: "Contract Amount" shall mean the amount of compensation due to Contractor for the successful, proper and timely completion of work. The Work order shall state the Contract Amount. Unless modified by a Work Order, or Change Order, the Contract Amount is the maximum amount of compensation payable by CES to Contractor for the Work. 11. CONTRACT DOCUMENTS: "Contract Documents" shall mean collectively this Master Agreement, any Work Order(s), the Plans and Specifications prepared or to be prepared by the Engineer (or Contractor) for the particular Project and any other Construction Documents. 12. CONTRACT TIME: "Contract Time" means the period of time after the Date of Commencement of the Work allotted in the Work Order in which Contractor must achieve Final Completion of the Work, as may be adjusted by Work Order. 13. CONTRACTOR: "Contractor" means the person or entity identified as such in this Master Agreement, Work Order(s), and Change Order(s). The term Contractor means Contractor, Contractor's Subsidiary Company as defined herein, or its authorized representative. 14. CUSTOMER: "Customer" means the person or entity identified as such in the Work Order. The Customer will have entered into a Customer Agreement directly with CES. 15. CUSTOMER AGREEMENT: "Customer Agreement" means the agreement entered into by CES and its Customer under which CES will, for consideration received, furnish specified improvements at the Customer's facility. 16. DATE OF COMMENCEMENT OF THE WORK: "Date of Commencement of the Work" means the date established as such in a written notice to proceed to be issued by CES to Contractor. Contractor shall not commence work prior to the issuance of a written notice to proceed by CES. 17. DAY: "Day" means a calendar day unless otherwise specifically designated. 18. DRAWINGS OR PLANS: "Drawings" or "Plans" means all drawings, plans, depictions, and designs either provided by CES, or prepared by Contractor, and required for the construction, erection, installation and completion of the Work. 3 19. ENGINEER: "Engineer" means the person or entity lawfully licensed to practice engineering, identified as such in the Work Order. For certain projects, Engineer may also be the same entity as Contractor. The term Engineer means the Engineer or its authorized representative. 20. FINAL COMPLETION: "Final Completion" means the acceptance of the completed Project by CES and Customer from Contractor in accordance with the provisions of Article 6 of this Master Agreement. 21. HAZARDOUS SUBSTANCES: "Hazardous Substances" shall mean any hazardous, toxic or dangerous wastes, substances, chemicals, constituents, contaminants, pollutants, and materials and any other carcinogenic, corrosive, ignitable, radioactive, reactive, toxic or otherwise hazardous substances or mixtures (whether solids, liquids, gases) now or at any time subject to regulation, control, remediation or otherwise addressed under Applicable Laws; (ii) any "hazardous substance" as defined by the Resource, Conservation and Recovery Act of 1976 (42 United States Code ("U.S.C."), Section 6901 et seq.), as amended, and regulations promulgated thereunder; (iii) any "hazardous, toxic or dangerous waste, substance or material" specifically defined as such in (or for the purposes of) the Comprehensive Environmental Responses, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended, and regulations promulgated thereunder; and (iv) any hazardous, toxic or dangerous waste, substance, or material as defined in any so-called "superfund" or "superlien" law.. 22. INSTALLATION: "Installation" shall mean the setting up and placement of any equipment or materials in the manner it will be operated, in accordance with the Work Order and in accordance with all Applicable Laws. Installation will not be deemed complete until the Operational Date. 23. INSTALLATION LOCATION: "Installation Location" shall mean that area or areas where the Project materials and equipment and any other energy related equipment as described in the Work Order shall be located. 24. INTEREST: "Interest" shall mean interest calculated at the lesser of the per annum rate of interest announced from time to time by Citibank, at its "prime" rate for commercial loans plus two percent (2%) or the maximum rate permitted by Applicable Laws. 25. LOSSES. "Losses" shall mean claims, actions, damages, losses, liabilities, costs, and/or expenses including reasonable attorney's fees. 26. MASTER AGREEMENT: "Master Agreement" shall mean this Master Agreement for Design and Construction and all Exhibits attached hereto which are incorporated herein, as it may be amended or modified from time to time in accordance with the provisions hereof. 27. MASTER AGREEMENT EFFECTIVE DATE: "Master Agreement Effective Date" shall mean the date this Master Agreement is fully executed as noted above and is the date the Master Agreement is in full force and effect. 28. MATERIAL CHANGED CONDITION: "Material Changed Condition" shall mean one or more of the following conditions that impact the Project Schedule and/or Cost: 1) parties or conditions outside the control of the parties caused delays in Project Schedule; 2) discovery of differing and unexpected site conditions not previously disclosed by CUSTOMER and could not have been readily discoverable prior to start of Work; 3) discovery of hazardous wastes or material not been previously disclosed; (4) adverse weather conditions not reasonably anticipated; (5) delay in equipment and material deliveries outside the Parties' control; and 6) any other condition that could not have been reasonably anticipated by the Parties and is outside the Parties" control. 29. NOTICE OF CLAIM: "Notice of Claim" means a written notice from Contractor to CES provided in accordance with Article 8 of this Master Agreement, identifying an order, event or occurrence that Contractor contends should cause a Change in the Work entitling Contractor to an adjustment of either the Contract Amount or Contract Time or both. 30. OPERATIONAL DATE: "Operational Date" shall mean the date when the installed Work is substantially complete in accordance with the Contract Documents so that the Work is functional and can be generally used for the purpose for which the Work is intended. 31. OPERATIONS AND MAINTENANCE SERVICES OR O&M: Operations and Maintenance Services or O&M shall mean the provision of operations and maintenance services for the equipment, and any and all other material, hardware, or software provided and installed by CES, or its subcontractors, in accordance with the Work Order. 32. PARTY OR PARTIES: "Party" or "Parties" shall mean CES, CUSTOMER, each or both of them, as the context may require pursuant to the terms and conditions of this Master Agreement. 33. PROJECT: "Project" shall mean the entirety of Work to be performed by Contractor per the terms and conditions of each Work Order, and any Change Orders to a Work Order, as well as all efforts of CES and other entities regarding the Work, Site, facilities and other matters referred to in the Contract Documents, all as an integrated whole. 34. PROJECT SCHEDULE: "Project Schedule" means the CES-approved schedule of Work identified in the Work Order, prepared pursuant to Paragraph 7.3 of this Master Agreement, showing the sequences, duration, and interrelationships and establishing Contractor's plan for accomplishing Final Completion within the Contract Time. 35. SCOPE OF WORK: Scope of Work" shall mean the amount and extent of Work that is contemplated to be performed by Contractor per the terms of this Master Agreement and as specifically described in each Work Order, as amended by Change Orders. Should there be any conflict between the Work Order plus its Change Orders and the terms of this Master Agreement, the Work Order together with the agreed upon Change Orders shall take precedence and shall establish the Scope of Work for the each Project. 4 36. SITE: "Site" means the real property upon which the Project is situated. The Site shall be particularly described in Work Order. 37. SPECIFICATIONS: "Specifications" means all specifications; equipment, materials and supplies lists; schedules and other written information either provided by CES or prepared by Engineer (or Contractor) and required for the construction, erection, installation and completion of the Work. 38. SUBSIDIARY COMPANY: "Subsidiary Company" means a company that is wholly owned by Contractor and to whom Contractor may assign individual Work Orders under this Master Agreement and such Subsidiary Company shall be bound to the terms and conditions of both the Work Order and this Master Agreement in performance of such Work. 39. SUBSTANTIAL COMPLETION: "Substantial Completion". means the stage in the progress of the Work when the Work is sufficiently complete in accordance with the Contract Documents so that the Customer can utilize and take beneficial use of the Work for its intended use. 40. TIME: "Time" shall mean the time period within which Contractor shall complete the Work in accordance with the Work Order Project Schedule. 41. WORDS: "Words" and abbreviations which have well-known technical or trade meanings are used in the Contract Documents in accordance with such recognized meanings. 42. WORK: "Work" shall mean the design, procurement, installation and/or construction required for the Project and includes all labor necessary to produce such services, all materials, fabrications, assemblies, and equipment incorporated or to be incorporated in such construction necessary to achieve Final Completion of the Project, including such materials and equipment which may be consumed or used but not actually incorporated in such construction. Depending upon the terms of each Work order, the Work may include design, supplying, installing, maintaining, operating, and warranting certain materials and equipment, and providing any other energy-related services specified in the Work Order. 43. WORK ORDER: "Work Order" means a document executed by both Contractor and CES that describes, at minimum, the scope of work to be performed, the compensation Contractor shall be paid for such Work, and the schedule for completion of the Work described therein, and such Work Order shall constitute an amendment to this Master Agreement. A sample Work Order Form is attached hereto as Exhibit A. Contractor shall not perform any Work with respect to any Project until the parties have first executed a Work Order for the Work. Any work done by Contractor prior to the execution of a Work Order shall be done at Contractor's expense. A Work Order may be executed by Contractor, or a wholly owned Subsidiary Company. If a Subsidiary Company executes a Work Order, the Contractor and Subsidiary Company shall be bound to the terms and conditions of such Work Order. 44. WORK ORDER EFFECTIVE DATE: "Work Order Effective Date" shall mean the date an individual Work order is fully executed and the date the Work Order is in full force and effect. 5 EX-23 13 exhibit23-02.txt CONSENT OF INDEPENDENT AUDITOR EXHIBIT 23.02 October 2, 2001 Mr. Curtis Ashmos Locke, Liddell & Sapp LLP 100 Congress Avenue, Suite 300 Austin, TX 78701 Dear Mr. Ashmos: I, Nathan M. Robnett, hereby consent to the use of our firm name Robnett & Company, C.P.A.'s, P.C., as "independent auditor" and my Independent Auditor's Report dated August 22, 2001 and the Audited Financial Statements of DeMarco Energy Systems of America, Inc. as of June 30, 2001 and 2000, including the respective notes thereto in the SB-2 Filing, as amended by Amendment number 1, to the Securities Exchange Commission. My consent is limited as described above and is valid until December 31, 2001. Any additional use or use after December 31, 2001 if my name will require my consent in each and every instance. Sincerely, /S/ Nathan M. Robnett Nathan M. Robnett Robnett & Company, P.C.