Item 1.02. Termination of a Material Definitive Agreement.
As previously disclosed, on each of February 7, 2007, October 27, 2009 and
October 31, 2012, FuelCell Energy, Inc. (the "Company") entered into a series of
manufacturing and technology transfer agreements (collectively, the "License
Agreements") with POSCO Energy Co., Ltd. ("POSCO Energy"), providing POSCO
Energy with exclusive technology and distribution rights to manufacture, sell,
distribute and service the Company's proprietary SureSource 300, SureSource 1500
and SureSource 3000 fuel cell technology in the Korean and broader Asian markets
(such proprietary technologies being the only technologies licensed to POSCO
Energy by the Company). The License Agreements require POSCO Energy to, among
other things, (i) exercise commercially reasonable efforts to market the
Company's technology and perform in cooperation with the Company and in
accordance with prevailing industry standards, (ii) conduct its business in a
manner that does not attract unfavorable publicity or a negative reputation in
the industry, (iii) use all reasonable efforts to prevent the use or disclosure
of the Company's confidential information to third parties, and (iv) pay to the
Company a 3.0% royalty on POSCO Energy net product sales, as well as a royalty
on scheduled fuel cell module replacements under service agreements for fuel
cell modules that were built by POSCO Energy and installed at plants in Asia
under the terms of long term service agreements between POSCO Energy and its
customers. Due to certain actions and inactions of POSCO Energy, we have not
realized any material revenues, royalties or new projects developed by POSCO
Energy since late 2015.
In November 2019, POSCO Energy spun-off its fuel cell business into a new
entity, Korea Fuel Cell Co., Ltd. ("KFC"). As part of the spin-off, POSCO Energy
transferred manufacturing and service rights under the License Agreements to
KFC, but retained distribution rights and severed its own liability under the
License Agreements. The Company formally objected to POSCO Energy's spin-off and
POSCO Energy posted a bond to secure any liabilities to the Company arising out
of the spin-off.
On February 19, 2020, the Company notified POSCO Energy in writing that it is in
material breach of the License Agreements by (i) its actions in connection with
the spin-off of the fuel cell business to KFC, (ii) its suspension of
performance through its cessation of all sales activities since late 2015 and
its abandonment of its fuel cell business in Asia, and (iii) its disclosure of
material nonpublic information to third parties and its public pronouncements
about the fuel cell business on television and in print media that have caused
reputational damage to the fuel cell business, the Company and its products. The
Company also notified POSCO Energy that, under the terms of the License
Agreements, it had 60 days to fully cure its breaches to the Company's
satisfaction and that failure would lead to termination of the License
Agreements. On March 27, 2020, the Company further notified POSCO Energy of
additional instances of its material breach of the License Agreements based on
POSCO Energy's failure to pay royalties required to be paid in connection with
certain module replacements.
On June 28, 2020, the Company notified POSCO Energy and KFC in writing that the
Company has terminated the License Agreements effective immediately. The Company
has demanded compliance with the obligations under the License Agreements to
return all Company confidential information and know-how and that POSCO Energy
and KFC not make any further use of the Company's technology. The Company has
advised POSCO Energy and KFC that it will separately advise them on how to
proceed, on a going-forward basis, with respect to POSCO Energy's and KFC's
obligations to service existing clients.
The terminated License Agreements include the Alliance Agreement dated February
7, 2007 (and all amendments thereto), the Technology Transfer, License and
Distribution Agreement dated February 7, 2007 (and all amendments thereto), the
Stack Technology Transfer and License Agreement dated October 27, 2009 (and all
amendments thereto), and the Cell Technology Transfer and License Agreement
dated October 31, 2012 (and all amendments thereto).
Item 8.01. Other Events.
On June 28, 2020, the Company filed a demand for arbitration against POSCO
Energy and KFC in the International Court of Arbitration of the International
Chamber of Commerce based on POSCO Energy's (i) failure to exercise commercially
reasonable efforts to sell the Company's technology in the Korean and Asian
markets, (ii) disclosure of the Company's proprietary information to third
parties, (iii) attack on the Company's stock price and (iv) spin-off of POSCO
Energy's fuel cell business into KFC without the Company's consent. The Company
has requested that the arbitral tribunal (i) confirm through declaration that
POSCO Energy's exclusive license to market the Company's technology and products
in Korea and Asia is null and void as a result of the breaches of the License
Agreements and that the Company has the right to pursue direct sales in these
markets, (ii) order POSCO Energy and KFC to compensate the Company for losses
and damages suffered in the amount of more than $200 million, and (iii) order
POSCO Energy and KFC to pay the Company's arbitration costs, including counsel
fees and expenses. The Company has reached an agreement in principle with a
litigation finance provider to fund the legal fees and expenses of the
arbitration.
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