Technology Development Agreement

TECHNOLOGY DEVELOPMENT AGREEMENT


This Agreement is entered into this 1st day of November, 2001 (the "Effective Date") by and between Reliable Power Systems, Inc., a Colorado corporation ("RPSI") and Flywheel Energy Inc., a California corporation ("Developer").


RECITALS


WHEREAS, RPSI develops total power packages for industrial, commercial manufacturing, data and telecommunications users that address the growing problems facing power users from an aging infrastructure, poor quality power, deregulation and surging global demand (collectively, the "UPS Industry"); and


WHEREAS, Developer is an engineering firm specializing in the development of self-contained power units, back-up power units and energy management devices for one or more industries, including, but not limited to, the UPS Industry; and


WHEREAS, RPSI desires to contract with Developer to develop a continuous power machine for the UPS Industry and Developer desires to accept this engagement subject to the terms and conditions contained herein.


AGREEMENT


NOW THEREFORE, in consideration of the mutual promises and covenants contained herein the parties agree as follows:


1. Scope of the Project. The purpose of this Agreement is to set
forth the terms and conditions under which Developer shall create,
design and develop a "continuous power machine" for RPSI (the
"Project").


2. Development of the Continuous Power Machine. The continuous power
machine to be developed under this Project shall be based on
patentable technology ("CPM"), with the patent rights to such
technology to be held in the name of Developer (or its designate),
until such time as such rights are assigned to RPSI pursuant to
the terms and conditions of this Agreement and as otherwise
provided in the Exclusive Patent Rights Transfer Agreement, dated
as of August 29, 2001, (the "Patent Rights Transfer Agreement"),
which is an exhibit to this Agreement and is incorporated herein
by this reference.


3. Term of Agreement.


a. The term of this Agreement (the "Term") shall run
concurrently with the development of the CPM, which is the
subject matter of the Project and shall begin on the
Effective Date and end upon the acceptance by RPSI of the CPM
as a product that is generally acceptable for release and
sale to the public in the UPS Industry (the "Production
Version of the CPM").


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b. In the event that the parties agree to extend or expand this
Agreement beyond the scope of the Project, such agreement
shall be in writing and shall specify the new project(s) that
shall be covered hereunder.


c. Each party has the right to terminate this Agreement prior to
the expiration of the Term only if the other party has
materially breached any obligations herein and such breach
remains uncured for a period of 30 days after notice thereof
is sent to the other party; provided, however, that in the
case of RPSI's obligations to reimburse Developer for
undisputed expenses that are reasonably and demonstrably
incurred under Section 10, a material breach shall have been
deemed to occur if RPSI fails to make an expense
reimbursement within 15 days after submittal by Developer of
the Monthly Expense Report. Upon termination of this
Agreement in the event of such material breach, each party
shall be released from all obligations and liabilities to the
other arising after the date of termination. However, any
termination of this Agreement shall not relieve RPSI from the
obligation to pay Developer the fees, royalties and stock and
stock options for services rendered by Developer and accepted
by RPSI prior to receipt of the notice of termination. Upon
termination of this Agreement, Developer shall promptly
return to RPSI all data, materials and other property of RSPI
held by it.


4. Exclusivity During the Term. RPSI shall be the exclusive customer
of Developer during the Term and Developer shall devote itself
exclusively to the development of the CPM, unless otherwise
mutually agreed to in writing.


5. Acceptance Testing of the CPM. During the Term of this Agreement,
the parties will negotiate in good faith and jointly agree upon
and set forth in writing the specifications and acceptance
criteria for the releases of each of: (i) an "Alpha Version of the
CPM", (ii) a "Beta Version of the CPM" and (iii) the Production
Version of the CPM (each, a "Deliverable"). Each Deliverable will
be subject to acceptance testing to verify that the Deliverable
satisfies the acceptance criteria ("Acceptance"). In the event
that any Deliverable fails to conform to the acceptance criteria,
RPSI will cooperate with Developer in promptly identifying in what
respects the Deliverable has failed to conform to the acceptance
criteria and Developer will use its best efforts to promptly
correct any identified problems so as to facilitate the timely
re-submittal and Acceptance of the Deliverables.


6. Ownership of Intellectual Property. RPSI is aware that the sole
shareholder of Developer as of the Effective Date (the "Sole
Shareholder") developed the following unique technologies prior to
this Agreement (collectively, "Prior Technologies"):


a. A combination of the Electromagnetic Coupling (Clutch) with
the Flywheel ("Electromagnetic Coupling").
b. A combination of a Hydraulic Coupling (Clutch) with the
Flywheel ("Hydraulic Coupling").


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c. A method to oil rotary machinery without using dynamic seals.
d. A method to oil rotating machinery continuously using a
combination of pumps and gravity flow.
e. Using "Gimbals" to align support bearings for rotating a
flywheel.
f. A method to rotate a flywheel at a high speed and the
rotating bearing at half that speed.


Except for the Prior Technologies, all trademarks, trade secrets,
copyrights, technology, patents, patent applications, patentable
technology and any other intellectual property created by
Developer during the Term of this Agreement (collectively,
"Intellectual Property"), shall be the sole property of RPSI. By
signing this Agreement, together with the Patent Rights Transfer
Agreement, Developer hereby transfers to RPSI all rights that
Developer may have or acquire in the Intellectual Property
developed pursuant to this Agreement, except for the Prior
Technologies. It is agreed that the patent for the "Continuous
Power Machine" which was submitted to RPSI prior to the Effective
Date of this Agreement, is considered to be part of the "Prior
Technologies." To the extent that some or all of the Prior
Technologies are used in the development of the CPM, Developer
grants to RPSI a non-exclusive and perpetual license to use the
embedded Prior Technologies solely in connection with the uses
contemplated under this Agreement and only so long as such Prior
Technologies remain embedded in the CPM(s) that Developer designs
for RPSI hereunder. Developer warrants that this Agreement will
not conflict with any of Developer's other agreements with any
third parties, and based solely upon the documentation that
Developer has provided to RPSI, RPSI is informed and believes that
Developer's warranty is accurate and true. To the extent that any
of the Intellectual Property contains material that is proprietary
to a third party, Developer shall obtain a license from the owner
permitting the use of such material and granting RPSI the right to
sub-license its use.


Developer agrees to sign any documentation reasonably requested by
RPSI to transfer or vest title to the above-referenced
Intellectual Property in and to RPSI, except for the Prior
Technologies. Developer shall require all employees and
consultants assigned to this Project to execute a written
agreement transferring all Intellectual Property rights that they
may acquire while working on the CPM to RPSI. This provision shall
be interpreted as broadly as possible in favor of RPSI.


Exceptions. Except for the Prior Technologies, it is the express
intent of the parties that RPSI shall have the exclusive right to
all Intellectual Property ...